7 TAC — Banking And Securities

Part 1 FINANCE COMMISSION OF TEXAS

Chapter 1 CONSUMER CREDIT REGULATION

Subchapter B INTERPRETATIONS AND ADVISORY LETTERS

7 Tex. Admin. Code § 1.201 Official Interpretations and Advisory Letters

(a) Definitions. The following words and terms, when used in this section, will have the following meanings, unless the context clearly indicates otherwise.

(1) Advisory letter--A letter by the commissioner or an OCCC employee providing an informal advisory response to a question concerning a provision of law. The term does not include:

(A) an official interpretation;

(B) an advisory bulletin addressed to a body of stakeholders;

(C) instructions for submitting required information to the OCCC (e.g., annual report instructions);

(D) a report or study provided to the Texas Legislature or the Finance Commission of Texas; or

(E) a letter sent in connection with an examination, investigation, license or registration application, complaint, or enforcement action.

(2) Agency or OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(3) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(4) Official interpretation--A letter issued by the commissioner and approved by the Finance Commission of Texas under Texas Finance Code, §14.108 interpreting a provision of Texas Finance Code, Title 4, Subtitle A or B in light of relevant facts provided by a requestor.

(b) Required information for official interpretation request. Any person may submit a request for an official interpretation. All requests must be directed to the commissioner and contain the following items:

(1) Statement requesting official interpretation. The requestor must state explicitly that an official interpretation approved by the Finance Commission of Texas is desired.

(2) Description of transaction, facts, and legal issues. The requestor must provide a concise description of the contemplated transaction or activity, the legal issue raised, and all facts necessary to reach a conclusion in the matter.

(3) Pending litigation. The requestor must state whether, to the best of the requestor's knowledge, the issue to be considered is an issue in pending litigation. Matters in litigation will ordinarily not be answered.

(4) Fee. The agency will charge a $500 fee for an official interpretation to compensate the agency for the expense involved in researching and answering the request. The requestor should submit the payment of $500 with the request. The agency may remit a partial or full refund if deemed appropriate. The agency may waive the fee.

(5) Additional information. The requestor should identify each provision of law involved, state the requestor's opinion of how the legal issues should be resolved, and state the basis for that opinion, including an analysis of any relevant court decisions or related official interpretations.

(c) Processing an official interpretation request. Within 10 business days of receiving a valid request under subsection (b), the agency will file the request with the Texas Register for publication. Within 31 calendar days of publication in the Texas Register, any person may submit briefs or proposals pertaining to the request.

(1) Official interpretation not issued. After publication of a valid request for an official interpretation, the agency may decline to issue an official interpretation. A summary of the agency's reasons for deciding not to issue an official interpretation will be published in the Texas Register.

(2) Approved official interpretation. If the agency drafts an official interpretation, then the agency will present the official interpretation to the Finance Commission of Texas for approval. If the Finance Commission approves the official interpretation, then within 10 business days of the approval, the agency will file a summary of the official interpretation with the Texas Register for publication. Copies of official interpretations will contain a statement of approval and the date of action by the Finance Commission.

(d) OCCC advisory letters. If the OCCC sends an advisory letter concerning a provision of Texas Finance Code, Title 4, Subtitle A or B, then the advisory letter will include the following statement: "This advisory letter is not an official interpretation approved by the Finance Commission of Texas. The requirements for requesting an official interpretation are in Title 7, Section 1.201(b) of the Texas Administrative Code."

History

• Source Note: The provisions of this §1.201 adopted to be effective September 5, 2002, 27 TexReg 8195; amended to be effective January 4, 2007, 31 TexReg 10756; amended to be effective September 6, 2012, 37 TexReg 6907; amended to be effective June 30, 2016, 41 TexReg 4635.

Chapter 2 RESIDENTIAL MORTGAGE LOAN ORIGINATORS REGULATED BY THE OFFICE OF CONSUMER CREDIT COMMISSIONER

Subchapter A APPLICATION PROCEDURES

7 Tex. Admin. Code § 2.101 Definitions

The following words and terms, when used in this chapter, have the following meanings unless the context clearly indicates otherwise:

(1) NMLS--The Nationwide Mortgage Licensing System and Registry with the same meaning as assigned by Texas Finance Code, §180.002.

(2) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(3) RMLO--A residential mortgage loan originator licensed with the OCCC under Texas Finance Code, Chapter 180.

History

• Source Note: The provisions of this §2.101 adopted to be effective May 6, 2010, 35 TexReg 3470; amended to be effective November 7, 2013, 38 TexReg 7681.

7 Tex. Admin. Code § 2.102 Registration with Nationwide Mortgage Licensing System and Registry

(a) Individuals. Individuals applying for a license with the OCCC and who, for actual or expected compensation or gain, take a residential mortgage loan application, or who offer or negotiate the terms of a residential mortgage loan, are required to register with NMLS, except for individuals engaged in authorized activity subject to the authority of a regulatory official under Texas Finance Code, §180.251(a).

(b) Withdrawal of application. If an application is not completed within 30 calendar days after notice of deficiency has been sent to the applicant, the application may be considered abandoned and will be withdrawn.

(c) Inactive status. The OCCC may issue a license in an inactive status if the applicant complies with all requirements of licensure and completes the required application except for the requirement of providing an employer. After the inactive RMLO has submitted an employer and the OCCC has verified that the employer is currently registered or licensed by the OCCC, the license may be changed to active status.

(d) Conditional status. The OCCC may issue a license on a conditional basis.

History

• Source Note: The provisions of this §2.102 adopted to be effective May 6, 2010, 35 TexReg 3470; amended to be effective November 7, 2013, 38 TexReg 7681; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 2.103 Fingerprint Submissions

Applicants are required to submit one legible set of fingerprints to NMLS for purposes of application with the OCCC to become an RMLO. The OCCC reserves the right to request additional sets of fingerprints to conduct state and international background checks.

History

• Source Note: The provisions of this §2.103 adopted to be effective May 6, 2010, 35 TexReg 3470; amended to be effective November 7, 2013, 38 TexReg 7681.

7 Tex. Admin. Code § 2.104 Application and Renewal Fees

(a) Required submission to NMLS. To become an RMLO, an OCCC applicant must submit the required fees to NMLS. A fee is required to be submitted at the time of application and at the time of renewal. All fees are nonrefundable and nontransferable. However, upon review of individual circumstances, the OCCC may refund or transfer the state fees.

(b) Fingerprint processing fees. Fingerprint processing fees must also be paid in the amount necessary to recover the costs of investigating the OCCC applicant's fingerprint record (amount required by third party).

(c) OCCC application and renewal fees. The Finance Commission of Texas sets the RMLO application fee at an amount not to exceed $200 and the RMLO annual renewal fee not to exceed $200 for applications filed with the OCCC. Annual renewal fees are due to NMLS by December 31 of each year. A third party operates NMLS and that third-party operator sets the amount of the required system fees. Applicants and RMLOs must pay all required application and renewal fees, fingerprint processing fees, and any additional amounts required by the third-party operator.

(d) OCCC reinstatement period and fee. The Finance Commission of Texas sets the RMLO reinstatement fee at $50 for applications filed with the OCCC. The reinstatement period for OCCC applicants runs from January 1 through the last day of February each year.

History

• Source Note: The provisions of this §2.104 adopted to be effective May 6, 2010, 35 TexReg 3470; amended to be effective September 6, 2012, 37 TexReg 6908; amended to be effective November 7, 2013, 38 TexReg 7681; amended to be effective March 12, 2015, 40 TexReg 1061; amended to be effective May 7, 2020, 45 TexReg 2827.

7 Tex. Admin. Code § 2.105 Recovery Fund Fees

Applicants and RMLOs applying for a license or renewal with the OCCC must pay a nonrefundable $25 recovery fund fee to the OCCC at the time of application and at the time of renewal.

History

• Source Note: The provisions of this §2.105 adopted to be effective May 6, 2010, 35 TexReg 3470; amended to be effective November 7, 2013, 38 TexReg 7681.

7 Tex. Admin. Code § 2.106 Denial, Suspension, or Revocation Based on Criminal History

(a) Criminal history record information. After an applicant submits a complete application to NMLS, including a set of fingerprints, and pays the fees required under §2.104 of this title (relating to Application and Renewal Fees), the OCCC will investigate the applicant. The OCCC will obtain criminal history record information through NMLS based on the applicant's fingerprint submission. The OCCC will continue to receive information on new criminal activity reported after the fingerprint information has been initially processed.

(b) Disclosure of criminal history by applicant. The applicant must disclose all criminal history information required to file a complete application with NMLS. Failure to provide any information required by NMLS or requested by the OCCC reflects negatively on the applicant's character and general fitness to hold a license. The OCCC may request additional criminal history information from the applicant, including the following:

(1) information about arrests, charges, indictments, and convictions;

(2) reliable documents or testimony necessary to make a determination under subsection (c) of this section, including letters of recommendation;

(3) proof that the applicant has maintained a record of steady employment, has supported the applicant's dependents, and has otherwise maintained a record of good conduct; and

(4) proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid.

(c) Crimes directly related to licensed occupation. The OCCC may deny a license application, or suspend or revoke a license, if the applicant or licensee has been convicted of an offense that directly relates to the duties and responsibilities of a licensed residential mortgage loan originator, as provided by Texas Occupations Code, §53.021(a)(1).

(1) Originating residential mortgage loans involves making representations to borrowers regarding the terms of the loan and collecting charges in a legal manner. Consequently, the following crimes are directly related to the duties and responsibilities of a licensee and may be grounds for denial, suspension, or revocation:

(A) theft;

(B) assault;

(C) any offense that involves the misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);

(D) any offense that involves breach of trust or other fiduciary duty;

(E) any criminal violation of a statute governing credit transactions or debt collection;

(F) failure to file a government report, filing a false government report, or tampering with a government record;

(G) any greater offense that includes an offense described in subparagraphs (A) - (F) of this paragraph as a lesser included offense; and

(H) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (G) of this paragraph.

(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a license, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a license to engage in the occupation;

(C) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved;

(D) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a licensee; and

(E) any correlation between the elements of the crime and the duties and responsibilities of the licensed occupation.

(3) If a criminal conviction directly relates to the duties and responsibilities of the license, the OCCC will consider the following factors in determining whether to deny a license application, or suspend or revoke a license, as specified in Texas Occupations Code, §53.023:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person before and after the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) evidence of the person's current circumstances relating to fitness to hold a license, which may include letters of recommendation.

(d) Crimes related to financial responsibility, character, or general fitness. The OCCC may deny a license application, or suspend or revoke a license, if the applicant or licensee has been convicted of an offense that relates to financial responsibility, character, or general fitness to hold a license, as provided by Texas Finance Code, §180.055(a)(3) and §180.201(2)(A). If the applicant or licensee has been convicted of an offense described by subsections (c)(1), (f)(1), or (f)(2) of this section, this reflects negatively on the applicant or licensee's character and fitness. The OCCC may deny a license application based on other criminal history of the applicant if, when the application is considered as a whole, the agency 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 applicant will operate lawfully and fairly. The OCCC will consider the factors identified in subsection (c)(2) - (3) of this section in its review of character and fitness.

(e) Revocation on imprisonment. A license will be revoked 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).

(f) Other grounds for denial, suspension, or revocation. The OCCC may deny a license application, or suspend or revoke a license, based on any other ground authorized by statute, including the following:

(1) a conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054, or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2)-(3);

(2) a conviction for, or plea of guilty or nolo contendere to, a felony during the preceding seven years or a felony involving an act of fraud, dishonesty, breach of trust, or money laundering, as provided by Texas Finance Code, §180.055(a)(2) and §180.201(2)(A);

(3) a material misstatement or failure to provide information in a license application, as provided by Texas Finance Code, §180.201(2); and

(4) any other information indicating that the financial responsibility, character, or general fitness of the applicant or licensee do not command the confidence of the public or do not warrant the determination that the applicant or licensee will operate honestly, fairly, and efficiently within the purposes of Texas Finance Code, Chapter 180 and other appropriate regulatory laws of this state, as provided by Texas Finance Code, §180.055(a)(3) and §180.201(2)(A).

History

• Source Note: The provisions of this §2.106 adopted to be effective September 10, 2015, 40 TexReg 5773; amended to be effective May 7, 2020, 45 TexReg 2827; amended to be effective July 14, 2022, 47 TexReg 3961.

7 Tex. Admin. Code § 2.107 Prelicensing Education

(a) Failing to obtain license. If an individual completes the 20 hours of prelicensing education required by the S.A.F.E. Mortgage Licensing Act, 12 U.S.C. §5104(c)(1), and fails to obtain a valid RMLO license or federal registration within five years from the date of completion, then the individual must retake the 20 hours of prelicensing education in order to be eligible for licensure.

(b) Failing to maintain license. If an individual obtains an RMLO license or federal registration and fails to maintain the license or registration for at least five consecutive years, then the individual must retake the 20 hours of prelicensing education required by the S.A.F.E. Mortgage Licensing Act, 12 U.S.C. §5104(c)(1), in order to be eligible for licensure.

History

• Source Note: The provisions of this §2.107 adopted to be effective January 4, 2018, 42 TexReg 7580.

7 Tex. Admin. Code § 2.108 Military Licensing

(a) Purpose. The purpose of this section is to specify residential mortgage loan originator licensing requirements for military service members, military veterans, and military spouses, in accordance with Texas Occupations Code, Chapter 55.

(b) Definitions. In this section:

(1) The terms "military service member," "military spouse," and "military veteran" have the meanings provided by Texas Occupations Code, §55.001.

(2) The term "in good standing" has the meaning provided by Texas Occupations Code, §55.0042.

(c) Late renewal. As provided by Texas Occupations Code, §55.002, an individual is exempt from any increased fee or other penalty for failing to renew a residential mortgage loan originator license in a timely manner, if the individual establishes to the satisfaction of the OCCC that the individual failed to renew the license in a timely manner because the individual was serving as a military service member.

(d) Expedited license procedure under Texas Occupations Code, §55.004 and §55.005.

(1) The expedited license procedure in this subsection applies to a qualifying applicant who is a military service member, military veteran, or military spouse, if the applicant:

(A) holds a current license in good standing in another state as a residential mortgage loan originator in accordance with the S.A.F.E. Mortgage Licensing Act, 12 U.S.C. §§5101-5117; or

(B) held a residential mortgage loan originator license in Texas within the five years preceding the application date.

(2) After the OCCC receives a complete license application from a qualifying applicant under Texas Occupations Code, §55.004 and this subsection, the OCCC will promptly issue a provisional license to the applicant or issue the license for which the applicant applies. A provisional license expires on the earlier of:

(A) the date the OCCC approves or denies the application; or

(B) the 180th day after the date the provisional license is issued.

(3) Not later than the 10th day after the OCCC receives a complete license application from a qualifying applicant under Texas Occupations Code, §55.004 and this subsection, the OCCC will process the application and either:

(A) approve the license application and issue a license to the applicant; or

(B) if the applicant does not meet the eligibility requirements for a license under Texas Finance Code, Chapter 180, deny the license application or send a notice of intent to deny the application.

(e) Recognition of out-of-state license for military service member or military spouse under Texas Occupations Code, §55.0041.

(1) As provided by Texas Occupations Code, §55.0041, a military service member or military spouse may engage in business as a residential mortgage loan originator if the member or spouse is currently licensed in good standing in another state as a residential mortgage loan originator in accordance with the S.A.F.E. Mortgage Licensing Act, 12 U.S.C. §§5101-5117.

(2) Before engaging in business in Texas, the military service member or military spouse must comply with the notification requirements described by Texas Occupations Code, §55.0041(b). If the member or spouse does not obtain a residential mortgage loan originator license in Texas, then the member or spouse is limited to the time period described by Texas Occupations Code, §55.0041(d)-(d-1).

(3) After the OCCC receives the information required by Texas Occupations Code, §55.0041(b) from a qualifying applicant, the OCCC will promptly send a notification under subsection (e)(4) of this section or issue a provisional license to the applicant. A provisional license expires on the earlier of:

(A) the date the OCCC sends a notification under subsection (e)(4) of this section; or

(B) the 180th day after the date the provisional license is issued.

(4) Not later than the 10th business day after the date the OCCC receives the information required by Texas Occupations Code, §55.0041(b) from a qualifying applicant, the OCCC will notify the applicant that:

(A) the OCCC recognizes the applicant's out-of-state license;

(B) the application is incomplete; or

(C) the OCCC is unable to recognize the applicant's out-of-state license because the OCCC does not issue a license similar in scope of practice to the applicant's license.

(5) For purposes of this subsection and Texas Occupations Code, §55.0041, a residential mortgage loan originator license issued in another state is similar in scope of practice to a Texas residential mortgage loan originator license if it is issued in accordance with the S.A.F.E. Mortgage Licensing Act, 12 U.S.C. §§5101-5117. The OCCC will verify a license issued in another state through NMLS.

(f) Credit toward licensing requirements. As provided by Texas Occupations Code, §55.007, with respect to an applicant who is a military service member or military veteran, the OCCC will credit verified military service, training, or education toward the licensing requirements, other than an examination requirement, for a residential mortgage loan originator license, by considering the service, training, or education as part of the applicant's employment history.

History

• Source Note: The provisions of this §2.108 adopted to be effective November 7, 2019, 44 TexReg 6519; amended to be effective November 16, 2023, 48 TexReg 6583; amended to be effective November 13, 2025, 50 TexReg 7233.

Subchapter B OPERATIONAL REQUIREMENTS

7 Tex. Admin. Code § 2.201 License Term, Renewal, and Expiration

(a) License term. A new residential mortgage loan originator license is effective from the date of its issuance until December 31. A license must be renewed annually in order to remain effective. After renewal, a license is effective for a term of one year, from January 1 to December 31.

(b) Requirements. A license may be renewed if:

(1) the RMLO submits a completed application for renewal through the NMLS together with the payment of the applicable renewal application fee;

(2) the OCCC determines that the RMLO continues to meet the minimum requirements for license issuance, including financial responsibility, character, and general fitness, as provided in Texas Finance Code, §180.055, and subsection (g) of this section; and

(3) the RMLO provides satisfactory evidence that the RMLO has completed the continuing education requirements of Texas Finance Code, §180.060.

(c) Due date for annual fees. Annual renewal fees are due by December 31 of each year.

(d) Expiration. A residential mortgage loan originator license expires on December 31 if the annual renewal fee has not been paid by December 31. After expiration, a license may be reinstated during the period from January 1 through the last day of February.

(e) Rejection of renewal. Renewal of a license may be rejected for reasons provided in Texas Finance Code, §180.201.

(f) Additional information. The OCCC may require additional, clarifying, or supplemental information from any applicant for the renewal of a license pursuant to Texas Finance Code, Chapter 180 in order to determine compliance with the law.

(g) Additional background checks. After initial issuance of a license, the OCCC may require additional criminal and credit background checks in order to determine an RMLO's continuing compliance with the law.

History

• Source Note: The provisions of this §2.201 adopted to be effective November 7, 2013, 38 TexReg 7681; amended to be effective September 5, 2019, 44 TexReg 4706.

7 Tex. Admin. Code § 2.202 Maintaining Current Information

(a) Requirement to maintain current information. An RMLO must maintain current information with NMLS. If any of the following items change, an RMLO must notify the OCCC by filing a license amendment through NMLS within 30 calendar days after the RMLO has knowledge of the change:

(1) address;

(2) name; or

(3) employer.

(b) Best practice. It is a best practice for RMLOs to regularly review contact information on file with the OCCC to ensure that it is current and correct.

History

• Source Note: The provisions of this §2.202 adopted to be effective November 7, 2013, 38 TexReg 7681; amended to be effective July 14, 2022, 47 TexReg 3961.

Chapter 3 STATE BANK REGULATION

Subchapter A SECURITIES ACTIVITIES AND SUBSIDIARIES

7 Tex. Admin. Code § 3.1 Private Placement of Securities

A state-chartered bank may engage in private placement transactions by acting as broker and bringing together buyers and sellers of privately placed instruments. The term "private placement transactions" means:

(1) making recommendations regarding the terms and timing of the transaction;

(2) assisting in the preparation of the financing documents;

(3) contacting potential institutional investors;

(4) arranging meetings between the issuer and potential investors; and

(5) assisting in subsequent negotiations involving these parties.

History

• Source Note: The provisions of this §3.1 adopted to be effective August 19, 1985, 10 TexReg 2542; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.2 Investment and Financial Advisory Services

A state-chartered bank may provide investment and financial advisory services including professional asset management services and services as an adviser in connection with mergers, acquisitions, and divestitures. A state bank may also serve as a dealer-manager in connection with tender offers.

History

• Source Note: The provisions of this §3.2 adopted to be effective August 19, 1985, 10 TexReg 2542.

7 Tex. Admin. Code § 3.3 Securities Activities of Subsidiaries of State Banks

(a) Securities activities permitted. Pursuant to Finance Code, §34.103(c), a state bank may establish or acquire a subsidiary that engages in securities activities; provided, however, that said subsidiary shall comply with all rules and regulations of the Securities and Exchange Commission and the State Securities Board applicable to registered brokers-dealers and investment advisors. The term "securities activities" means issuing, underwriting, selling, or distributing, or acting as agent or advisor in the issuing, underwriting, selling, or distributing of stocks, bonds, debentures, notes, or other securities.

(b) Capitalization. Any subsidiary engaged in securities activities pursuant to this regulation must comply with any applicable state and federal capital requirements including, but not limited to, those imposed by the Securities and Exchange Commission, the State Securities Board, or the National Association of Securities Dealers.

(c) Limitations. A state bank may not purchase, in its discretion as fiduciary or managing agent, any security underwritten, distributed, or issued by the bank's securities subsidiary or any security issued by an investment company advised by the subsidiary unless authorized by applicable law.

(d) Notice. A state bank must, before or at the time of submitting a letter to the banking commissioner regarding a new subsidiary or new subsidiary activity as required by Finance Code, §34.103(e), submit to the banking commissioner any related filing or application made with the Federal Deposit Insurance Corporation or with a Federal Reserve Bank, including filings required under the provisions of 12 CFR Part 208 or Part 362, or any successor regulation.

History

• Source Note: The provisions of this §3.3 adopted to be effective August 19, 1985, 10 TexReg 2542; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.4 Foreign Banking

(a) Any state-chartered bank that is well-capitalized as defined by Section 38, Federal Deposit Insurance Act, 12 U.S.C. §1831o, may file an application with the banking commissioner for permission to exercise, upon such conditions as may be prescribed by the banking commissioner, the following powers:

(1) to establish branches in foreign countries of dependencies or insular possessions of the United States for the furtherance of foreign commerce and to act as fiscal agent for any governmental entity;

(2) to invest an amount not exceeding in the aggregate 10% of its paid-in capital stock and surplus in the stock of one or more banks or corporations chartered or incorporated under the laws of the United State or of any state thereof, and principally engaged in international or foreign banking, or banking in a dependency or insular possession of the United States either directly or indirectly; and

(3) to require and hold, directly or indirectly, stock or other evidences of ownership in one or more banks organized under the law of a foreign country or a dependency or insular possession of the United States and not engaged, directly or indirectly, in any activity in the United States except as, in the judgment of the banking commissioner, shall be incidental to the international or foreign business of such foreign bank; and to make loans or extensions of credit to or for the account of such bank in a manner and within limits prescribed by the banking commissioner.

(b) Such application shall specify the name and capital of the state bank filing it, the powers applied for, and the place or places where the banking or financial operations proposed are to be carried on. The banking commissioner shall have the power to approve or reject such application in whole or in part and shall also have the power from time to time to increase or decrease the number of places where such banking operations may be carried on.

(c) The investment limitation of Finance Code, §34.103(b), does not apply to an investment made pursuant to this section. The banking commissioner may approve any activity or investment authorized by this section subject to such restrictions as the banking commissioner deems advisable and consistent with safe and sound banking practices, and may require any investment pursuant to subsection (2) or (3) of this section to constitute a majority interest in the voting securities of the bank or corporation acquired.

History

• Source Note: The provisions of this §3.4 adopted to be effective August 19, 1985, 10 TexReg 2543; amended to be effective July 13, 1994, 19 TexReg 5035; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective September 8, 2022, 47 TxReg 5328.

7 Tex. Admin. Code § 3.5 Financial Valuation and Advisory Services

A state-chartered bank may provide financial valuation and advisory services to its depositors or clients. The term "financial valuation and advisory services" means:

(1) the valuation of a company for purposes of acquisitions, mergers, and divestitures;

(2) fairness opinions in connection with tender offers, consolidations, or mergers;

(3) advice for management or for a bankruptcy court about the viability and capital adequacy of financially troubled companies and about the fairness of proposed bankruptcy reorganizations;

(4) valuation opinions for transactions in publicly held securities;

(5) valuations of the fair market value of employee stock ownership trusts;

(6) periodic valuation of stock of privately owned companies held in pension or profit-sharing plans, charitable trusts, or venture capital funds;

(7) valuation of a privately owned company, or of a large block of publicly owned securities;

(8) valuations, for estate tax and estate planning purposes, of a company's common stock and other securities for recapitalization of a privately held company; and

(9) expert witness testimony in support of valuations.

History

• Source Note: The provisions of this §3.5 adopted to be effective August 19, 1985, 10 TexReg 2543.

Subchapter B GENERAL

7 Tex. Admin. Code § 3.21 Bank Call Reports

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise.

(1) Call report--A report of condition and income in FFIEC form as required by 12 U.S.C. §1817, or a report of financial condition and results of operations of a state bank as mandated by the banking commissioner pursuant to the Finance Code, §31.108.

(2) FDIA--The Federal Deposit Insurance Act, 12 U.S.C. §1811 et seq.

(3) FDIC--The Federal Deposit Insurance Corporation.

(4) FFIEC--The Federal Financial Institutions Examination Council.

(5) State bank--A bank as defined by the Finance Code, §31.002(a)(50).

(b) Reporting requirements of FDIA regulated state banks. Each state bank which is subject to regulation under FDIA will be considered to have filed a copy of its call report with the banking commissioner if the state bank has filed its call report pursuant to FDIA and FFIEC guidelines and requirements.

(c) Reporting requirements for non-FDIA regulated entities. Each state bank not subject to subsection (b) of this section shall file four call reports annually with the banking commissioner. Such call reports must be filed with the banking commissioner no later than April 30, July 31, and October 31 of each year and by January 31 of the subsequent year, and shall be for the periods ending on March 31, June 30, September 30, and December 31, respectively, of the annual reporting year. The call reports required under this subsection must be in substantially the same form and contain substantially the same information as call reports filed by FDIA-regulated state banks in accordance with FDIA and FFIEC requirements pursuant to subsection (b) of this section. The call report forms, the instructions for completing the reports and the accompanying materials will be furnished to all state banks subject to this subsection, or may be obtained upon request from the Bank and Trust Division, Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294. The banking commissioner may make such modifications and additions to call report form and contents under this subsection as considered necessary in the discretionary discharge of the banking commissioner's duties, notwithstanding FDIA and FFIEC guidelines and requirements.

(d) Special call reports. In addition to the requirements of subsections (b) and (c) of this section, the banking commissioner may require a state bank to file and submit a special call report, in such form and manner and containing such information as may be requested, on dates fixed, whenever in the banking commissioner's discretion the special call report is necessary in the performance of the banking commissioner's supervisory duties related to the safety and soundness of the state bank. Special call reports must contain only such information as is specifically requested by the banking commissioner.

(e) Call report declarations and attestations. Each call report or special call report required to be filed under subsections (c) and (d) of this section must contain a declaration by the president, a vice president, the cashier, or by another officer designated by the board of directors of the state bank to make such declaration, that the report is true and correct to the best of such individual's knowledge and belief. The correctness of the call report or special call report must also be attested by the signatures of at least two of the directors of the state bank other than the officer making the declaration. The declaration of the directors must state that the call report or special call report has been examined by them and is true and correct to the best of their knowledge and belief.

(f) Publication. Each state bank which is subject to regulation under FDIA will be considered to have publicly posted its call report if it has filed its call report pursuant to subsection (b) of this section. A state bank must publicly post or publish its call report in a newspaper or other media of general circulation if specifically directed to do so by the banking commissioner.

(g) Confidentiality. Pursuant to the Finance Code, §31.301, call reports filed under subsections (b) or (c) of this section are public information to the extent that such reports are considered public records under the FDIA, implementing federal regulations, and FFIEC guidelines, and may be published or otherwise disclosed to the public. Special call reports filed pursuant to subsection (d) of this section and non-public portions of call reports filed pursuant to subsections (b) or (c) of this section are confidential, subject only to such disclosure as may be permitted by the Finance Code, §§31.302 - 31.308, or by §3.111 of this title (relating to Confidential Information).

(h) Penalties for failure to file or for filing a report with false or misleading information. A state bank which fails to make, file, or submit a call report or a special call report or fails to timely file a call report or special call report as required by this section is subject to a penalty not exceeding $500 a day to be collected by the attorney general on behalf of the banking commissioner. Any state bank which makes, files, submits or publishes a false or misleading call report or special call report is subject to an enforcement action pursuant to the Finance Code, Chapter 35.

History

• Source Note: The provisions of this §3.21 adopted to be effective May 17, 1996, 21 TexReg 3930; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.22 Sale or Lease Agreements with an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank

(a) Agreement in writing. A sale or lease agreement between a state bank and an officer, director, or principal shareholder of the bank or of an affiliate of the bank must be in writing. Existing verbal agreements must be reduced to writing and approved by the board.

(b) Terms of agreement. A sale or lease agreement between a state bank and an officer, director, or principal shareholder of the bank or of an affiliate of the bank must comply with applicable laws and regulations, be consistent with prudent and sound banking principles, and have terms and rates that are substantially equivalent to or more favorable to the bank than those prevailing at the time for comparable transactions with or involving nonaffiliated parties.

(c) Board action. All proposed transactions subject to Finance Code, §33.109, must be considered and voted upon by the board. Under Finance Code, §33.109(a), without the prior approval of a disinterested majority of the board, or the transaction at issue must be submitted for prior approval of the banking commissioner. For purposes of this section, approval of a disinterested majority of the board is obtained in the manner specified by the Texas Business Organizations Code, §21.418, with respect to a banking association, or §101.255, with respect to a limited banking association.

(d) Application for approval. If a sale or lease agreement requires the written approval of the banking commissioner prior to consummating, renewing, or extending a sale or lease agreement, a written request for approval must be submitted to the banking commissioner at least 60 days prior to the proposed effective date of the sale or lease agreement and must include the following information:

(1) a copy of the proposed sale or lease agreement;

(2) a complete description of the personal or real property to be sold or leased;

(3) a full disclosure of all existing transactions and/or relationships, whether direct or indirect, between the state bank and the parties involved;

(4) in the case of a lease agreement involving real property, a copy of the minutes of the board meeting reflecting an analysis of the information contained in this subsection;

(5) a certified copy of a board resolution approving the transaction and indicating those directors voting or abstaining, as the case may be, and either:

(A) evidence that the transaction received the approval of a disinterested majority of the board; or

(B) a statement explaining the reasons the approval of a disinterested majority of the board could not be obtained;

(6) copies of appropriate supporting documentation, including analysis of comparable terms and rates for the real or personal property to be sold or leased;

(7) in the case of a lease agreement, evidence demonstrating that the state bank will account for the lease in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases; and

(8) other information which the banking commissioner may request.

(e) Records. A state bank shall maintain the originals of all sale or lease agreements with an officer, director, or principal shareholder of the bank or of an affiliate of the bank, which documents must be made available at all times to the Texas Department of Banking for examination and review. For purposes of this subsection, required documentation need not be retained beyond three years after the expiration of the sale or lease agreement to which the documentation pertains.

(f) Exemption. Finance Code, §33.109, and this section do not apply to a transaction subject to and in compliance with the Federal Reserve Act, §23A and §23B (12 U.S.C. §371c and §371c-1), and implementing regulations, applicable to nonmember insured state banks by virtue of the Federal Deposit Insurance Act, §18(j)(1) (12 U.S.C. §1828(j)(1)).

History

• Source Note: The provisions of this §3.22 adopted to be effective November 22, 1996, 21 TexReg 11097; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective May 10, 2007, 32 TexReg 2463; amended to be effective November 4, 2010, 35 TexReg 9694; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.23 Exercise of Trust Powers

(a) As used in this section, "trust services" mean services provided to the public as a fiduciary for hire or compensation, to hold or administer accounts established through a customer relationship involving the transfer of title to funds or property to the bank, including a fiduciary relationship in which the bank acts as trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar of stocks and bonds, mortgage or indenture trustee, escrow agent, transfer agent, or investment advisor, except that "trust services" do not include customer services in which:

(1) the bank's duties as trustee or custodian are essentially custodial or ministerial in nature; and

(2) the bank may only invest customer funds:

(A) in its own time or savings deposits; or

(B) in other assets at the explicit direction of the customer, provided the bank does not exercise any investment discretion or provide any investment advice with respect to such other assets.

(b) A state bank that does not currently provide trust services and has not provided trust services for a period in excess of one year may not begin offering or providing trust services except upon compliance with this section and with any requirements imposed by the bank's primary federal regulator.

(c) A state bank described in subsection (b) of this section that intends to offer and provide trust services shall submit a notice to the banking commissioner describing the proposed trust services and the anticipated date for initiation of such services. In addition, the bank must submit:

(1) the bank's proposed business plan for providing trust services, including the policies and procedures the bank will employ to manage its fiduciary risk;

(2) sufficient biographical information on proposed trust management personnel to enable the banking commissioner to assess their qualifications;

(3) a description of the locations where the bank proposes to offer trust services and the manner in which such services will be provided at each location, including the extent to which fiduciary authority is proposed to be delegated to personnel at such location;

(4) if the bank's certificate of formation does not authorize the bank to exercise the trust powers necessary to provide the proposed trust services, an application for amendment of its certificate of formation pursuant to Finance Code, §32.101, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees); and

(5) a copy of any filings made with the bank's primary federal regulator providing notice or seeking approval to offer trust services.

(d) Provided the bank's certificate of formation authorizes the bank to exercise trust powers sufficient to provide the proposed trust services, and subject to any conditions imposed by the banking commissioner and any required approval of the bank's primary federal regulator, the bank may begin offering and providing trust services on the 31st day after the date the banking commissioner receives the bank's notice under subsection (c) of this section unless the banking commissioner specifies an earlier or later date. The banking commissioner may extend the 30-day period on a determination that the bank's notice raises issues that require additional information or additional time for analysis. If the period is extended, or if the bank is amending its certificate of formation to authorize trust powers, the bank may not offer or provide trust services until it has received written approval of the banking commissioner.

History

• Source Note: The provisions of this §3.23 adopted to be effective May 7, 2015, 40 TexReg 2409; amended to be effective July 5, 2018, 43 TexReg 4451.

7 Tex. Admin. Code § 3.24 Notice of Computer-Security Incident

A state bank shall notify the banking commissioner and submit the information required by 12 CFR Part 225, Subpart N, or Part 304, Subpart C, as applicable, or any successor regulation, regarding a computer-security incident that qualifies under such regulations as a notification incident, no later than the time the information is required to be submitted to the applicable federal regulatory agency.

History

• Source Note: The provisions of this §3.24 adopted to be effective January 2, 2020, 44 TexReg 8227; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.34 Posting of Notice in All Financial Institutions Regarding Requirements for Certain Loan Agreements To Be in Writing

(a) Pursuant to the Business and Commerce Code, §26.02, all financial institutions must conspicuously post notices informing borrowers of the requirements that certain loan agreements be in writing. Additionally, the finance commission is required to prescribe the language to be used in the notice. This section provides the language for the notice and clarifies the manner and location of the notice within the financial institutions so as to fully inform borrowers of the requirements.

(b) Each financial institution shall post in the public lobby of each of its offices other than off-premises electronic deposit facilities, the public notice set forth in this subsection.

Attached Graphic

(c) The finance commission shall provide the preceding notice in dimensions and print which it determines is appropriate to fully inform borrowers of the requirements of the Business and Commerce Code, §26.02.

History

• Source Note: The provisions of this §3.34 adopted to be effective February 14, 1990, 15 TexReg 485; amended to be effective March 9, 2006, 31 TexReg 1643.

7 Tex. Admin. Code § 3.35 Safe Deposit Box Facilities

(a) Purpose. The Finance Code, §59.110, requires financial institutions to imprint keys issued to safe deposit boxes after September 1, 1992, with the financial institution's routing number. In addition, it requires a report to the Department of Public Safety if the routing number is altered or defaced so that the correct routing number is illegible. This section clarifies the requirements of this section.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Financial institution--A bank, savings and loan association, savings bank, or other financial institution that has been assigned a routing number unique to that institution.

(2) Routing number--The number printed on the face of a check in fractional form or in nine-digit form that identifies a paying financial institution.

(c) Imprinting requirements. A financial institution which has been issued a routing number shall imprint that routing number on safe deposit box keys on either the head of the key or the shank of the key if there is adequate room. The typical locations to be used are indicated in the following instructions and diagram. The imprint can be made anywhere on the key that has the required space available. It can be either on the head or on the shank of the key. When positioning the die on the key, be careful to place the die on the key where it will imprint on a flat surface and not in the area of the key cuts or on any of the shank ridges or grooves. Imprinting in these areas may interfere with the proper working of the key in the lock and may cause damage. In the event these standard areas for the location of the imprint are unavailable, either because of grooves on the key shank or the fact that the head of the key already has names and other numbers imprinted on it, then the financial institution may attach to the key a tag imprinted with the routing number. The tag used must be of such a nature as to be secure. Thus, a paper or cardboard tag or a tag affixed with string will not be acceptable. However, any other medium such as plastic or metal which can retain an imprint of a number shall be acceptable. The tag may be attached in any way to assure its affixation to the key. Typically, this will mean inserting the tag or a device to affix the tag through the hole in the head of the key normally used for placing keys on key chains. The tag method shall not be used if there is adequate room on the key itself for imprinting of the numbers. There are four standard areas for the location of the imprinted routing number. These include: the head of the key, the shank of the key, and either place on the reverse side of the key. The standard imprint areas are shown below:

Attached Graphic

(d) Branch designation. A financial institution may, but is not required to, add a three-digit branch designation to its routing number. Thus, the main financial institution facility should receive the designation "001" and branch facilities should receive numbers consecutively beginning with "002" with successive numbers as needed. However, the financial institution may control the branch numbering system used provided that the financial institution must maintain a master list of branch designations used for this purpose. The master list should be maintained at the main office of the financial institution and shall include the following information: three-digit branch designation and address of facility. The financial institution then may imprint safe deposit box keys or tags with the routing number plus three-digit branch designation for full identification of the facility.

(e) Report of defaced or altered key. Within 10 days after an officer or employee of a financial institution observes that a key used to access a safe deposit box has had the routing number altered or defaced or the tag removed, a report shall be prepared of such incident. The report shall be on a form promulgated by the department in the form of the attached exhibit. The report should be submitted to the Department of Public Safety, Attention: Criminal Law Enforcement, Box 4087, Austin, Texas 78773-0001. The report should be mailed no later than 10 days after the incident. The financial institution should retain one copy of the incident report for a period of three years. Nothing in this section nor in the Finance Code, §59.110, shall require a financial institution to inspect routing numbers imprinted on a key or an attached tag to determine if the number has been altered or defaced.

Attached Graphic

(f) Applicability to Existing Keys. A financial institution must imprint all safe deposit box keys issued on or after September 1, 1992. Additionally, the imprinting requirement applies to all keys issued prior to September 1, 1992. However, keys for boxes rented prior to September 1, 1992, need not be imprinted with the routing number unless and until a customer presents a safe deposit box key at a financial institution for access to a box. Nothing in this section or the Finance Code, §59.110, shall be construed to require a financial institution to provide notice to its safe deposit box customers or to otherwise require such customers to present their keys for imprinting. However, on the first date after September 1, 1992, that a customer presents a key which has not been imprinted, the financial institution shall imprint the key with the routing number as required by the Finance Code, §59.110.

(g) Effect of change in routing number. In the event a financial institution's routing number is changed as a result of a merger, acquisition, or other change, safe deposit box keys need not be replaced with a new routing number provided that the financial institution maintain a master list of the routing numbers used to imprint keys.

History

• Source Note: The provisions of this §3.35 adopted to be effective September 18, 1992, 17 TexReg 6097; amended to be effective May 17, 1996, 21 TexReg 3932; amended to be effective March 9, 2006, 31 TexReg 1643.

7 Tex. Admin. Code § 3.36 Annual Assessments and Specialty Examination Fees

(a) Authority. The assessment schedule contained in this section is made under the authority contained in the Finance Code, §31.003(a)(4) and §204.003(b).

(b) Definitions. The following words and terms, when used in this section, §3.37 of this title (relating to Calculation of Annual Assessment for Banks), or §3.38 of this title (relating to Calculation of Annual Assessment for Foreign Bank Branches and Agencies), shall have the following meanings, unless the context clearly indicates otherwise.

(1) Assessable assets--The sum of on-book assets and average off-book assets of a bank, foreign bank branch, or foreign bank agency.

(2) Average off-book assets--The average of the off-balance sheet items reported by a bank, foreign bank branch, or foreign bank agency in its most recent March 31st call report and the three immediately preceding call reports, as adjusted under subsection (c) of this section.

(3) Call report--The FFIEC quarterly, consolidated report of condition and income (including domestic and foreign subsidiaries) prepared and filed by a bank, foreign bank branch, or foreign bank agency under state and federal law.

(4) CAMELS composite rating--A bank's composite rating under the Uniform Financial Institutions Rating System (UFIRS), as described more fully in Supervisory Memorandum 1001, assigned by the department to a state bank in connection with its most recent examination by the department or by a federal bank regulatory agency.

(5) FFIEC--The Federal Financial Institutions Examination Council.

(6) On-book assets--The total assets reported by a bank, foreign bank branch, or foreign bank agency on the balance sheet contained in its most recent March 31st call report, minus the outstanding balance of PPP loans included on "Schedule RC-M - Memoranda."

(7) PPP--The Paycheck Protection Program administered by the Small Business Administration.

(c) Calculation of average off-book assets. As a component of assessable assets, a bank, foreign bank branch, or foreign bank agency must calculate a four-quarter average of off-book assets specifically as instructed in the assessment form applicable to the institution, using the most recent March 31st call report and the three preceding call reports. In general, the bank, foreign bank branch, or foreign bank agency must sum all line items for which values are included on "Schedule RC-L-Off-Balance Sheet Items," which could result in assets of the institution, with the exception of:

(1) Amount of financial standby letter of credit conveyed to others;

(2) Amount of performance standby letter of credit conveyed to others;

(3) Participations in acceptances conveyed to others by the reporting bank, foreign bank branch, or foreign bank agency; and

(4) All line items related to derivative products as identified by the department.

(d) Annual assessment. Effective September 1 of each year, the department will establish the annual assessment for each bank, foreign bank branch, and foreign bank agency under subsections (f) and (g) of this section.

(1) The assessment for a bank is based on its assessable assets and calculated in the manner described in §3.37 of this title. Upon receipt of written notice from the department, the bank must pay the assessment to the department in quarterly installments by electronic payment/ACH debited effective September 15, December 15, March 15, and June 15 of each year, or by another method if directed to do so by the department.

(2) The assessment for a foreign bank branch or a foreign bank agency is based on its assessable assets and calculated in the manner described in §3.38 of this title. Upon receipt of a written invoice from the department, the foreign bank branch or foreign bank agency must pay the assessment to the department in quarterly installments, due on or before September 15, December 15, March 15, and June 15 of each year, or by another method if directed to do so by the department.

(3) A foreign bank representative office shall pay an annual assessment fee of $2,500 to cover the cost of examinations and all associated expenses unless the foreign bank also maintains a foreign bank branch or foreign bank agency in this state subject to assessment under paragraph (2) of this subsection. Upon receipt of a written invoice from the department, each foreign bank representative office to which this paragraph applies must pay its annual assessment to the department in a single installment, due on or before September 15 of each year. The department may require each foreign bank representative office to pay the annual assessment fee through electronic funds transfer.

(e) Review of assessment factors. The department will review all appropriations, revenue sources, expenditure patterns, and other revenues and costs related to examination and supervision of banks, foreign bank branches, foreign bank agencies, and present to the finance commission no less frequently than once each biennium such information and a calculation chart that sets forth the annual assessment factors.

(f) Interim adjustments.

(1) If the size, condition, or other characteristics of a bank, foreign bank branch or foreign bank agency change sufficiently during a year to cause the institution to fall into a different assessable asset group or to be subject to a new or different surcharge based on a change in the institution's CAMELS composite rating, the department will adjust the annual assessment to the appropriate amount beginning with the first billed quarterly installment after the change.

(2) In the event of an acquisition or merger involving a surviving state bank, foreign bank branch, or foreign bank agency, the department will adjust the annual assessment to reflect the result of the acquisition or merger beginning with the first billed quarterly installment after the consummation of the transaction. The asset group will be calculated on the basis of the combined assessable assets of the surviving institution.

(3) A financial institution that becomes subject to this section during a fiscal year as a result of conversion, merger, branching, or other change during a fiscal year must pay to the department an assessment beginning in the quarter of the conversion, merger, or other change to reflect only the quarter or quarters of the year in which the institution is subject to this section.

(4) Each bank, foreign bank branch, and foreign bank agency must pay to the department the full quarterly installment of the assessment for the next three-month period on the due date of the installment without proration for any reason.

(g) Adjustment of an installment. The banking commissioner may, after review and consideration of actual and projected revenues and expenditures in the current fiscal year, lower the aggregate amount of an installment and bill each institution subject to assessment a proportionally lower amount, without the prior approval of the finance commission.

(h) Specialty examination fees.

(1) Examinations of fiduciary activities and other special examinations and investigations, including but not limited to examinations of bank holding companies, interstate branches of state banks in Texas as host state, affiliates, and third-party contractors, are subject to a separate charge to cover the cost of time and expenses incurred in these examinations.

(2) The fee for an examination under this subsection will be calculated at a rate not to exceed $110 per examiner hour, to recoup the salary expense of examiners plus a proportionate share of department overhead allocable to the examination function. The banking commissioner in the exercise of discretion may lower the rate in connection with a specific examination or investigation for equitable reasons, without the prior approval of the finance commission.

(3) In connection with an examination under this subsection, the regulated entity or other legally responsible party shall pay to the department the examination fee set forth in paragraph (2) of this subsection, and shall also pay to the department an amount for actual travel expenses incurred by the examiners, including mileage, public transportation, food, and lodging.

(i) Special assessments. The finance commission may approve a special assessment to cover material expenditures, such as major facility repairs and improvements and other extraordinary expenses.

History

• Source Note: The provisions of this §3.36 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective March 21, 1997, 22 TexReg 2608; amended to be effective September 9, 1999, 24 TexReg 6969; amended to be effective September 4, 2003, 28 TexReg 7347; amended to be effective January 2, 2014, 38 TexReg 9481; amended to be effective November 5, 2015, 40 TexReg 7620; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective July 11, 2021, 46 TexReg 4023.

7 Tex. Admin. Code § 3.37 Calculation of Annual Assessment for Banks

(a) Bank assessment calculation table. The annual assessment for a state bank is calculated as described in this section and paid as provided by §3.36 of this title (relating to Annual Assessments and Specialty Examination Fees), based on the values in the following table, as such values may be periodically adjusted in the manner provided by subsection (b) of this section. Certain terms used in this section and in the following table are defined in §3.36(b).

Attached Graphic

(b) Adjustments for inflation. In this section, "GDPIPD" means the Gross Domestic Product Implicit Price Deflator, published quarterly by the Bureau of Economic Analysis, United States Department of Commerce. The "annual GDPIPD factor" is equal to the percentage change in the GDPIPD index values published for the first quarter of the current year compared to the first quarter of the previous year (the March-to-March period immediately preceding the calculation date), rounded to a hundredth of a percent (two decimal places).

(1) Each September 1, the table in subsection (a) of this section, as most recently revised before such date pursuant to this subsection, may be revised as follows:

(A) each marginal assessment factor listed in Step 3 of the table is increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to six decimal places;

(B) the base assessment amount listed in Step 4 for assessable asset group 1 is increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to whole dollars; and

(C) each base assessment amount listed in Step 4 for assessable asset groups 2 through 14 is adjusted to an amount equal to the maximum annual assessment possible for the next lower assessable asset group (without surcharge), rounded to whole dollars. For example, the base assessment amount for assessable asset group 2 is equal to the annual assessment (without surcharge) calculated under assessable asset group 1 for a bank with exactly $10 million in assessable assets.

(2) If the table in subsection (a) of this section is revised for inflation (or deflation), then not later than August 1 of each year, the department shall calculate and prepare a revised table reflecting the inflation-adjusted values to be applied effective the following September 1, and shall provide each state bank with notice of and access to the revised table. At least once every four years, the department shall propose amendments to this section for the purpose of substituting a current revised table

History

• Source Note: The provisions of this §3.37 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective September 9, 1999, 24 TexReg 6969; amended to be effective July 11, 2002, 27 TexReg 5961; amended to be effective September 4, 2003, 28 TexReg 7347; amended to be effective July 5, 2007, 32 TexReg 3977; amended to be effective January 3, 2008, 32 TexReg 9939; amended to be effective November 5, 2015, 40 TexReg 7620; amended to be effective January 5, 2017, 41 TexReg 10561; amended to be effective December 31, 2020, 45 TexReg 9413; amended to be effective September 8, 2022, 47 TexReg 5328; amended to be effective March 9, 2023, 48 TexReg 1291.

7 Tex. Admin. Code § 3.38 Calculation of Annual Assessment for Foreign Bank Branches or Agencies

The annual assessment for a foreign bank branch or agency is calculated as described in §3.36 of this title (relating to Annual Assessments and Specialty Examination Fees), based on the values in the following table:

Attached Graphic

History

• Source Note: The provisions of this §3.38 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective September 9, 1999, 24 TexReg 6969.

Subchapter C FOREIGN BANK BRANCHES, AGENCIES AND REPRESENTATIVE OFFICES

7 Tex. Admin. Code § 3.40 Definitions

The following words and terms, when used in this subchapter, have the following meanings unless the context clearly indicates otherwise:

(1) Foreign bank branch or Texas branch--A Texas state branch proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

(2) Foreign bank agency or Texas agency--A Texas state agency proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

(3) Foreign bank representative office or Texas representative office--A Texas representative office proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

History

• Source Note: The provisions of this §3.40 adopted to be effective March 9, 2006, 31 TexReg 1643.

7 Tex. Admin. Code § 3.41 Applications, Notices and Reports Related to Foreign Bank Branches and Agencies

(a) Application. To establish a Texas branch or agency, a foreign bank shall file with the banking commissioner an application for a license on the form prescribed by the commissioner. The application must:

(1) be in English and be signed, sworn to and acknowledged by an officer of the foreign bank;

(2) be fully completed and provide the information and include as attachments the documentation specified in the application form and the department's instructions, including the information and documentation required under the Finance Code, §204.101, and such other information and documentation as the banking commissioner reasonably requests; and

(3) be accompanied by the application fees and applicable deposits required by §15.2 of this title (relating to Filing Fees and Cost Deposits).

(b) If a foreign bank has established an initial Texas branch or agency, the banking commissioner may waive one or more of the informational requirements of the license application form with respect to any additional Texas branches or agencies the foreign bank seeks to establish. However, payment of the application fee provided for in §15.2 of this title may not be waived.

(c) Notices. A foreign bank that maintains a Texas branch or agency shall file with the banking commissioner:

(1) the notices and applications required under the Finance Code, Chapter 204, including §§204.005, 204.008, 204.107 - 204.109 and 204.115;

(2) if the foreign bank intends to establish a Texas representative office, a notice at least thirty days before the effective date of the opening of the office that states or includes:

(A) a copy of any filings with other state or federal agencies in connection with the establishment of the office;

(B) the street and mailing address and the telephone and fax numbers for the office;

(C) the name and qualifications of the manager or officer in charge of the office and contact information for that person;

(D) the Texas branch or agency or other office to which the Texas representative office will report and contact information for the responsible officer at that office;

(E) a list of the activities in which the office will engage; and

(F) a copy of the filed document evidencing compliance with the Finance Code, §201.102;

(G) a list of activities to be engaged in at the office; and

(H) date on which the foreign bank plans to commence business at the office; and

(3) if the foreign bank intends to establish, relocate or close a loan production office, the notice required under §3.91 of this title (relating to Loan Production Offices).

(d) Reports. A foreign bank that maintains a Texas branch or agency shall file with the banking commissioner the following reports:

(1) the reports required under the Finance Code, Chapter 204, including §204.002, and, to the extent applicable, §§3.51 - 3.62 of this title (relating to Pledge and Maintenance of Assets by Foreign Bank Licensed to Maintain Texas State Branch or Agency);

(2) an annual report, within 120 days after the close of the foreign bank's fiscal year, that is in English or accompanied by an English translation and is signed, sworn to and acknowledged by one of the authorized officers, managers, or agents transacting business in this state, and that includes:

(A) a copy of the most recent audited financial statement of the foreign bank, expressed in the currency of the country of its incorporation or organization and in United States currency;

(B) a letter from the certified public accountant, chartered accountant, or similar independent service provider of the foreign bank certifying that the statements have been prepared in accordance with generally accepted accounting principles of the home country of the foreign bank;

(C) a general description of the foreign bank's business activities;

(D) the location and a general description of the foreign bank's headquarters office if the office has been relocated since the last annual report filed under this paragraph;

(E) disclosure of all material legal proceedings in which the foreign bank or any of its subsidiaries has been named as a defendant that could result in a material adverse impact on the financial condition of the foreign bank, and a description of such potential impact, quantified to the extent feasible;

(F) a listing of the foreign bank's:

(i) board of directors;

(ii) executive officers; and

(iii) overseas operations by office; and

(G) a copy of the foreign bank's organizational chart by functional department.

History

• Source Note: The provisions of this §3.41 adopted to be effective March 9, 2006, 31 TexReg 1643.

7 Tex. Admin. Code § 3.42 Foreign Bank Branch and Agency Records

A foreign bank branch or agency shall maintain the following records in English, or accompanied by an English translation, at its authorized location and make the records available for examination by the department or as otherwise requested by the banking commissioner:

(1) the records required under the Finance Code, Chapter 204, including §204.002, and, to the extent applicable, §3.60 and §3.61 of this title (relating to Pledge and Maintenance of Assets by Foreign Bank Licensed to Maintain Texas State Branch or Agency);

(2) separate accounting records relating to its assets and liabilities and, if available, its income and expenses resulting from the branch's or agency's operations in this state;

(3) records relating to all filings or permits required by federal regulators;

(4) records of all credit balances, including:

(A) a list of each credit balance;

(B) the contractual terms applicable to each credit balance; and

(C) the contractual terms specifying the completion of the transactions to which the credit balance relates;

(5) records listing all representative offices, loan production offices, or other subsidiaries maintained in this state by the foreign bank branch or agency or by the foreign bank that controls the branch or agency; and

(6) such other records that the banking commissioner may require.

History

• Source Note: The provisions of this §3.42 adopted to be effective September 13, 1996, 21 TexReg 8451; amended to be effective March 9, 2006, 31 TexReg 1643.

7 Tex. Admin. Code § 3.43 Credit Balance of Funds

(a) A foreign bank branch or agency may not receive deposits except as specifically authorized under the Finance Code, §204.105(b). A foreign bank branch or agency may receive funds from a person and maintain a credit balance in accordance with the Finance Code, §204.105(b).

(b) A credit balance includes:

(1) proceeds of loans to customers where such proceeds are not immediately disbursed;

(2) loan payments from customers;

(3) funds delivered by customers to settle letters of credit accounts with the branch or agency prior to settlement date;

(4) proceeds of bills of exchange, drafts, notes, acceptances, and other obligations for the payment of money arising out of the purchase and sale (but not discount) of same;

(5) funds received from customers to cover currency transactions or as the result of currency transactions consummated by the branch or agency on behalf of customers;

(6) funds received for transmission to another place;

(7) fund arising out of repurchase agreements, federal funds transactions, and other types of purchase, sale, or borrowing transactions in interbank markets;

(8) proceeds of collections made for customers' accounts;

(9) accounts due to other offices or entities controlled by or under common control with the foreign bank that owns the foreign bank branch or agency; or

(10) funds received from customers as security for a loan.

(c) Credit balances may not remain in the foreign bank branch or agency after the completion of all transactions to which they relate.

History

• Source Note: The provisions of this §3.43 adopted to be effective September 13, 1996, 21 TexReg 8452; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451.

7 Tex. Admin. Code § 3.44 Statements of Registration, Notices and Filings Related to Foreign Bank Representative Offices

(a) General. A foreign bank may establish a representative office in this state whether or not the foreign bank is authorized to maintain a Texas branch or agency.

(b) Applicability. This section applies only to a foreign bank that does not maintain a Texas branch or agency. A foreign bank that maintains a Texas branch or agency is not subject to this section and may establish a representative office by providing the notice required under §3.41(c) of this title (relating to Applications, Notices and Reports Related to Foreign Bank Branches and Agencies).

(c) Statement of registration. To establish a representative office in this state, a foreign bank shall file with the banking commissioner a statement of registration on the form prescribed by the department. The statement of registration must:

(1) be in English and be signed, sworn to and acknowledged by an officer of the foreign bank;

(2) be fully completed and provide the information and include as attachments the documentation specified in the registration form and the department's instructions, including the information and documentation required under the Finance Code, §204.201, and such other information and documentation as the banking commissioner reasonably requests; and

(3) be accompanied by the registration fee established in §15.2(b) of this title (relating to Filing and Investigation Fees).

(d) Commencement of operations. A foreign bank may establish its representative office upon receipt of written confirmation from the banking commissioner that the statement of registration is complete and all required fees have been paid.

(e) Separate statement of registration required. A statement of registration must be filed for each representative office a foreign bank establishes in this state. If a foreign bank has established an initial representative office in accordance with this section, the banking commissioner may waive one or more of the informational requirements of the statement of registration form with respect to any additional Texas representative office the foreign bank seeks to establish. However, payment of the registration fee provided for in §15.2(b) of this title (relating to Filing and Investigation Fees) may not be waived.

(f) Notices. A foreign bank that maintains a representative office in this state shall file the following notices in English with the banking commissioner:

(1) the change of control notice required under the Finance Code, §204.005;

(2) notice of the closing of a representative office in this state at least 30 days before the effective date of the closing;

(3) notice of a change in location containing the street, post office and mailing address of the new location at least 30 days before the effective date of the relocation; and

(4) copies of other notices or applications filed with a federal regulator affecting the representative office in this state, at the time filed with the federal regulator.

History

• Source Note: The provisions of this §3.44 adopted to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.45 Records of a Representative Office

(a) A representative office established in this state by a foreign bank shall maintain the following records in English or accompanied by an English translation and make the records available for examination by the department or as otherwise requested by the banking commissioner:

(1) copies of all reports sent to the foreign bank by the representative office;

(2) copies of all policies pertaining to the solicitation, origination, and accounting of loans between the representative office and other offices of the foreign bank;

(3) a description of all activities in which the representative office is engaged and its target market;

(4) assets, liabilities, and income and expense journals for the representative office;

(5) the organizational chart of the representative office, including officer titles, functions, and reporting lines;

(6) marketing, business plans, and budgets for the representative office;

(7) copies of all lease agreements on rented office space and fixed assets in this state, including details of the sharing arrangement covering the office space if the office space is shared with another unit of the foreign bank;

(8) a copy of the most recent audited annual report of the foreign bank, in English;

(9) copies of all insurance policies covering fraud and fixed assets that relate to the representative office;

(10) a list of other operations and affiliates of the foreign bank in the United States;

(11) for all extensions of credit solicited or handled by the representative office:

(A) copies of the credit approval from the domestic agency, branch facility, or foreign bank, which may authorize the representative office to sign and execute the loan contract and related documentation. The approval may be in the form of a facsimile transmission or telex from the applicable foreign bank office;

(B) complete copies of all loan agreements and all subsequent revisions and amendments; and

(C) complete copies of credit and collateral documentation, including borrowing base calculations and reports; and

(12) to the extent not identified in paragraphs (1) - (11) of this subsection, the records required under the Finance Code, §204.002; and

(13) such other records the banking commissioner may require.

(b) A representative office affiliated with a foreign bank branch or agency in this state may maintain records at the office of the foreign bank branch or agency.

History

• Source Note: The provisions of this §3.45 adopted to be effective September 13, 1996, 21 TexReg 8453; amended to be effective March 9, 2006, 31 TexReg 1643.

Subchapter D PLEDGE AND MAINTENANCE OF ASSETS BY FOREIGN BANK LICENSED TO MAINTAIN TEXAS STATE BRANCH OR AGENCY

7 Tex. Admin. Code § 3.51 Authority, Purpose and Scope

(a) Authority. This subchapter is adopted under the authority of Finance Code, Title 3, Subtitle G, Chapter 204, Subchapter B, particularly Finance Code, §§204.113 and 204.114. Subchapter B authorizes a foreign bank to establish and maintain a Texas state branch or agency upon receiving a license from the Texas Banking Commissioner. Section 204.113 authorizes the banking commissioner to require a foreign bank so licensed to deposit and pledge to the banking commissioner assets in Texas in an amount and subject to such conditions as may be determined or authorized by rule. Section 204.114 authorizes the banking commissioner to require a foreign bank to satisfy the ratio of Texas state branch or agency assets to liabilities as may be determined or authorized by rule.

(b) Purpose. This subchapter implements Finance Code, §§204.113 and 204.114. It establishes the amount of assets that a foreign bank subject to its provisions must deposit and pledge and the conditions related to the pledge. The subchapter also authorizes the banking commissioner to require a foreign bank to maintain a specific ratio of assets to liabilities as the banking commissioner deems necessary or desirable to address supervisory concerns.

(c) Scope. This subchapter applies to a foreign bank that is licensed to establish and maintain one or more Texas state branches or Texas state agencies under Finance Code, Title 3, Subtitle G, Chapter 204, Subchapter B, and that carries nonrelated liabilities on the books, accounts and records of such branch, branches, agency or agencies.

History

• Source Note: The provisions of this §3.51 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.52 General Definitions

Unless defined otherwise in this section, words and terms used in this subchapter that are defined in Finance Code, §31.002, have the same meanings as defined in the Finance Code. The following words and terms, when used in this subchapter, have the following meanings unless the context clearly indicates otherwise:

(1) Asset pledge--The total amount of assets a foreign bank must deposit and pledge to the banking commissioner and maintain on deposit at all times.

(2) Call Report--The FFIEC quarterly, consolidated report of assets and liabilities of United States branches and agencies of foreign banks, currently reported on FFIEC 002.

(3) Depository--An unaffiliated, FDIC-insured state or national bank in Texas, or a federal reserve bank.

(4) FFIEC--The Federal Financial Institutions Examination Council.

(5) Foreign bank--A foreign bank or foreign bank corporation, as defined in Section 1(b)(7), International Banking Act (12 USC Section 3107(7)), that is licensed under Finance Code, Chapter 204, to establish and maintain a Texas state branch or Texas state agency.

(6) ROCA--The rating system used by the Federal Reserve Board, the Office of the Comptroller of the Currency, and state banking regulatory authorities that measures risk management, operation controls, compliance and asset quality and thereby determines the condition of a foreign bank's branch or agency or commercial lending subsidiary in the United States.

(7) Texas state branch--One or more branches established and maintained in Texas by a foreign bank under a license issued pursuant to Finance Code, Chapter 204. The term also includes a foreign bank branch as referred to in subchapters B and C of this title (relating to General state bank regulations and Foreign Bank Agencies, respectively).

(8) Texas state agency--One or more agencies established and maintained in Texas by a foreign bank under a license issued pursuant to Finance Code, Chapter 204. The term also includes a foreign bank agency as referred to in subchapters B and C of this title (relating to General state bank regulations and Foreign Bank Agencies, respectively).

(9) Nonrelated deposit liabilities--The liabilities to nonrelated parties consisting of deposits and credit balances reported in the Call Report in accordance with Call Report instructions, currently reported on line 4.a. of Schedule RAL-Assets and Liabilities.

(10) Nonrelated other liabilities--The liabilities to nonrelated parties, exclusive of nonrelated deposit liabilities, reported in the Call Report in accordance with Call Report instructions, currently reported on lines 4.b - 4.g. of Schedule RAL-Assets and Liabilities. Nonrelated other liabilities include federal funds purchased and sold under agreements to repurchase, other borrowed money, branch or agency liability on acceptances executed and outstanding, trading liabilities and other liabilities to nonrelated parties.

History

• Source Note: The provisions of this §3.52 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective July 5, 2018, 43 TexReg 4451.

7 Tex. Admin. Code § 3.53 Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities

(a) Asset pledge required. A foreign bank that maintains and operates a Texas state branch or agency, and carries nonrelated deposit liabilities on the books and records of its Texas state branch or agency as liabilities of such branch or agency, must pledge and keep assets on deposit with a depository in accordance with this subchapter.

(b) Amount of deposit. Subject to a minimum deposit of $100,000, the amount of assets required to be deposited under subsection (a), based upon the lower of principal amount or market value, is equal to the lesser of:

(1) one percent of the average total nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, for the previous calendar quarter of such branch or agency appearing on the books, accounts and records of such branch or agency; or

(2) $100 million.

(c) Pledge of assets to banking commissioner. The assets required to be deposited under this section are deemed to be pledged to the banking commissioner for the benefit of the creditors and depositors of the Texas state branch's or agency's business in this State. Notwithstanding any provision of the Uniform Commercial Code to the contrary, the banking commissioner is deemed to have a security interest in such assets. The foreign bank must ensure that the banking commissioner has a perfected, first-priority security interest in such assets under applicable law at all times.

(d) Projection of liabilities. Prior to its first Texas state branch or agency carrying nonrelated deposit liabilities on the books and records of such branch or agency, a foreign bank must deposit assets based upon such branch's or agency's projection of total nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, at the end of its first year of such operations.

(e) Increase in amount of required deposit. The banking commissioner may increase the amount required to be deposited by a foreign bank under this section if necessary or desirable to:

(1) maintain the Texas state branch or agency in sound financial condition;

(2) protect the depositors, creditors and the public interest in Texas; or

(3) support public confidence in the business of the Texas state branch or agency.

History

• Source Note: The provisions of this §3.53 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.54 Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Only Nonrelated Other Liabilities

(a) Asset pledge not generally required. Subject to subsection (b) of this section, a foreign bank that carries only nonrelated other liabilities on the books and records of its Texas state branch or agency, and does not carry nonrelated deposit liabilities, is not required to pledge assets under this subchapter.

(b) Authority of banking commissioner to require asset pledge. The banking commissioner, in his sole discretion based upon the factors identified in §3.53(e) of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities), may require a foreign bank that carries only nonrelated other liabilities on the books and records of its Texas state branch or agency to pledge assets in accordance with §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities). In such event, the bank must comply with all provisions of this subchapter relating to the deposit and pledge of assets.

History

• Source Note: The provisions of this §3.54 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.55 Calculation of Liabilities

(a) Calculation of liabilities in accordance with Call Report. For purposes of §3.53(b), and except as otherwise provided in this subchapter, a foreign bank must:

(1) calculate the nonrelated deposit liabilities and nonrelated other liabilities of its Texas state branch or agency in accordance with the instructions in the FFIEC Call Report; and

(2) calculate the asset pledge on the same basis on which it calculates quarterly averages for Call Report purposes (currently, the average of liabilities subject to asset pledge either as of the close of business for each day of the calendar quarter or as of the close of business on each Wednesday during the calendar quarter).

(b) Aggregation. A foreign bank that maintains more than one Texas state branch or agency must calculate the amount of the required asset pledge on an aggregate basis.

History

• Source Note: The provisions of this §3.55 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective July 5, 2018, 43 TexReg 4451.

7 Tex. Admin. Code § 3.56 Asset Pledge Report and Additional Deposits

(a) Report of liabilities and pledged assets. Each foreign bank that maintains a Texas state branch or agency that carries nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, on the books and records of its Texas state branch or agency as liabilities of such branch or agency, must prepare and submit to the banking commissioner, on a form prescribed by the banking commissioner, a report showing:

(1) the average total nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, of its Texas state branch or agency for the previous calendar quarter, calculated in accordance with §3.55 of this title (relating to Calculation of Liabilities); and

(2) if assets are deposited and pledged for the account of the banking commissioner under §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities), the assets deposited and pledged and the total value of such assets as of the end of the quarter for which liabilities are reported under subsection (a)(1) of this section.

(b) Authentication and submission of report. A duly authorized officer of the foreign bank must sign the report required under subsection (a) of this section and certify that the report is true and correct. The report must be submitted to the banking commissioner no later than the date the foreign bank must submit the Call Report for the end of the quarter for which the calculation is made to the appropriate Federal Reserve Bank according to Call Report instructions.

(c) Additional deposits to satisfy the pledge requirement. A foreign bank must deposit into the pledge account such additional assets as may be required, based upon the quarterly calculation, to satisfy the pledge requirement established in §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities). The foreign bank must deposit the additional assets no later than the date on which the bank must submit the Call Report for the end of the quarter for which the calculation is made.

History

• Source Note: The provisions of this §3.56 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.57 Excluded Liabilities

The following liabilities of a foreign bank's Texas state branch or agency are not included for purposes of calculating the amount of assets required to be pledged under §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities):

(1) amounts due and other liabilities to other offices, agencies, branches and affiliates of the foreign bank;

(2) liabilities arising from repurchase agreements and other similar instruments to the extent secured by collateral;

(3) reserves for possible loan losses and other contingencies; and

(4) such other liabilities as the banking commissioner may determine.

History

• Source Note: The provisions of this §3.57 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.58 Eligible Assets and Conditions

(a) Eligible assets. In addition to the assets consisting of dollar deposits and investment securities described in Finance Code, §204.113(a), a foreign bank may deposit the following assets to satisfy the pledge requirement established in §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities):

(1) reserves maintained with a federal reserve bank in or outside this state;

(2) United States and non-United States debt obligations that are rated investment grade by a recognized United States rating service; and

(3) assets specifically approved by the banking commissioner upon prior written application.

(b) Asset pledge conditions and limitations. Unless the banking commissioner specifically permits otherwise, the following conditions and limitations apply to the asset pledge:

(1) Assets must be payable in the United States and payable in United States dollars; and

(2) Assets must be capable of being promptly sold under ordinary market conditions at a fair market value determined by reliable and continuously available price quotations, based upon actual transactions on an auction or similarly available daily bid and ask price market.

(c) Authority of banking commissioner to impose additional conditions. With respect to any asset, the commissioner may determine that, for purposes of this subchapter, a foreign bank must hold such asset in such form or subject to such conditions as the banking commissioner may prescribe. The banking commissioner may expressly disallow one or more otherwise eligible assets, either for all foreign banks or a specific foreign bank. All assets are subject to any additional conditions or limitations deemed by the banking commissioner to be necessary or desirable.

History

• Source Note: The provisions of this §3.58 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.59 Deposit Agreement and Conditions

(a) Approved deposit agreement. A foreign bank and a depository must execute a deposit agreement approved by the banking commissioner before the foreign bank may deposit assets for purposes of Finance Code, §204.113, and this subchapter. In addition to any other terms and conditions that are not inconsistent with those listed in this section or imposed by the banking commissioner, the deposit agreement must include the terms and conditions set forth in subsections (b) through (m) of this section.

(b) Limitation on assets that may be deposited. Only assets eligible to be pledged under §3.58 of this title (relating to Eligible Assets and Conditions) may be deposited into the pledge account.

(c) Assets pledged to banking commissioner. The assets must be pledged to the banking commissioner for the benefit of the creditors and depositors of the Texas state branch's or agency's business in this State. The banking commissioner must be provided with, and is deemed to have, a security interest in the pledged assets.

(d) Assets held as special deposit. The depository must hold the assets deposited under the agreement as a special deposit free of any lien, charge, right of set-off, credit, or preference in connection with any claim of the depository against the foreign bank or the Texas state branch or agency. The depository may not accept any asset under the agreement that is not accompanied by documentation necessary to facilitate transfer of title.

(e) Depository to furnish receipt. The depository must furnish the foreign bank, upon the deposit of assets under the depository agreement, a receipt or statement as evidence of the deposit. The receipt or statement must identify the deposit as having been made pursuant to Finance Code, §204.113, and under the deposit agreement, and must state the amount of the deposit and, with respect to the deposit of securities, a description of each security deposited.

(f) Release of securities by depository. The depository must release deposited assets to the foreign bank upon written request:

(1) when accompanied by a certificate, as described in subsection (g) of this section, signed by a duly authorized officer of the foreign bank; or

(2) upon receipt of the banking commissioner's written order to release such part of the deposited assets under such conditions and terms as the order may specify.

(g) Model certificate. A duly authorized officer of the foreign bank must execute the following or a similar certificate before making a withdrawal under subsection (f)(1) of this section: It is hereby certified that the aggregate value of securities and/or funds remaining on deposit pursuant to the Deposit Agreement after this withdrawal or substitution amounts to $_____, valued at the lower of principal amount or market value, and that such amount is at least equal to the amount required to be deposited under Finance Code, §204.113, and 7 TAC §3.51 et seq. The amount required to be maintained on deposit, calculated in accordance with this subchapter, is $_ as of this date.

(h) Depository to furnish monthly statement of all transactions. The depository must furnish to the foreign bank, at least once in each calendar month, a statement of all transactions in the pledge account since the closing date of the previous statement. The statement must include a listing of the securities and/or the amount of funds on deposit as of the closing date of the statement. The depository must simultaneously send a copy of the statement to the banking commissioner.

(i) Depository may pay interest. So long as the Texas state branch or agency continues business in the ordinary course, the depository may pay interest earned on the assets in the pledge account in accordance with such arrangements as may be made between the depository and the foreign bank.

(j) Responsibility of depository with respect to deposited securities. Except as provided in this subsection, a depository must hold securities deposited under the deposit agreement separate and apart from all other securities and must permit duly authorized representatives of the foreign bank or of the banking commissioner to examine and compare such securities. A depository may utilize a central depository, clearing corporation or book entry system to hold securities deposited under the deposit agreement, provided that the records of the central depository, clearing corporation or book entry system show that the depository holds the securities as principal or as agent or as custodian of its customers. The depository must maintain adequate records to demonstrate the disposition of any book entry deposits.

(k) Safeguarding of deposited securities. The depository must give the same degree of care to the safekeeping, handling and shipping of deposited securities that the depository would give to its own securities.

(l) Banking commissioner not to pay for services rendered. The banking commissioner is not required to pay for any of the services rendered or any expenses incurred by the depository or the foreign bank under or in connection with 7 TAC §§3.51-3.61 or the deposit agreement.

(m) Termination of deposit agreement by foreign bank or depository. The foreign bank or the depository may terminate the deposit agreement by giving the other party at least sixty days written notice of the termination, or such shorter notice as the banking commissioner may approve, provided that no termination by the foreign bank or the depository is effective until:

(1) the foreign bank has designated another depository;

(2) the foreign bank has provided the banking commissioner with the name and address of the successor depository;

(3) the foreign bank and the successor depository have executed a deposit agreement that conforms to this section and has been approved by the banking commissioner; and

(4) the depository has released to foreign bank all the deposited assets in accordance with written instructions from the foreign bank approved by the banking commissioner.

(n) Additional terms and conditions. The banking commissioner may at any time impose different or additional terms and conditions upon the deposit agreement as deemed necessary or desirable.

(o) Termination of the right to substitute or withdraw assets. Upon notice to the foreign bank and the depository, the banking commissioner may terminate or suspend the authority of the foreign bank under subsection (f)(1) of this section to substitute or withdraw deposited assets.

(p) Termination of deposit agreement by banking commissioner. Upon notice to the foreign bank and the depository, the banking commissioner may terminate the deposit agreement and order the depository to release the pledged assets on such terms as are specified in the order if the foreign bank or the depository fails to comply with any term of the deposit agreement required by this section or with any other terms and conditions imposed by the banking commissioner under subsection (n) of this section.

History

• Source Note: The provisions of this §3.59 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.60 Record of Deposited and Withdrawn Assets

(a) Retention of receipts of statements. A foreign bank must retain for three years from the date of receipt the originals of all receipts or statements obtained from a depository under §3.59 of this title (relating to Deposit Agreement and Conditions). The foreign bank must make such originals available to the department at the time of the examination of such branch or agency.

(b) Withdrawal request and certificate. Coincidentally with any withdrawal request authorized pursuant to §3.59 of this title (relating to Deposit Agreement and Conditions), a foreign bank must furnish the banking commissioner a copy of the withdrawal request and the certificate required under §3.59(g) of this title (relating to Deposit Agreement and Conditions).

History

• Source Note: The provisions of this §3.60 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.61 Record of Assets and Liabilities

(a) Maintenance of record of liabilities. A foreign bank must maintain a record of the liabilities of the foreign bank appearing on the books, accounts and records of its Texas state branch or agency as liabilities of such branch or agency as determined in accordance with §3.55 of this title (relating to Calculation of Liabilities) and §3.56 of this title (relating to Asset Pledge Report and Additional Deposits). The record must be maintained in permanent ledger form. A foreign bank authorized to maintain more than one branch or agency in this State must maintain the record on a consolidated basis. No specific format for the record is prescribed. It must, however, contain such information in sufficient detail as will permit ready verification of its accuracy.

(b) Maintenance of record of assets. In addition to the record of liabilities required to be maintained by subsection (a) of this section, a foreign bank must maintain an itemized record of assets deposited for the account of the banking commissioner under §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities). The record must describe each deposited asset and include the value of such asset, at principal or market value, whichever is lower.

(c) General requirements applicable to records. The records required to be maintained under subsections (a) and (b) must:

(1) support the calculations and asset lists and valuations contained in the quarterly asset pledge report required under §3.56 of this title (relating to Asset Pledge Report and Additional Deposits);

(2) be authenticated by the signature of a duly authorized officer of the foreign bank; and

(3) be retained for three years from the date the records are received or generated.

(d) Additional records and reports. The banking commissioner may require a foreign bank subject to this subchapter to maintain records and submit reports in addition to those required by this section and §3.60 of this title (relating to Record of Deposited and Withdrawn Assets) as deemed necessary or desirable.

History

• Source Note: The provisions of this §3.61 adopted to be effective November 12, 2003, 28 TexReg 9823.

7 Tex. Admin. Code § 3.62 Asset Maintenance

(a) Maintenance of specific ratio not generally required. Subject to subsection (b) of this section, a foreign bank is not required to maintain a specific ratio of assets to liabilities appearing on the books, accounts and records of its Texas state branch or agency.

(b) Authority of banking commissioner to require maintenance of specific ratio. The banking commissioner may require a foreign bank to maintain a specific ratio of assets to liabilities as deemed necessary or desirable.

(c) Determination of Assets and Liabilities. The banking commissioner will determine the assets and liabilities that may or must be included for purposes satisfying the requirements of this section consistent with Finance Code, §204.114.

History

• Source Note: The provisions of this §3.62 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective September 8, 2022, 47 TexReg 5328.

Subchapter E BANKING HOUSE AND OTHER FACILITIES

7 Tex. Admin. Code § 3.91 Loan Production Offices

(a) Loan production activities. A Texas state bank may, to the extent authorized by its board of directors, engage in loan production activities at a site other than the home office or a branch of the bank, and may use the services of, and compensate, persons not employed by the bank in its loan production activities. Subject to the requirements of subsection (b) of this section, the bank or its operating subsidiary may establish a loan production office (LPO) at which an employee or agent of the bank or of its operating subsidiary accepts loan applications, provided that the loan is made at the home office or a branch of the bank or at an office of the operating subsidiary located on the premises of, or contiguous to, the home office or branch of the bank. A LPO is not a branch within the meaning of Finance Code, §31.002(a)(8), so long as it does not engage the public in the business of banking as defined by Finance Code, §31.002(a)(4), including making loans, receiving deposits, and paying withdrawals, drafts, or checks. All such deposit or withdrawal activity must be performed by the state bank customer in person at the home office or a branch, or by mail, electronic transfer, or similar transfer method with the home office or a branch.

(b) Required information. Pursuant to Finance Code, §32.204(b), a Texas state bank shall notify the banking commissioner of its intent to establish a new LPO. The banking commissioner must be notified in writing before the 31st day preceding the date of establishment of the LPO, except that the banking commissioner in the exercise of discretion may waive or shorten the period. The written notification must include the physical address of the planned LPO, a list of the specific activities to be performed at the planned LPO, the anticipated date for the establishment of the LPO, and other information which the banking commissioner may reasonably request.

(c) Relocation or closure of a LPO. A Texas state bank which seeks to relocate or close an established LPO, shall notify the banking commissioner in writing before the fifth day preceding the date of the planned relocation or closure of the LPO. The written notification must include the physical address of the relocated or closed LPO, the anticipated date for the closure or relocation of the LPO, and other information which the banking commissioner may reasonably request.

(d) Exemption: temporary LPO. Subsections (b) and (c) of this section do not apply to a LPO which operates for less than a total of 21 days in any one 12-month period. Instead, state banks shall register the location of a temporary LPO with the banking commissioner no later than the tenth day after such office is opened. As a part of such notice, the bank may indicate the anticipated repeated use of such office through the year. For example, a temporary LPO in a convention or exposition hall used in connection with trade shows may be registered once each year with an estimate of usage throughout the year.

(e) Transactions with management and affiliates. A state bank establishing a LPO involving the purchase or lease of personal or real property from an officer, director, manager, managing participant, or principal shareholder or participant of the bank or an affiliate of the bank, must comply with the provisions of the Finance Code, §33.109, and §3.22 of this title (relating to Sale or Lease Agreements With an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank).

(f) Out-of-state banks. A bank not domiciled or primarily located in this state must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq. ), to establish a LPO in this state.

(g) Foreign bank LPOs. A banking corporation or association incorporated or organized under the laws of a jurisdiction other than the United States or a state, territory, commonwealth, or other political subdivision of the United States, must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq. ), and Finance Code, Chapter 204, to establish an LPO, unless the LPO will be an office of a Federal branch regulated by the Office of the Comptroller of the Currency (OCC). In the latter case, the Federal branch must comply with subsection (h) of this section.

(h) Federal branch LPO. A Federal branch may establish an LPO in this state by complying with the provisions of Finance Code, Chapter 201, Subchapter B (§§201.101 et seq. ), and by notifying the banking commissioner of its intent to establish the LPO.

(1) The Federal branch shall notify the banking commissioner in writing on or before the 31st day preceding the date of establishment of the LPO, except that the banking commissioner may waive or shorten the period if the banking commissioner does not have a significant supervisory or regulatory concern regarding the Federal branch or its planned LPO. The written notification must include the physical address of the planned LPO, a list of the specific activities to be performed at the planned LPO, the anticipated date for the establishment of the LPO, documentation evidencing the approval of the OCC, and such other information as the banking commissioner may reasonably request.

(2) To relocate or close an existing LPO in this state, a Federal branch shall notify the banking commissioner in writing on or before the tenth day following the date of the relocation or closure of the LPO. The written notification must include the physical address of the LPO, the date for its closure or relocation, documentation evidencing the approval or acquiescence of the OCC, and such other information as the banking commissioner may reasonably request.

(3) An LPO of a Federal branch established in compliance with this section is not subject to examination by the banking commissioner under, or subject to any fee imposed by, Finance Code, Chapter 204.

History

• Source Note: The provisions of this §3.91 adopted to be effective November 22, 1996, 21 TexReg 11098; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective November 7, 2013, 38 TexReg 7683; amended to be effective May 7, 2015, 40 TexReg 2410; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.92 User Safety at Unmanned Teller Machines

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code, §59.301, have the same meanings as defined in the Finance Code.

(b) Measurement of candlefoot power. For purposes of measuring compliance with the Finance Code, §59.307, candlefoot power should be determined under normal, dry weather conditions, without complicating factors such as fog, rain, snow, sand or dust storm, or other similar condition.

(c) Leased premises.

(1) Noncompliance by landlord. Pursuant to the Finance Code, §59.306, the landlord or owner of property is required to comply with the safety procedures of the Finance Code, Chapter 59, Subchapter D, if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the unmanned teller machine. If an owner or operator of an unmanned teller machine on leased premises is unable to obtain compliance with safety procedures from the landlord or owner of the property, the owner or operator shall notify the landlord in writing of the requirements of the Finance Code, Chapter 59, Subchapter D, and of those provisions for which the landlord is in noncompliance.

(2) Enforcement. Noncompliance with safety procedures required by the Finance Code, Chapter 59, Subchapter D, by a landlord or owner of property after receipt of written notification from the owner or operator constitutes a violation of the Finance Code, Chapter 59, Subchapter D, which may be enforced by the Texas Attorney General.

(d) Safety evaluations.

(1) The owner or operator of an unmanned teller machine shall evaluate the safety of each machine on a basis no less frequently than annually.

(2) The safety evaluation shall consider at the least the factors identified in the Finance Code, §59.308.

(3) The owner or operator of the unmanned teller machine may provide the landlord or owner of the property with a copy of the safety evaluation if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the machine.

(e) Notice. An issuer of access devices shall furnish its customers with a notice of basic safety precautions that each customer should employ while using an unmanned teller machine. The notice must be personally delivered or sent to each customer whose mailing address is in this state, according to records for the account to which the access device relates, and may be included with other disclosures related to the access device, including an initial or periodic disclosure statement furnished under the Electronic Fund Transfer Act (15 U.S.C. §1693 et seq.). The notice may be delivered electronically if permissible under Business & Commerce Code, §322.008.

(1) When notice is required. The issuer must furnish the notice to its customer whenever an access device is issued or renewed. If the issuer furnishes an access device to more than one customer on the same account, the issuer is not required to furnish the notice to more than one of the customers.

(2) Content of notice. The notice of basic safety precautions required by this subsection may include recommendations or advice regarding:

(A) security at walk-up and drive-up unmanned teller machines, such as recommendations that the customer should:

(i) remain aware of surroundings and exercise caution when withdrawing funds;

(ii) inspect an unmanned teller machine before use for possible tampering, or for the presence of an unauthorized attachment that could capture information from the access device or the customer's personal identification number;

(iii) refrain from displaying cash and put it away as soon as the transaction is completed; and

(iv) wait to count cash until the customer is in the safety of a locked enclosure, such as a car or home;

(B) protection of the customer's code or personal identification number, such as a recommendation that the customer ensure no one can observe entry of the customer's code or personal identification number;

(C) safeguarding and protection of the customer's access device, such as a recommendation that the customer treat the access device as if it were cash, and if the access device has an embedded chip, that the customer keep the access device in a safety envelope to avoid undetected and unauthorized scanning;

(D) procedures for reporting a lost or stolen access device and for reporting a crime;

(E) reaction to suspicious circumstances, such as a recommendation that a customer who observes suspicious persons or circumstances, while approaching or using an unmanned teller machine, should not use the unmanned teller machine at that time or, if the customer is in the middle of a transaction, should cancel the transaction, take the access device, leave the area, and come back at another time, or use an unmanned teller machine at another location;

(F) safekeeping and secure disposition of unmanned teller machine receipts;

(G) the inadvisability of surrendering information about the customer's access device over the telephone or over the Internet, unless to a trusted merchant in a call or transaction initiated by the customer;

(H) protection against unmanned teller machine fraud, such as a recommendation that the customer promptly review the customer's monthly statement and compare unmanned teller machine receipts against the statement;

(I) protection against Internet fraud, such as a recommendation that the customer, if purchasing online with the access device, should end transactions by logging out of websites instead of just closing the web browser; and

(J) other recommendations that the issuer reasonably believes are appropriate to facilitate the security of its unmanned teller machine customers.

(f) Video surveillance equipment. Video surveillance equipment is not required to be installed at all unmanned teller machines. The owner or operator must determine whether video surveillance or unconnected video surveillance equipment should be installed at a particular unmanned teller machine site, based on the safety evaluation required under the Finance Code, §59.308. If an owner or operator determines that video surveillance equipment should be installed, the owner or operator must provide for selecting, testing, operating, and maintaining appropriate equipment.

(g) Unmanned teller machines located in a bank vestibule. The provisions of the Finance Code, Chapter 59, Subchapter D, and this section are applicable to an unmanned teller machine located in a bank vestibule if there is 24 hour access to the vestibule from outside the building.

(h) Certification of Compliance. The security officer of each depository shall certify compliance with the Finance Code, Chapter 59, Subchapter D, and this section on a basis no less frequently than annually.

History

• Source Note: The provisions of this §3.92 adopted to be effective January 5, 1996, 20 TexReg 10997; amended to be effective November 22, 1996, 21 TexReg 11099; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective March 12, 2015, 40 TexReg 1062; amended to be effective July 5, 2018, 43 TexReg 4451.

7 Tex. Admin. Code § 3.93 Deposit Production Offices

(a) Engaging in deposit production activities. A Texas state bank may, to the extent authorized by its board of directors, engage in deposit production activities at a site other than the home office or a branch of the bank, including establishing a deposit production office (DPO) of the bank. A DPO may only solicit deposits, provide information about deposit products, and assist persons in completing application forms and related documents to open a deposit account. A DPO is not a branch within the meaning of Finance Code, §31.002(a)(8), so long as it does not engage the public in the business of banking as defined by Finance Code, §31.002(a)(4), including making loans, receiving deposits, and paying withdrawals, drafts, or checks. All such deposit or withdrawal activity must be performed by the state bank customer in person at the home office or a branch, or by mail, electronic transfer, or similar transfer method with the home office or a branch.

(b) Notification to the banking commissioner. Pursuant to Finance Code, §32.204(b), a Texas state bank shall notify the banking commissioner in writing before the 31st day preceding the date of establishment of a DPO, except the banking commissioner in the exercise of discretion may waive or shorten the period. The written notification must include the physical address of the DPO, a list of the specific activities to be performed at the planned DPO, and other information which the banking commissioner may reasonably request.

(c) Relocation or closure of a DPO. A Texas state bank which seeks to relocate or close an established DPO shall notify the banking commissioner in writing before the fifth day preceding the date of the planned relocation or closure of the DPO. The written notification must include the physical address of the relocated or closed DPO, the anticipated date for the closure or relocation of the DPO, and other information which the banking commissioner may reasonably request.

(d) Transactions with management and affiliates. A state bank establishing a DPO involving the purchase or lease of personal or real property from an officer, director, manager, managing participant, or principal shareholder or participant of the bank or an affiliate of the bank, must comply with the provisions of the Finance Code, §33.109, and §3.22 of this title (relating to Sale or Lease Agreements with an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank).

(e) Out-of-state banks. A bank not domiciled or primarily located in this state must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq. ), to establish a DPO in this state.

History

• Source Note: The provisions of this §3.93 adopted to be effective March 8, 2012, 37 TexReg 1496; amended to be effective November 7, 2013, 38 TexReg 7683; amended to be effective September 8, 2022, 47 TexReg 5328.

Subchapter F ACCESS TO INFORMATION

7 Tex. Admin. Code § 3.111 Confidential Information

(a) Policy. The Texas Department of Banking (the department) is committed to the concept of open state government. As a regulator of financial institutions, however, the department recognizes the mandate of the legislature to balance the competing interests of the need of financial institutions for confidentiality regarding their financial condition and business affairs with the general public's need for information. The legislature has determined that confidential information, with limited exceptions, should not be disclosed. See Finance Code, Chapter 31, Subchapter D, Chapter 181, and §§201.007, 204.102(c), 204.117(d) and 204.205(d). Inappropriate disclosures can result in substantial harm to financial institutions and to those persons and entities (including other financial institutions) that have relationships with them. In accordance with the historical availability of records of financial institutions and the sound public policy that generally protects them, non-disclosure under this section protects the stability of such institutions by preventing disclosures that could adversely impact financial institutions. For example, the department may criticize a bank in an examination report for a financial weakness that does not currently threaten the solvency of the bank. If improperly disclosed, the criticism can lead to adverse impacts such as the possibility of bank "runs," short-term liquidity problems, and volatility in costs of funds, which in turn can exacerbate the problem and cause the failure of the bank. Bank failures lead to reduced access to credit and greater risk to depositors. Further, specific loans may be criticized in an examination report, and confidentiality of the information protects the financial privacy of customers. Finally, protecting confidential information from disclosure facilitates the free exchange of information between the financial institution and the regulator, encourages candor, and promotes regulatory responsiveness and effectiveness. Information that does not fall within the meaning of confidential information as defined in this section may be confidential under other definitions and controlled by other laws, and is not subject to this section.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--A company that directly or indirectly controls, is controlled by, or is under common control with a bank or other company.

(2) Confidential information--Written and oral information obtained directly or indirectly by the department relative to the financial condition or business affairs of a financial institution, an applicant, or a present, former, or prospective shareholder, participant, officer, director, manager, affiliate, or service provider of a financial institution or applicant, whether obtained through application, examination, or otherwise, and all related files and records of the department, regardless of the form of the information when obtained or as held by the department or when the department first obtained it, and whether or not the information is part of the department's official files or records. The term does not include:

(A) the public portions of call reports of state banks and public trust companies;

(B) the names of proposed directors of a de novo financial institution or an entity converting to a state financial institution;

(C) information contained in an official document required to be filed with the department in order to have legal effect (Examples of such documents include, without limitation, Certificate of Amendment, Certificate of Merger, or Certificate of Conversion);

(D) information contained in the portion of an application submitted to the department that has been designated as public by the applicant, department or a federal agency; or

(E) information previously disclosed to the public by the person or entity to which the information relates.

(3) Financial institution--As defined in the Finance Code, §31.002(a)(25). For purposes of this section only, the term includes a trust company incorporated under the Texas Trust Company Act, Finance Code, Chapters 181 et seq, or a predecessor statute, and a foreign bank branch, agency or representative office licensed under the Finance Code, Chapter 204 et seq.

(4) Governmental agency--Another department of this state, another state, the United States, a foreign sovereign state, or any related agency or instrumentality.

(5) Court--A court of law or equity or other adjudicatory tribunal with jurisdiction to issue a subpoena or other legal process for the production of documents, including a government agency exercising adjudicatory functions and an alternative dispute resolution mechanism, voluntary or required, under which a party may compel the production of documents.

(c) Authority to receive, hold or disclose confidential information. Authority to disclose confidential information to an individual, business, or governmental agency under this section constitutes authority to disclose it to the appropriate person officially connected to such individual, business, or governmental agency that has a need to know the information in connection with the discharge of official responsibilities and authority for the person who is officially connected to such individual, business, or governmental agency to receive such information. A person officially connected to a financial institution includes its holding company, officer, director, manager, attorney, auditor, independent auditor, employee, and a person reasonably designated as officially connected with the financial institution by resolution duly adopted by the board of directors of the financial institution. A financial institution or its service provider, or affiliate may disclose confidential information, other than as specifically mentioned, to a non-employee, such as its agent, bonding company, or a prospective acquirer, only pursuant to board resolution designating the person or entity as officially connected with the financial institution, affiliate, or service provider. The financial institution, affiliate, or service provider may not disclose confidential information to a shareholder or participant that is specifically denied to such person under the Finance Code, §31.308. Only a person to whom confidential information has been released pursuant to lawful authority may disclose that information to another, and all such further disclosures must be in accordance with the Finance Code and this section.

(d) Disclosure prohibited.

(1) Pursuant to the Finance Code, §31.301, and Stewart v. McCain, 575 S.W.2d 509 (Tex. 1978), the department possesses an absolute privilege against disclosure of confidential information held by the department. Except as provided by the Finance Code, Title 3, Subtitle A, and rules adopted under the Finance Code, the finance commission, a member of the finance commission, the banking commissioner, or an employee or agent of the department may not directly or indirectly disclose confidential information, whether voluntarily or pursuant to subpoena or other legal process. Confidential information is discoverable from the department under this section only pursuant to a protective order under subsection (f) of this section in a case in which the department is a party other than as intervenor under this section. Pursuant to the Finance Code, §31.306, and notwithstanding any other provision of this section authorizing the release of confidential information, the banking commissioner may refuse to release information or records in the custody of the department if, in the opinion of the banking commissioner, release of the information or records might jeopardize an ongoing investigation by the department or other governmental agency of potentially unlawful activities.

(2) Except as provided by the Finance Code, Title 3, Subtitle A, and this section, a financial institution, its service provider, or its affiliate may not disclose confidential information received from the department. Confidential information includes an examination report of, correspondence with, and formal and informal actions of the department taken against the financial institution, service provider, or affiliate.

(e) Exceptions to non-disclosure.

(1) Disclosures by the department. Confidential information disclosed by the department pursuant to an exception to disclosure remains the confidential property of the department. The department may:

(A) disclose confidential information to the finance commission and other governmental agencies as provided by the Finance Code, §31.302 and §31.303;

(B) publish final removal, prohibition, and cease-and-desist orders and information regarding the existence of a cease-and-desist order as provided by the Finance Code, §35.012;

(C) release employment information as provided by the Finance Code, §31.307;

(D) provide a copy of the regular report of examination and an order, opinion, or other confidential information to the financial institution, its service provider, or affiliate for which it was prepared and to which it relates and correspond with that financial institution, service provider, or affiliate regarding such information;

(E) provide a copy of the regular report of examination of a service provider and an order, opinion, or other confidential information relating to the service provider to the financial institution or institutions it services;

(F) forward to a court of proper jurisdiction, subject to any existing administrative protective order, the record of an administrative hearing under appeal that contains confidential information. In the event an administrative protective order does not exist, the department or another party shall file a motion with the court for a protective order consistent with the terms of subsection (f)(4) of this section prior to filing the administrative record. Discretion of the banking commissioner or finance commission to vacate an administrative protective order entered under §9.22 of this title (relating to Protective Orders; Motions to Compel) ceases at the time the appeal is filed;

(G) provide complete copies of documents previously submitted to the department by a financial institution to the same financial institution or the successor financial institution upon request; and

(H) provide certificates and certified copies upon request. The cost for a formal certificate issued by the department shall be $20.00 plus $1.00 per page for certified copies of pages attached to the certificate.

(2) Further disclosure by a governmental agency, financial institution, service provider or affiliate. Except for disclosures pursuant to subsection (f) of this section, confidential information released to a financial institution, its service provider, or affiliate may be disclosed by the recipient only to a person officially connected to the recipient as provided by subsection (c) of this section and, if authorized under the terms of a confidentiality agreement between the department and another governmental agency, to that governmental agency in the discharge of its official duties. Disclosures to a person designated by board resolution as officially connected to the financial institution, service provider, or affiliate must be made pursuant to a confidentiality agreement between the financial institution, service provider, or affiliate and the recipient. Confidential information released to a governmental agency may be disclosed by the agency only to a person officially connected to the agency as provided by subsection (c) of this section or to another governmental agency to the extent authorized by this section or other law, and must be in accordance with the terms of this section and a confidentiality agreement with or letter of instructions from the department.

(3) Disclosures of certain information.

(A) Statistical data. Confidential information consisting solely of statistical data may be disclosed, providing its release does not directly or indirectly disclose the identity of an individual or financial institution related to the data.

(B) Records of a failed financial institution. Subject to the sole discretion of the banking commissioner under this subparagraph, the department may release confidential information in or related to the records of a failed financial institution. Release may not occur under this subparagraph earlier than three years after the date such financial institution failed. Information subject to release must pertain only to the condition of the financial institution and cannot include confidential customer information, absent customer consent, or information made confidential by laws other than the Finance Code, Title 3, Subtitle A, or this section. Pursuant to Finance Code, §36.224 and §186.224, records of failed financial institutions are not government records and are not subject to public information requests under Texas Government Code, Chapter 552.

(C) Records of another governmental agency. Information the department has obtained from a federal or state governmental agency that is confidential under federal or state law or by agreement with the other agency is not considered part of the department's records. The department may not release such information unless the request for release is submitted with a certification from the appropriate state or federal authority that the information is subject to release under the laws of that jurisdiction.

(f) Discovery of confidential information from a governmental agency, financial institution, service provider, or affiliate.

(1) General rule. A governmental agency, financial institution, service provider, or affiliate that receives a subpoena or other legal process in any proceeding for the release of confidential information shall promptly notify the department of the request, provide the department with a copy of the process and of the requested documents or information, and object by written motion or other means available under applicable rules of procedure. Notice and documents should be sent to the Texas Department of Banking at 2601 North Lamar Boulevard, Austin, Texas, 78705-4294, to the attention of the General Counsel, and should be labeled "Request for Release of Confidential Information under 7 TAC §3.111." Prior to the release of confidential information, such government agency, financial institution, service provider, or affiliate also must file and obtain a ruling on a motion for a protective order and in camera inspection in accordance with this subsection. Confidential information may be released only pursuant to a protective order in a form consistent with that set out in this section and only if a court with jurisdiction has found that:

(A) the party seeking the information has a substantial need for the information;

(B) the information is directly relevant to the legal dispute in issue; and

(C) the party seeking the information is unable without undue hardship to obtain its substantial equivalent by other means.

(2) Discretionary filings by department. On receipt of notice under subsection (f)(1) of this section, the department may take action as may be appropriate to protect confidential information. The department has standing to intervene in a suit or administrative hearing for the purpose of filing a motion for protective order and in camera inspection in accordance with this subsection.

(3) Motion for protective order and in camera inspection. The movant shall ask the court to enter a protective order in accordance with this subsection regarding the release of confidential information. If necessary to resolve a dispute regarding the confidential status or direct relevance of any information sought to be released, the party seeking the protective order shall move for in camera inspection of the pertinent information. Until subject to a protective order, confidential information may not be released, and the party seeking a protective order shall request the court officer to deny discovery of such confidential information. The party seeking the protective order must comply with the court's applicable rules of procedure.

(4) Protective order. A protective order obtained pursuant to the terms of this subsection must:

(A) specifically bind each party to the litigation, including one who becomes a party to the suit after the protective order is entered, each attorney of record, and each person who becomes privy to the confidential information as a result of its disclosure under the terms of the protective order;

(B) describe in general terms the confidential information to be produced;

(C) state substantially the following in the body of the protective order:

(i) absent court order to the contrary, only the court reporter and attorneys of record in the cause may copy confidential information produced under the protective order in whole or part;

(ii) the attorneys of record are custodians responsible for all originals and copies of confidential information produced under the protective order and must insure that disclosure is limited to those persons specified in the protective order;

(iii) confidential information subject to the protective order and all information derived therefrom may be used only for the purpose of the trial, appeal, or other proceedings in the case in which it is produced;

(iv) confidential information to be filed or included in a filing in the case must be filed with the clerk separately in a sealed envelope bearing suitable identification, and is available only to the court and to those persons authorized by the order to receive confidential information, and all originals and copies made of such documents and records must be kept under seal and disclosed only in accordance with the terms of the protective order;

(v) confidential information produced under to the protective order may be disclosed only to the following persons and only after counsel has explained the terms of the order to the person who will receive the information and provided that person with a copy of the order:

(I) to a party and to an officer, employee, or representative of a party, to a party's attorneys (including other members and associates of the respective law firms and contract attorneys in connection with work on the case) and, to the extent an attorney of record in good faith determines disclosure is necessary or appropriate for the conduct of the litigation, legal assistants, office clerks and secretaries working under that attorney's supervision;

(II) to a witness or potential witness in the case;

(III) to an outside expert retained for consultation or for testimony, provided the expert agrees to be bound by the terms of the protective order and the party employing the expert agrees to be responsible for the compliance of its expert with this confidentiality obligation; and

(IV) to the court or to an appellate officer or body with jurisdiction of an appeal in the case;

(vi) at the request of the department or a party, only the court, the parties and their attorneys, and other persons the court reasonably determines should be present may attend the live testimony of a witness or discussions or oral arguments before the court that may include confidential information or relate to such confidential information. The parties shall request the court to instruct all persons present at such testimony, discussions, or arguments that release of confidential information is strictly forbidden;

(vii) a transcript, including a deposition transcript, that may include confidential information subject to non-disclosure is subject to the protective order. The party requesting the testimony of a current or former department officer, employee, or agent shall, at its expense, furnish the department a copy of the transcript of the testimony once it has been transcribed.

(viii) upon ultimate conclusion of the case by final judgment and the expiration of time to appeal, or by settlement or otherwise, counsel for each party shall return to the party that produced the confidential information all copies of every document subject to the protective order and for which the counsel is custodian; and

(ix) production of documents subject to the protective order does not waive a claim of privilege or right to withhold the documents from a person not subject to the protective order.

(D) Clauses (i), (ii), and (v) - (vii) of subparagraph (C) of this paragraph are subject to modification by the court for good cause before the conclusion of the proceeding, upon notice and opportunity to appear to the department.

History

• Source Note: The provisions of this §3.111 adopted to be effective March 1, 1996, 21 TexReg 1380; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective August 31, 2006, 31 TexReg 6641; amended to be effective November 7, 2013, 38 TexReg 7684; amended to be effective September 8, 2022, 47 TexReg 5328.

7 Tex. Admin. Code § 3.112 What will the Department Charge for Providing Public Information?

(a) If you request the department to provide copies or allow inspection of public information in the possession of the department, you may be required to pay the charges and meet other requirements specified by the Texas Attorney General.

(b) The department may reduce or waive an applicable charge under subsection (a) of this section, in the discretion of the commissioner, if the cost of collecting the charge will exceed the amount of the charge or a public benefit will result from the reduction or waiver.

History

• Source Note: The provisions of this §3.112 adopted to be effective May 21, 2002, 27 TexReg 4324; amended to be effective March 9, 2006, 31 TexReg 1643.

Chapter 5 ADMINISTRATION OF FINANCE AGENCIES

7 Tex. Admin. Code § 5.100 Definitions

In this chapter, a "finance agency" means the Texas Department of Banking, the Department of Savings and Mortgage Lending, and the Office of Consumer Credit Commissioner.

History

• Source Note: The provisions of this §5.100 adopted to be effective January 2, 2020, 44 TexReg 8230.

7 Tex. Admin. Code § 5.101 Employee Training and Education Assistance Programs

(a) Pursuant to the State Employees Training Act, Chapter 656, Subchapter C of the Texas Government Code, it is the policy and practice of the finance agencies to encourage employees' professional development through training and education programs sponsored or supported by the finance agencies.

(b) The finance agencies may provide assistance for education and training that will enhance an employee's ability to perform current or prospective job duties and will benefit both the respective finance agency and the employee.

(c) Approval to participate in a training or education program is not automatic and is subject to eligibility of individual employees as established in the respective finance agency's policy, and the availability of funds within the respective finance agency's budget.

(d) The employee training and education program for the finance agencies may include one or more of the following:

(1) agency-sponsored training provided in-house or by contract;

(2) seminars and conferences;

(3) technical or professional certifications and licenses; or

(4) reimbursement for tuition, fees and required course materials.

(e) The finance agencies maintain policies for administering the employee training and education program of each respective finance agency. These policies include:

(1) eligibility requirements for participation;

(2) designation of appropriate level of approval for participation; and

(3) obligations of program participants.

(f) Approval to participate in any portion of a finance agency's training and education program will not in any way affect an employee's at-will status.

(g) In order to receive tuition reimbursement for a course offered by an institution of higher education, the employee must successfully complete the course, and the executive head of the finance agency must personally authorize the tuition reimbursement payment.

History

• Source Note: The provisions of this §5.101 adopted to be effective November 6, 2014, 39 TexReg 8571; amended to be effective March 10, 2016, 41 TexReg 1672; amended to be effective January 3, 2019, 43 TexReg 8583; amended to be effective January 2, 2020, 44 TexReg 8230.

7 Tex. Admin. Code § 5.103 Alternative Dispute Resolution Policy

(a) Policy. It is the policy of the finance commission to use alternative dispute resolution procedures where reasonable and appropriate under Texas Government Code, Chapter 2009 to assist in the resolution of internal and external disputes under the jurisdiction of a finance agency.

(b) Model guidelines. The procedures for alternative dispute resolution must conform, to the extent possible, to any model guidelines issued by the State Office of Administrative Hearings for the use of alternative dispute resolution by state agencies.

(c) Coordination and training. The finance agencies will coordinate with each other as reasonable to implement the use of appropriate alternative dispute resolution procedures and provide training as needed to implement the use of alternative dispute resolution procedures.

(d) Data collection and reporting. Each finance agency will collect data concerning the effectiveness of alternative dispute resolution procedures, and report to the finance commission its use of alternative dispute resolution procedures.

History

• Source Note: The provisions of this §5.103 adopted to be effective January 2, 2020, 44 TexReg 8230.

7 Tex. Admin. Code § 5.105 Negotiated Rulemaking

(a) Policy. It is the policy of the finance commission to use negotiated rulemaking procedures under Texas Government Code, Chapter 2008 and §9.85 of this title (relating to Negotiated Rulemaking).

(b) Coordination and training. The finance agencies will coordinate with each other as reasonable to implement the use of negotiated rulemaking procedures and provide training as needed to implement the use of negotiated rulemaking procedures.

(c) Data collection and reporting. Each finance agency will collect data concerning the effectiveness of negotiated rulemaking procedures, and report to the finance commission its use of negotiated rulemaking procedures.

History

• Source Note: The provisions of this §5.105 adopted to be effective January 2, 2020, 44 TexReg 8230.

7 Tex. Admin. Code § 5.107 Employee Leave Pools

(a) Generally. The finance agencies maintain policies for establishing and administering the sick leave pool and family leave pool of each respective finance agency.

(b) Sick leave pool. A sick leave pool is established to allow employees to transfer accrued sick leave to the pool to be used by employees who are eligible to withdraw time from the pool. The sick leave pool is intended to assist an employee and the employee's immediate family in dealing with a catastrophic illness or injury that forces the employee to exhaust all of the employee's available sick leave.

(1) The Commissioner of each finance agency is designated as the pool administrator for the respective finance agency's sick leave pool.

(2) The pool administrator will maintain operating procedures consistent with the requirements of this subsection and relevant law governing operation of the pool.

(3) Donations to the pool are strictly voluntary.

(c) Family leave pool. A family leave pool is established to allow employees to transfer accrued sick leave or vacation leave to the pool to be used by employees who are eligible to withdraw time from the pool. The family leave pool is intended to provide employees the flexibility to bond with and care for children during a child's first year following birth, adoption, or foster placement; or to care for a seriously ill family member or the employee, including illnesses or complications resulting from a pandemic.

(1) The Commissioner of each finance agency is designated as the pool administrator for the respective finance agency's family leave pool.

(2) The pool administrator will maintain operating procedures consistent with the requirements of this subsection and relevant law governing operation of the pool.

(3) Donations to the pool are strictly voluntary.

History

• Source Note: The provisions of this §5.107 adopted to be effective September 8, 2022, 47 TexReg 5332.

Chapter 6 BANKING DEVELOPMENT DISTRICTS

7 Tex. Admin. Code § 6.1 Purpose; Scope

(a) This chapter implements Finance Code, Chapter 279, by providing application requirements for a municipality or county that seeks to establish a banking development district in conjunction with a financial institution.

(b) This chapter does not affect or circumvent:

(1) requirements under the Tax Increment Financing Act or the Property Redevelopment and Tax Abatement Act (Tax Code, Chapters 311 and 312, respectively), including requirements for designation of an area as a municipal or county reinvestment zone or for authorization to enter into a tax abatement agreement; or

(2) any required regulatory approval for a financial institution that seeks to establish a branch in a banking development district.

History

• Source Note: The provisions of this §6.1 adopted to be effective November 5, 2015, 40 TexReg 7621; amended to be effective January 2, 2020, 44 TexReg 8230.

7 Tex. Admin. Code § 6.2 Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

(1) "Alternative providers" means check cashers, licensed money transmitters, licensed lenders, and licensed residential mortgage lenders.

(2) "Banking services" include deposit taking, check-cashing, and origination of residential mortgages, commercial mortgages, or other secured or unsecured consumer or commercial loans.

(3) "Branch" means a full-service main office or branch office of a financial institution or credit union.

(4) "Commission" means the Finance Commission of Texas.

(5) "Credit union" means a state or federal credit union.

(6) "Department" means the Texas Department of Banking.

(7) "District" means a banking development district under this chapter.

(8) "Financial institution" means a state or national bank, a state or federal savings bank, or a state or federal savings and loan association.

(9) "Local government" means a municipality or county.

History

• Source Note: The provisions of this §6.2 adopted to be effective November 5, 2015, 40 TexReg 7621.

7 Tex. Admin. Code § 6.3 Application Requirements

(a) Basic application. A local government, in conjunction with a financial institution, may submit an application to the commission for the designation of a proposed banking development district, as provided by §6.4 of this title (relating to Submission and Processing of Application). The application must include the following information to the extent available:

(1) identification of the local government applicant and evidence of the approval of the application by its governing body;

(2) identification of the participating financial institution by type and name, and identification of its primary state and/or federal regulator;

(3) a description of the geographic area comprising the proposed district, including a map that identifies the borders of the proposed district;

(4) a compilation and explanation of the population demographics included within the proposed district, including the number of residents and the percentage of the population that can be described as comprised of, for example, elderly (age 64 and over), disabled, non-English speaking, and identifiable racial, ethnic or other minorities;

(5) a compilation and explanation of economic indicators pertinent to the proposed district, to the extent available, including per capita annual income, median household annual income, unemployment data, percentage of the population at or below the poverty level, and percentage of the population receiving public assistance within the proposed district;

(6) a description of the type and nature of commercial businesses located in the proposed district, including the number and percentage of which constitute small business, as that term is defined by Government Code §2006.001(2);

(7) a compilation and summary of significant business developments within the past three years, including corporate restructurings, plant closings, other business closings, and recent or proposed business openings or expansions;

(8) the location, number, and proximity of sites where banking services are available in or near the proposed district, including branches of financial institutions and credit unions, and deposit-taking ATMs other than those located at branches;

(9) a compilation and description of alternate providers in the proposed district;

(10) a description of the anticipated impact that additional banking services would have on potential economic development within the proposed district.

(b) Optional information. An application for designation of a banking development district may also include:

(1) a description of other local government and community initiatives proposed to be undertaken and coordinated with establishment of the proposed district;

(2) indications of community support or opposition for the application, as evidenced by letters from entities such as local chambers of commerce, local businesses, community-based organizations, non-profit organizations, government officials, or community residents; and

(3) such other information that the applicant believes will demonstrate that the proposed district meets the standards set forth in §6.5 of this title (relating to Criteria for Approval).

History

• Source Note: The provisions of this §6.3 adopted to be effective November 5, 2015, 40 TexReg 7621.

7 Tex. Admin. Code § 6.4 Submission and Processing of Application

(a) The application must be submitted to the commission in care of the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705. No filing fee is required.

(b) On or before the 15th day after initial submission of an application, the department shall issue a written notice informing the applicant either that the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. The applicant must supply any additional information requested by the department on or before the 61st day after the date of initial submission of the filing. Upon a finding of good and sufficient cause, the department shall grant an applicant additional time to complete the application. Extensions will be communicated to the applicant before the expiration of the filing period.

(c) After the issuance of written notice informing the applicant that the application is complete and accepted for filing, the department shall evaluate the application to the extent necessary to make a written recommendation to the commission under the criteria set forth in §6.5 of this title. The department shall submit the completed application and the department's recommendation to the commission for decision at the next regularly scheduled meeting of the commission, which must be on or before the 120th day after the date the completed application is accepted for filing.

(d) If the finance commission approves the application, the department shall notify the interested parties as required by Finance Code, §279.055(b).

History

• Source Note: The provisions of this §6.4 adopted to be effective November 5, 2015, 40 TexReg 7621.

7 Tex. Admin. Code § 6.5 Criteria for Approval

In determining whether to approve an application for the designation of a banking development district, the commission shall take into consideration the following criteria:

(1) the location, number, and proximity of sites where banking services are available in the proposed district;

(2) consumer needs for banking services in the proposed district;

(3) the economic viability and local credit needs of the community in the proposed district;

(4) the existing commercial development in the proposed district;

(5) the impact additional banking services would have on potential economic development in the proposed district;

(6) the physical size and cohesiveness of the proposed district; and

(7) the history of the availability of banking services in the proposed district.

History

• Source Note: The provisions of this §6.5 adopted to be effective November 5, 2015, 40 TexReg 7621.

7 Tex. Admin. Code § 6.6 Monitoring

(a) A local government that receives approval for a district under this chapter shall notify the department in writing on or before the 21st day after the date:

(1) the financial institution opens a branch in the district and the address of the branch; and

(2) the financial institution closes a branch in the district.

(b) On behalf of the commission, the department may request periodic status reports from the local government in order to ensure that the needs of the community located in the district are being met in an appropriate manner.

History

• Source Note: The provisions of this §6.6 adopted to be effective November 5, 2015, 40 TexReg 7621.

Chapter 7 TEXAS FINANCIAL EDUCATION ENDOWMENT FUND

7 Tex. Admin. Code § 7.101 Applicability and Purpose

(a) Applicability. This chapter governs the administration of the Texas Financial Education Endowment (TFEE) fund as provided by Texas Finance Code, §14.113.

(b) Purpose. The purpose of this chapter is to provide guidelines regarding the administration of the TFEE fund, which serves to support statewide financial education and consumer credit building activities and programs in Texas.

(c) TFEE fund. The TFEE fund consists of assessments paid by credit access business applicants and license holders, as well as gifts and donations contributed to the fund to fulfill TFEE or consumer credit educational purposes as provided in §7.104 of this title (relating to TFEE Gifts and Donations).

History

• Source Note: The provisions of this §7.101 adopted to be effective September 7, 2017, 42 TexReg 4459; amended to be effective January 2, 2025, 49 TexReg 10507.

7 Tex. Admin. Code § 7.102 TFEE Responsibilities

(a) Finance commission and Office of Consumer Credit Commissioner (OCCC). The finance commission administers all aspects of TFEE, including the grant program, gifts, donations, funding and policy decisions. The OCCC is responsible for collection of assessment fees, disbursement and tracking of TFEE funds, and maintaining financial records of revenue, expenditures, and reconciliation of funds. The Consumer Credit Commissioner (commissioner) or the commissioner's designee serves as the investment officer appointed by the finance commission to maintain compliance, accept gifts and donations, and invest TFEE funds. The commissioner may designate a person to execute grant agreements.

(b) Grant Advisory Committee (GAC) and grant coordinator. The GAC serves in an advisory role and makes program recommendations to the grant coordinator and finance commission audit committee regarding TFEE administration. The grant coordinator serves under the direction of the commissioner, provides information regarding grant activity to the GAC and finance commission, and serves as the liaison between grantees and the GAC.

History

• Source Note: The provisions of this §7.102 adopted to be effective September 7, 2017, 42 TexReg 4459; amended to be effective November 4, 2021, 46 TexReg 7379.

7 Tex. Admin. Code § 7.103 TFEE Grant Program

(a) Grant cycle. The TFEE fund may have one competitive grant cycle every two years.

(1) Funding determination. The grant funding determination is made by December 31 of each odd-numbered year.

(2) Programming cycle. A new TFEE grant programming cycle may open on January 1 of every even-numbered year. An applicant may choose to apply for a one-year grant programming cycle, or a two-year grant programming cycle. The grant programming cycle for a one-year grantee begins on January 1 and ends on December 31 of the even-numbered year for the applicable cycle. The grant programming cycle for a two-year grantee begins on January 1 of the even-numbered year and ends on December 31 of the following odd-numbered year for the applicable cycle.

(b) Eligible grant applicants. Nonprofit organizations, schools, and for-profit entities are eligible to apply for TFEE grant funding. TFEE grant funding is not available to financial service providers and entities regulated by the finance commission.

(c) Grant application. To be considered for the TFEE grant program, an applicant must complete and submit the grant application by the deadline and in accordance with the instructions for the applicable grant cycle. Late or incomplete grant applications will not be accepted. Meeting the eligibility criteria and submission of a grant application does not guarantee award of a grant in any amount.

(d) Finance commission approval. The finance commission will approve the items listed in this subsection during a meeting open to the public.

(1) Award amounts. Before the start of the competitive grant process for each grant cycle, the finance commission will determine the total TFEE fund amount to be awarded for the applicable grant cycle.

(2) Grantees. The audit committee, upon receipt of advice from the GAC and grant coordinator, will present recommendations to the finance commission of parties selected to receive TFEE awards for the applicable grant cycle. The finance commission has complete discretion to approve or deny, all or in part, the recommendations presented by the audit committee. Only grantees approved by the finance commission will be awarded TFEE funds upon fulfillment of grant requirements.

(e) Grant agreement. To participate in the TFEE grant program, a grantee approved by the finance commission must execute the grant agreement for the applicable grant cycle.

(f) Grantee compliance. A grantee must comply with applicable financial, administrative, and programmatic terms and conditions, and exercise proper stewardship over awarded TFEE funds. A grantee must use awarded TFEE funds in compliance with the following in effect for the applicable grant cycle:

(1) all applicable state laws and regulations;

(2) all applicable federal laws and regulations;

(3) the TFEE Grant Administration and Advisory Policy Manual;

(4) the grant application, including all application guidelines and instructions at the time of application;

(5) the grant agreement signed by the commissioner or commissioner's designee and the grantee;

(6) all reporting and monitoring requirements, as outlined in the grant agreement and subsection (g) of this section; and

(7) any other guidance documents posted on the TFEE website for the applicable grant cycle.

(g) Reporting and monitoring.

(1) General reporting requirements. To receive reimbursement of TFEE grant expenses, a grantee must:

(A) submit grant reports in a timely manner;

(B) maintain satisfactory compliance with the grant agreement and proposed grant activities;

(C) report performance measures; and

(D) track and report participant demographic information.

(2) Semi-annual reports. A grantee must submit semi-annual reports that demonstrate performance outcomes and financial information over the term of the grant in accordance with and by the deadlines set forth in the grant agreement.

(3) Six-month longitudinal report. A grantee must submit a comprehensive six-month longitudinal report after program completion to demonstrate program objectives and describe activity performed under the grant agreement. The longitudinal report is due on June 30 following the end of the grant programming cycle.

(4) Monitoring. The grant coordinator or GAC may use the following methods to monitor a grantee's performance and expenditures:

(A) Desk review. The grant coordinator or GAC may conduct a desk review of a grantee to review and compare individual source documentation and materials to summary data provided during the reporting process.

(B) Site visits and inspection reviews. The grant coordinator or GAC may conduct a scheduled site visit to a grantee's place of business to review compliance and performance issues. Site visits may be comprehensive or limited in scope.

(h) Reimbursement.

(1) Eligibility. To be eligible for reimbursement, a grantee must comply with all terms of the grant agreement, as well as all other items provided in subsection (f) of this section. Grant funds will be awarded on a cost reimbursement basis for all actual, allowable, and allocable costs incurred by a grantee pursuant to the grant agreement. Expenses that were incurred before the beginning or after the termination of the grant agreement are not eligible for reimbursement.

(2) Procedure. To request reimbursement for work performed on TFEE grant activities, a grantee must submit a grant reimbursement report in accordance with and by the deadlines set forth in the grant agreement. A grantee must submit a detailed expense report with supporting documentation to justify the reimbursement request. The OCCC will review and approve requests for reimbursement that satisfy the requirements and promptly disburse funds in response to approved requests.

History

• Source Note: The provisions of this §7.103 adopted to be effective September 7, 2017, 42 TexReg 4459; amended to be effective January 2, 2025, 49 TexReg 10507.

7 Tex. Admin. Code § 7.104 TFEE Gifts and Donations

(a) Authorized gifts and donations.

(1) TFEE purpose. Under Texas Finance Code, §14.113(d), the finance commission may solicit gifts, grants, and donations that fulfill the purpose of TFEE to support statewide financial education and consumer credit building activities and programs in this state, including the specific purposes provided by Texas Finance Code, §14.113(c).

(2) Consumer credit educational purpose. Under Texas Finance Code, §14.105(a), the commissioner may accept gifts, grants, and donations on behalf of the state for a purpose related to a consumer credit educational opportunity, unless prohibited by Texas Finance Code, §14.105(b) or other law. A consumer credit educational opportunity is also considered to be a consumer credit building activity under TFEE.

(3) From state agencies. Under Texas Finance Code, §14.113(e), the finance commission may partner with other state agencies to administer the TFEE fund, including the acceptance of gifts and donations from other state agencies, for the purposes outlined in paragraphs (1) and (2) of this subsection.

(4) From other parties. Gifts and donations from parties other than state agencies must meet the same criteria required for grantees eligible under §7.103(b) of this title (relating to TFEE Grant Program).

(b) Finance commission approval. The finance commission will approve any gift or donation to the TFEE fund.

History

• Source Note: The provisions of this §7.104 adopted to be effective September 7, 2017, 42 TexReg 4459; amended to be effective January 2, 2025, 49 TexReg 105057.

7 Tex. Admin. Code § 7.105 TFEE Fund Management

In accordance with Texas Finance Code, §14.113(b), TFEE funds will be remitted to the comptroller for deposit in the Texas Treasury Safekeeping Trust Company. TFEE funds may be invested and reinvested under the prudent person standard described by Texas Constitution, Article VII, Section 11b.

History

• Source Note: The provisions of this §7.105 adopted to be effective September 7, 2017, 42 TexReg 4459; amended to be effective January 2, 2025, 49 TexReg 10507.

Chapter 9 RULES OF PROCEDURE FOR CONTESTED CASE HEARINGS, APPEALS, AND RULEMAKINGS

Subchapter A GENERAL

7 Tex. Admin. Code § 9.1 Application, Construction, and Definitions

(a) This chapter governs contested case hearings conducted by an administrative law judge employed or contracted by an agency under Texas Finance Code, §11.202. All contested case hearings conducted by the State Office of Administrative Hearings (SOAH) are governed by SOAH's procedural rules found at Title 1, Chapter 155 of the Texas Administrative Code and §9.12(b) of this title (relating to Default).

(b) The same rules of construction that apply to interpretation of Texas statutes and codes, the definitions in Government Code, §2001.003, and the definitions in subsection (c) of this section govern the interpretation of this chapter. If any section of this chapter is found to conflict with an applicable and controlling provision of other state or federal law, the section involved shall be void to the extent of the conflict without affecting the validity of the rest of this chapter.

(c) The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

(1) Administrative law judge--The hearings officer employed by or contracted by an agency to conduct administrative hearings for the finance commission, the department of banking, the department of savings and mortgage lending, and the office of consumer credit commissioner.

(2) Agency--The finance commission, the department of banking, the department of savings and mortgage lending, or the office of consumer credit commissioner.

(3) Agency head(s)--Finance commission members, the banking commissioner, the savings and mortgage lending commissioner, or the consumer credit commissioner, or a designee if authorized by law.

(4) Applicant--A party seeking a license, registration, charter, or permit, or to amend its authority under an existing license, registration, charter or permit, or other action from an agency.

(5) Protestant--A party opposing an application for a license, registration, charter, permit, or other action filed with an agency who has paid any filing fees required by an applicable law.

(6) Respondent--A permittee, licensee, registrant, charter holder, or other party against whom a disciplinary proceeding is directed by an agency.

History

• Source Note: The provisions of this §9.1 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective August 28, 2008, 33 TexReg 6808; amended to be effective January 9, 2011, 35 TexReg 11849; amended to be effective January 7, 2016, 41 TexReg 107, amended to be effective September 7, 2017, 42 TexReg 4459; amended to be effective September 5, 2024, 49 TexReg 6733.

7 Tex. Admin. Code § 9.2 Procedure

(a) Insofar as practicable and except as otherwise provided in this chapter, procedure in contested case hearings will be in accordance with the Texas Rules of Civil Procedure. References in the Texas Rules of Civil Procedure to the "court" or the "judge" will be construed as references to the administrative law judge as the context may require. All documents required by the Texas Rules of Civil Procedure to be filed with the clerk must be filed with the administrative law judge or with a person designated by the administrative law judge.

(b) The agency with jurisdiction over a particular case is a party to that case through its attorney of record. The agency attorney must be served with copies of all notices, orders, pleadings, motions, and correspondence, notified of all hearings and conferences, and has full rights to participate at all stages of the case.

History

• Source Note: The provisions of this §9.2 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.3 Ex Parte Communications

A person may not conduct oral or written communications with the administrative law judge regarding an issue of law or fact in a contested case other than on notice to all parties with an opportunity to participate or as otherwise authorized by law. Letters to the administrative law judge must show that copies have been sent to all parties (through counsel if a party is represented by counsel).

History

• Source Note: The provisions of this §9.3 adopted to be effective November 13, 1997, 22 TexReg 10951.

Subchapter B CONTESTED CASE HEARINGS

7 Tex. Admin. Code § 9.11 Notice and Initiation of Proceedings

(a) An action subject to this chapter is initiated by the publication or service of such documents or notices as are required to be published or served under the substantive law governing the particular proceeding. Unless other law authorizing a different notice period is applicable to the particular proceeding, all hearings in contested cases must be preceded by at least 10 days notice, as required by Government Code, §2001.051. Applicants and holders of licenses, registrations, charters, and permits shall keep the agency informed as to their correct current mailing addresses and may be served with initial process by registered or certified mail, return receipt requested, to the address furnished the agency. Service of initial process on parties other than licensees, registrants, charter holders, permittees, or applicants (unless applicable law provides otherwise), must be made in the manner provided in the Texas Rules of Civil Procedure for initiating a civil suit.

(b) Notice of a disciplinary proceeding that is required to be preceded by a hearing must be signed by the agency head or administrative law judge and must contain:

(1) an order to appear at a specified time, date, and place;

(2) a statement of the nature of the administrative action to be commenced and the authority under which the administrative action is conducted;

(3) a description in plain language of the specific act(s) or omission(s) asserted as grounds for the contemplated administrative action;

(4) a description of the remedies sought, including the penalties or consequences sought to be imposed;

(5) a disclosure that the respondent is entitled to:

(A) be represented by an attorney of respondent's choice;

(B) directly or through an attorney contest the admissibility of evidence and cross-examine the witnesses against the respondent; and

(C) respond and present evidence and argument in respondent's behalf pursuant to Government Code, §2001.051(2) and §2001.087;

(6) a disclosure that the failure of respondent to appear at the hearing will be considered a waiver of respondent's rights under paragraph (5) of this subsection;

(7) a copy of this chapter included as an attachment;

(8) the name, title, address, and phone number of the person handling the administrative action for the agency and to whom the respondent or the respondent's attorney should direct inquiries regarding additional information, detail, or further discussion or negotiation in connection with the administrative action; and

(9) such other information as may be required under the substantive law governing the particular proceeding.

(c) Notice of an action that is not required to be preceded by a hearing, but that requires a party to be advised of a right to hearing before the action becomes final, must contain a notice that a written request for a hearing under the Administrative Procedure Act must be delivered to the agency by a specific date certain or the administrative action will become final. The notice must explain fully how a hearing may be requested and contain such other information as may be required under the substantive law governing the particular proceeding.

(d) In a case in which restitution is sought, the notice of hearing (or an amended or supplemental notice or pleading served a sufficient time before the hearing to provide respondent with fair notice of the claim and a reasonable opportunity to defend) shall contain, in plain language, pertinent information regarding why the agency seeks restitution, for whom it is sought, the aggregate amount of restitution anticipated, and a citation to the specific statutory provision under which the restitution claim is made. A claim for restitution, like any other notice or pleading under these rules, is subject to a motion for more definite statement.

History

• Source Note: The provisions of this §9.11 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective January 9, 2011, 35 TexReg 11849.

7 Tex. Admin. Code § 9.12 Default

(a) In-house hearings. In a hearing conducted by an administrative law judge employed or contracted by an agency, if, after served with notice in compliance with §9.11 of this title (relating to Notice and Initiation of Proceedings), a party fails to attend a hearing, the administrative law judge may proceed in that party's absence and, where appropriate, may issue a proposal for decision against that party. The proposal for decision shall be served upon the defaulting party and the party will be afforded the opportunity to contest the law as stated in the proposal for decision, but shall be deemed to have waived the right to contest the evidence, cross-examine the witnesses, and present an affirmative case or defense. In the alternative, an agency may informally dispose of the matter as permitted by §2001.056 of the Texas Government Code, without the necessity of a hearing.

(b) SOAH hearings. In a hearing conducted by the State Office of Administrative Hearings (SOAH), the agency may request that the administrative law judge make a finding of default under 1 TAC §155.501 (relating to Failure to Attend Hearings and Default Proceedings).

(1) Service of notice of hearing. A notice of hearing may be served to the party's last known address. Applicants and holders of licenses, registrations, charters, and permits shall keep the agency informed as to their correct current mailing addresses and may be served with initial process by registered or certified mail, return receipt requested, to the address provided to the agency.

(2) Adequate proof of notice of hearing. At the time of the request, the agency must present adequate proof to the administrative law judge that the agency properly served the party with the notice of hearing, as required by 1 TAC §155.501(b).

(3) Effect of default. If the administrative law judge receives the required showing of proof to support a default, the allegations contained in the notice of hearing may be deemed admitted, and the relief sought in the notice may be granted with respect to any party given proper notice of the hearing.

(4) Disposing of default case. The agency may request that the administrative law judge dismiss the case from the SOAH docket and remand it to the agency for informal disposition as permitted by Texas Government Code, §2001.056 and §2001.058(d-1).

(5) Final order after default. If the administrative law judge issues an order of default dismissal that provides the defaulting party with adequate notice and opportunity to set aside the default under 1 TAC §155.501(e) and the case is remanded to the agency, the agency may issue a final order that:

(A) finds that the agency served the party with a notice of hearing stating that if the party failed to attend the hearing, then the allegations contained in the notice of hearing could be deemed admitted, and the relief sought might be granted;

(B) describes how the notice of hearing was served on the party;

(C) finds that the party failed to attend the hearing;

(D) finds that the allegations described in the notice are deemed admitted;

(E) concludes that the party has defaulted as a matter of law; and

(F) grants the relief described in the notice of hearing.

History

• Source Note: The provisions of this §9.12 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective January 7, 2016, 41 TexReg 107; amended to be effective September 7, 2017, 42 TexReg 4459; amended to be effective September 5, 2024, 49 TexReg 6733.

7 Tex. Admin. Code § 9.13 Appearances and Representation

(a) Because contested case procedures are closely modeled upon those used in a court of law, the agency strongly urges but does not require parties to employ attorneys for representation. Only licensed attorneys may file pleadings, make written or oral arguments or objections to evidence, or examine witnesses in agency hearings, except that:

(1) a natural person may appear "pro se" (without an attorney) in his or her own behalf;

(2) a company or an employee of the company may appear through a bona fide officer or employee of the company even if the representative is not a lawyer; and

(3) a party may appear through an out-of-state attorney, qualified law student, or an unlicensed law school graduate under the same conditions as would govern an appearance by the representative in state court.

(b) In making an appearance at an agency hearing, each party and each representative shall obey the same rules of ethics and professional conduct that govern a licensed attorney in this state.

History

• Source Note: The provisions of this §9.13 adopted to be effective November 28, 1995, 20 TexReg 9407; amended to be effective March 11, 2004, 29 TexReg 2301.

7 Tex. Admin. Code § 9.14 Protests

Protests shall be allowed to the extent authorized by law applicable to each agency and type of proceeding. A protestant must include a certificate of service on any protest showing that a copy has been served on the applicant. Every protest must be accompanied by any filing fees required by law.

History

• Source Note: The provisions of this §9.14 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.15 Party Status; Participation by General Public

(a) Every person or entity named or admitted as a party to a contested case has an equal right to participate fully in all stages of the proceeding.

(b) Party status is limited to persons or entities with a legal right, duty, privilege, power, or economic interest that may be directly affected by the outcome of the proceeding or who are entitled to be parties pursuant to a statute or regulation governing the particular proceeding.

(c) Party status will not be conferred on persons or entities that:

(1) only have an interest in the outcome of the proceeding that is common to members of the general public;

(2) seek to litigate issues that are not by statute or regulation made part of the administrative proceeding in which party status is sought; or

(3) are not among the persons or entities described by statute or regulation as eligible to participate in the particular type of administrative proceeding in which party status is sought.

(d) The administrative law judge has discretion to allow a member of the general public who has not been admitted as a party to testify under oath or affirmation in a contested case. The administrative law judge may set fair and reasonable conditions on such an appearance, and the testimony shall be subject to cross-examination, challenge and rebuttal. After affording all parties a reasonable opportunity to be heard on this issue, the administrative law judge shall determine the extent, if any, to which a member of the general public who is not a party will be allowed to participate in a contested case.

History

• Source Note: The provisions of this §9.15 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.16 Pleadings

(a) Required pleadings in agency hearings consist of such applications, protests, notices, or requests for hearing as are required under the substantive law governing each particular type of proceeding.

(b) When an application for an original license or renewal license has been denied based on the applicant's criminal history, the applicant shall have the burden of pleading and proving affirmative defenses to establish that the applicant is entitled to the license under Chapter 53 of the Occupations Code (related to the collateral consequences of a criminal conviction) or any mitigating facts related to the applicant's convictions or deferred adjudications.

(c) In addition, a party may file such other pleadings as the party considers appropriate to fully explain and present the party's side of the case. A party who wishes to raise an "affirmative defense" as defined in Texas Rules of Civil Procedure, Rule 94, must notify the agency in writing at least seven days before the hearing unless the administrative law judge allows a shorter notification period pursuant to Texas Rules of Civil Procedure, Rule 63.

(d) If a pleading is so vague or ambiguous that a party is unable to fully understand what is intended to be placed in issue, the party may move for a more definite statement and the administrative law judge shall grant the motion if it is well taken and direct that a more definite statement be made.

History

• Source Note: The provisions of this §9.16 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective March 11, 1999, 24 TexReg 1611; amended to be effective August 28, 2008, 33 TexReg 6808.

7 Tex. Admin. Code § 9.17 Motions, Pleas and Other Written Requests for an Order or Ruling

(a) A party applying to the administrative law judge for an order or ruling shall do so by written motion, plea, or other form of written request unless an oral motion, plea, or request is made during a hearing, conference, or telephone conference call of which all parties had advance notice with a reasonable opportunity to participate. The parties shall send copies of all pleadings and responses subject to this section to one another (through their attorneys if represented by counsel), and shall include a certificate of service on such documents attesting they have done so. Each pleading subject to this section shall specify the grounds on which the relief or order is sought and the legal basis for the relief or order.

(b) The administrative law judge shall allow all parties a reasonable amount of time to be heard before ruling on a pleading subject to this section unless the pleading is for:

(1) a continuance or an extension of time due to an emergency and reasonable attempts to reach opposing counsel have been unsuccessful;

(2) an order to which all parties have agreed; or

(3) a temporary emergency order until a hearing can be held.

(c) The administrative law judge has discretion to order oral or written argument or an evidentiary hearing on a pleading subject to this section as needed to clarify the issues and decide them properly.

(d) An application for a subpoena may be requested and issued ex parte and is not subject to this section.

History

• Source Note: The provisions of this §9.17 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.18 Issuance of Subpoenas

On the administrative law judge's own motion or on the written request of a party to a contested case pending before one of the finance commission agencies, the administrative law judge may issue a subpoena addressed to the sheriff or to a constable to require the attendance of a witness or the production of books, records, papers, or other objects that may be necessary and proper for the purposes of a proceeding if:

(1) good cause is shown; and

(2) for a subpoena requested by a party to a contested case, an amount is deposited that will reasonably ensure payment of the amounts estimated to be due under Government Code, §2001.103.

History

• Source Note: The provisions of this §9.18 adopted to be effective August 28, 2008, 33 TexReg 6809.

7 Tex. Admin. Code § 9.19 Continuances

Motions for continuance must be in writing and filed not less than five calendar days prior to the hearing, except for good cause shown. Motions must set forth the specific grounds upon which the moving party seeks continuance, make reference to all similar motions filed in the case, and state whether all parties agree with the continuance. The administrative law judge may not grant a continuance without consultation with all parties except in the event of an emergency after a bona fide effort to reach other parties to the case has been unsuccessful.

History

• Source Note: The provisions of this §9.19 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.20 Prehearing Conferences

(a) Sua sponte or on the motion of any party, the administrative law judge may direct that the parties or their authorized representatives appear at a prehearing conference to consider any of the matters specified in Rule 166, Texas Rules of Civil Procedure (other than those matters having to do with trial by jury).

(b) In the administrative law judge's discretion, the prehearing conference may be formal or informal, may be conducted in person or by telephone, and may be conducted with or without a court reporter. In the event that no court reporter is used, the administrative law judge shall prepare or may direct the parties to prepare a memorandum encompassing any agreements reached and decisions made.

History

• Source Note: The provisions of this §9.20 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.21 Discovery

(a) Parties may use all permissible forms of discovery authorized in the Texas Rules of Civil Procedure in accordance with and subject to the limitations provided therein. A party may apply to the administrative law judge for issuance of a commission to take a deposition only if the parties disagree on its scheduling or scope. Procedures for obtaining a ruling on objections or on a motion to compel compliance with discovery must comply with the Rule of Civil Procedure that relates to the particular form of discovery on which a ruling is sought.

(b) A motion regarding discovery must contain a certificate that efforts to resolve the discovery dispute without intervention by the administrative law judge have been attempted and failed.

(c) Due to space limitations, parties should not file a discovery document with the administrative law judge unless the document contains information material to an issue upon which a ruling is requested or is to be introduced into evidence.

(d) In the interest of justice and for good cause shown, the administrative law judge may enter a discovery order superceding a rule of discovery that might otherwise be applicable.

History

• Source Note: The provisions of this §9.21 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective March 11, 2004, 29 TexReg 2301.

7 Tex. Admin. Code § 9.22 Protective Orders; Motions To Compel

All exemptions and privileges recognized under Texas law are recognized in agency hearings to the same extent as they are recognized in civil cases in the courts of this state. If a party or witness is asked to reveal privileged material or conversations, the party may make a motion with the administrative law judge for such protective orders as are reasonable and necessary or may refuse to provide the information and assert the privilege in response to a motion to compel. The administrative law judge shall hold such hearings and issue such orders on motions to compel or requests for protective orders as are required by the law applicable to the facts and circumstances of the case.

History

• Source Note: The provisions of this §9.22 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.23 Summary Judgment

(a) At any time after a notice of hearing is issued, a party may move for a summary judgment on all or any part of a claim or defense.

(b) Except as set out in this section, the finance commission agencies adopt, by reference, the summary judgment procedure in Rule 166a, Texas Rules of Civil Procedure. In addition, the following requirements shall also apply:

(1) The administrative law judge shall hear oral argument on all motions for summary judgment unless the judge expressly waives this requirement.

(2) Before filing the motion, the party moving for summary judgment, in consultation with the administrative law judge's clerk, must schedule the motion for submission on oral argument at least 21 days after the date on which it is filed. If there is an applicable statutory deadline by which the agency must hold a hearing, the submission date must be within the deadline unless it has been waived by both parties.

(3) The party moving for summary judgment must serve on all opposing parties, with a copy of the motion for summary judgment, a notice containing the following information:

(A) the time, date, and place when the administrative law judge will hear oral argument on the motion;

(B) disclosure that any party opposing the motion must file affidavits, other written material, and any cross-claims or counterclaims, with the administrative law judge by the close of business seven days before the date of submission on oral argument;

(C) disclosure that the administrative law judge may take the allegations in the motion as true unless contested by opposing parties through affidavits or other written material; and

(D) disclosure that the administrative law judge will not hear any oral testimony related to the motion.

(4) If one of the agencies files the motion for summary judgment, the agency head or the administrative law judge must sign the notice.

(5) In the administrative law judge's discretion, the judge may set the motion for summary judgment on the same date as an evidentiary hearing scheduled in the cause which is the subject of the motion for summary judgment.

(6) The administrative law judge's proposal for decision recommending summary judgment shall be circulated for exceptions, replies to exceptions, and the filing of briefs before it is sent to the agency heads in compliance with §9.34 of this title (relating to Post-hearing Proceedings).

History

• Source Note: The provisions of this §9.23 adopted to be effective August 28, 2008, 33 TexReg 6809.

7 Tex. Admin. Code § 9.25 The Hearing

(a) The administrative law judge has authority analogous to that of a district judge sitting without a jury in a civil case and may make such rulings and issue such orders as may be required to provide a fair, just, expeditious, orderly, and proper hearing. Hearings are open to the public, except that matters made confidential by law must be considered in executive session if requested. If an executive session is not requested before confidential evidence is introduced, the confidentiality of such evidence is considered to have been waived.

(b) At the time and place set for hearing, the administrative law judge shall proceed with the hearing as nearly as may be according to the rules of procedure governing the trial of civil cases in the courts of this state. The party with the burden of proof shall present such party's case, followed by other parties in the sequence assigned by the administrative law judge. Each party shall have the opportunity to present such party's case, by calling and examining witnesses, offering documentary evidence, and making legal arguments. Each party shall have the opportunity to contest the admissibility of evidence and cross-examine opposing witnesses on any matter relevant to the issues even if the matter was not covered in direct examination. A party must make an objection to testimony or an evidentiary offer in a timely manner, stating the basis for the objection, or the objection is waived.

(c) In a case involving an original application for a license, the burden of proof is on the applicant. In cases involving an order to cease and desist, the imposition of penalties, the collection of restitution for violations of law, or an agency's failure to renew an existing license, the burden of proof is on the agency.

(d) A party pleading an "affirmative defense" as defined in Texas Rules of Civil Procedure, Rule 94, has the burden to prove that defense.

(e) The assertion that an applicant for an original or renewal license qualifies for the license under Chapter 53 of the Occupations Code (related to the collateral consequences of a criminal conviction) is an affirmative defense. The applicant for the original or renewal license has the burden to prove the satisfaction of the conditions on which the applicant would be entitled to the license under the Occupations Code. The existence of mitigating circumstances related to a criminal conviction is an affirmative defense. The applicant for an original or renewal license has the burden to prove the existence of such mitigating circumstances.

(f) Unless otherwise provided by statute, the burden of proof shall be by a preponderance of the evidence.

(g) If an applicant for an original license application fails to appear at a scheduled hearing and the agency can prove proper service of notice of the hearing, the administrative law judge may deny the application based on the applicant's failure to carry its burden of proof. If the respondent fails to appear at a hearing in which the agency has the burden of proof, the agency attorney must prove actual or constructive service of a notice of hearing and must present evidence sufficient to prove the agency's case. Failure of the respondent to answer or to appear and contest the agency's case may be considered as some evidence supporting an adverse inference that respondent could not defend or rebut the agency's case.

History

• Source Note: The provisions of this §9.25 adopted to be effective August 28, 2008, 33 TexReg 6809.

7 Tex. Admin. Code § 9.26 Applicability of Texas Rules of Evidence

(a) The Texas Rules of Evidence, as applied in non-jury cases in the courts of Texas, apply in contested cases under this subchapter. The administrative law judge shall exclude irrelevant, immaterial, or unduly repetitious evidence. When necessary to ascertain facts not reasonably susceptible of proof under those rules, the administrative law judge may admit evidence not admissible under those rules, except where precluded by law, if of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs. Letters and affidavits are not admissible into evidence in contested case hearings unless they satisfy an exception to the hearsay rule or come into evidence without objection.

(b) In cases arising under Occupations Code, Chapter 53 (related to consequences of criminal conviction), letters of recommendation will be considered by a finance agency if submitted during the investigative stage of the licensing proceeding but will not be admitted into evidence at the hearing unless the letter satisfies an exception to the hearsay rule or comes into evidence without objection. A party must arrange to have all character witnesses give testimony in person or, with advance notice to opposing counsel, by phone pursuant to and in accordance with §9.32 of this title (relating to Telephone Hearings).

History

• Source Note: The provisions of this §9.26 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective November 8, 2007, 32 TexReg 7895; amended to be effective August 28, 2008, 33 TexReg 6808.

7 Tex. Admin. Code § 9.27 Facts Not Reasonably Susceptible of Proof under Rules of Evidence

The administrative law judge will treat the Texas Administrative Procedure Act exception under Government Code, §2001.081 (providing for the admission of evidence "not admissible under the Texas Rules of Evidence if of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs"), as identical to Federal Rule of Evidence 807, i.e., the administrative law judge will admit evidence pursuant to this exception only if the administrative law judge finds that:

(1) although not covered by any of the exceptions listed in Rule 803, Texas Rules of Evidence, the statement has equivalent circumstantial guarantees of trustworthiness to the exceptions listed in the rule;

(2) the fact the statement is offered to prove is material;

(3) the statement is more probative on the point for which it is offered than any other evidence that the proponent can procure through reasonable efforts;

(4) the interests of justice will be served by the statement's admission into evidence; and

(5) a reasonable time before the hearing, the statement's proponent furnished opposing parties with a copy of the statement and the name and address of the declarant (or information regarding where the statement was published) and of the intent of the statement's proponent to introduce the statement into evidence at the hearing so that opposing parties had a fair opportunity to anticipate the statement and rebut, explain, or contest it.

History

• Source Note: The provisions of this §9.27 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective March 15, 2007, 32 TexReg 1231.

7 Tex. Admin. Code § 9.28 Prefiled Testimony

On the judge's own motion, or the motion of any party, the administrative law judge may omit oral presentation of the direct testimony of any witness and may allow prefiled written testimony to be presented in its place. The written testimony carries the same force and effect as though stated orally by the witness; provided that the witness must be present at the hearing at which such testimony is offered and adopt such testimony under oath, and must be made available for cross-examination. Written reports of agency investigations on fact issues, if offered into evidence in a hearing in which the facts covered by the report are directly at issue, will be treated as prefiled testimony and the investigator must be made available for cross-examination unless the investigator is unavailable to the agency as a witness or unless the report comes into evidence without objection. If the investigator is unavailable to the agency as a witness, the report shall be admissible under Rule 803, Texas Rules of Evidence if it meets the requirements for admission into evidence under that rule. For purposes of this section "unavailability as a witness" has the same meaning as in Rule 804(a), Texas Rules of Evidence.

History

• Source Note: The provisions of this §9.28 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective January 8, 2009, 34 TexReg 42.

7 Tex. Admin. Code § 9.29 Stipulations

Parties may by written stipulation, or by oral stipulation on the record, agree upon the facts and their stipulation may be regarded and used as evidence at the hearing. The administrative law judge in such cases may require any additional evidence necessary to establish the facts to the administrative law judge's satisfaction.

History

• Source Note: The provisions of this §9.29 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective August 28, 2008, 33 TexReg 6808.

7 Tex. Admin. Code § 9.30 Official Notice

The administrative law judge may take official notice of judicially cognizable facts, and of generally recognized facts within the area of the agency's specialized knowledge. A party that desires the administrative law judge to take official notice of particular facts must make a motion that the administrative law judge do so, stating with specificity the facts, material, records, or documents encompassed in the motion. A party who opposes the motion will have the opportunity to contest the requested action. The administrative law judge may also sua sponte take official notice of facts, material, records, or documents on giving the parties an opportunity to contest the facts, material, records, or documents to be officially noticed.

History

• Source Note: The provisions of this §9.30 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.31 Reporters and Transcripts

In all proceedings when requested by the administrative law judge, the agency, or by any party, a court reporter shall make a stenographic record of the hearing.

History

• Source Note: The provisions of this §9.31 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.32 Telephone Hearings

(a) Sua sponte or on motion of any party and a showing of good cause, after reasonable notice to all parties to allow them to object and argue against the procedure, the administrative law judge may conduct all or part of a hearing by telephone or other electronic means. In determining whether to allow testimony by telephone or other electronic means, the administrative law judge shall consider all relevant factors including whether the motion is opposed, the cost and feasibility of the witness being present at the hearing instead of appearing by telephone or other electronic means, the nature and duration of the expected testimony, the nature of any exhibits expected to be introduced through the witness, whether there is a good reason that the witness is unavailable to testify in person, and the extent to which the demeanor and credibility of the witness are likely to be significant factors in weighing the witness' testimony. In deciding a motion under this section, the administrative law judge shall ensure that substantive and procedural rights of all parties are respected.

(b) Documentary evidence to be offered during a telephone hearing must be delivered by the proponent to all parties and to the administrative law judge prior to hearing.

(c) In a telephone hearing, the administrative law judge may consider the following as a failure to appear if the conditions exist for more than 20 minutes after the scheduled time for hearing:

(1) failure to answer the telephone;

(2) failure to free the telephone for a hearing; or

(3) failure to be ready to proceed with the hearing as scheduled.

History

• Source Note: The provisions of this §9.32 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective January 9, 2011, 35 TexReg 11849.

7 Tex. Admin. Code § 9.33 Mediation

The administrative law judge may arrange for the services of a qualified mediator to work with the parties and attempt to bring about a settlement. The administrative law judge may assess costs of the mediator's services against the parties in the same manner as other costs or may require advance payment. The mediation ends when successful or when a party decides that such party no longer wishes to participate in the mediation. The parties shall immediately inform the administrative law judge when the mediation ends. An offer to compromise or a statement made during mediation may not be admitted into evidence or considered for any purpose in the hearing of a case in which mediation was attempted.

History

• Source Note: The provisions of this §9.33 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.34 Post-hearing Proceedings

(a) Following the hearing the administrative law judge upon request shall give the parties an opportunity to file written briefs and proposed findings of fact and conclusions of law. Pursuant to Government Code, §2001.062, the administrative law judge shall review these materials and all evidence and testimony, and prepare a proposal for decision containing a statement of the reasons for the proposed decision and of each finding of fact and conclusion of law necessary to the proposed decision. The administrative law judge shall also prepare a proposed final order for the agency head to sign adopting the proposed decision. Upon completion, the administrative law judge shall serve copies of the proposal for decision and proposed final order on all parties and give each adversely affected party an opportunity to file exceptions and present briefs. If a party files exceptions or presents briefs, the administrative law judge shall give an opportunity to other parties to file replies to the exceptions or briefs. Exceptions, replies to exceptions, and related briefs must be filed within deadlines established by the administrative law judge. The administrative law judge may amend the proposal for decision and proposed final order in response to the exceptions, replies, or briefs submitted. If the administrative law judge makes substantive revisions, the administrative law judge shall circulate the amended proposal for decision and proposed final order to the parties for additional exceptions and briefs before submitting the proposal for decision and the proposed final order based thereon to the agency head(s) for approval.

(b) After the administrative law judge has circulated the proposal for decision and proposed order to the parties and the parties have had an opportunity to file exceptions and briefs in the manner provided in subsection (a) of this section, the administrative law judge shall submit the proposal for decision and proposed order together with all materials listed in Government Code, §2001.060, to the agency head(s) for review. No additional briefs may be submitted after the case is under submission to the agency head(s) for decision unless requested by the agency head(s). The agency head(s) may:

(1) adopt the proposal for decision and proposed final order, in whole or in part;

(2) modify and adopt the proposal for decision and proposed final order, in whole or in part;

(3) decline to adopt the proposal for decision and proposed final order, in whole or in part;

(4) remand the proceeding for further examination by the administrative law judge, including for the limited purpose of receiving additional briefing or evidence from the parties on specific issues; or

(5) take another lawful and appropriate action with regard to the case.

(c) If a court renders a decision that may be pertinent to the outcome of the case after it is under submission to the agency head, a party may direct the agency's attention to such decision by a cover letter transmitting a copy of the decision to the administrative law judge and agency head(s) (at the same time furnishing a copy to opposing parties). The cover letter may reference the case to which the decision pertains but may not contain arguments.

(d) If remand pursuant to subsection (b) of this section results in a substantially revised proposal for decision and order, the administrative law judge shall circulate the revised proposal for decision and order to the parties for additional exceptions and replies in the manner provided by subsection (a) of this section. After the parties have had an opportunity to file additional exceptions and replies, the administrative law judge shall submit the revised proposal for decision and order, together with the supplemental record, to the agency head(s) for consideration in the manner provided by subsection (b) of this section.

History

• Source Note: The provisions of this §9.34 adopted to be effective November 13, 1997, 22 TexReg 10951; amended to be effective July 2, 1998, 23 TexReg 6714.

7 Tex. Admin. Code § 9.35 Dismissal

Following notice to all affected parties and the opportunity for hearing, the administrative law judge with the consent of the agency head may dismiss any contested case, with or without prejudice, under such conditions and for such reasons as are found just and reasonable, including the following:

(1) failure to prosecute;

(2) unnecessary duplication of proceedings or res judicata;

(3) withdrawal;

(4) moot questions or obsolete petitions;

(5) lack of jurisdiction;

(6) abuse of discovery;

(7) refusal to observe proper decorum or obey orders of the administrative law judge made within the scope of authority; or

(8) if necessary in the interest of justice.

History

• Source Note: The provisions of this §9.35 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.36 Disruption of Hearing

To preserve decorum and ensure the orderly administration of hearings conducted on behalf of the finance commission agencies, the administrative law judge may expel a person from a contested case hearing and impose appropriate sanctions if that person engages in conduct that disrupts the hearing.

History

• Source Note: The provisions of this §9.36 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.37 Sanctions

(a) Sua sponte or on motion of a party and after notice and an opportunity for a hearing and subject to approval by the agency head on behalf of which the hearing is being conducted, the administrative law judge may impose appropriate sanctions as provided by subsection (b) of this section against a party or its representative for:

(1) filing a motion or pleading that is groundless and brought:

(A) in bad faith;

(B) for the purpose of harassment; or

(C) for any other improper purpose, such as to cause unnecessary delay or needless increase in the cost of the proceeding;

(2) abuse of the discovery process in seeking, making, or resisting discovery; or

(3) failure to obey an order of the administrative law judge.

(b) A sanction imposed under subsection (a) of this section may include, as appropriate and justified, issuance of an order:

(1) disallowing further discovery of any kind or of a particular kind by the offending party;

(2) charging all or any part of the expenses of discovery against the offending party or its representatives;

(3) holding that designated facts be considered admitted for purposes of the proceeding;

(4) refusing to allow the offending party to support or oppose a designated claim or defense or prohibiting the party from introducing designated matters in evidence;

(5) disallowing in whole or in part requests for relief by the offending party and excluding evidence in support of those requests;

(6) striking pleadings or testimony, or both, in whole or in part; or

(7) imposing any other sanction that the agency head with jurisdiction in the case could have imposed if the agency head had personally presided in hearing the case.

History

• Source Note: The provisions of this §9.37 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.38 Recovery of Agency Costs

The administrative law judge may allocate costs incurred by the agency among the parties in accordance with applicable law. Notwithstanding any other provision of agency rules, the administrative law judge may impose costs that are solely or primarily attributable to a particular party against that party.

History

• Source Note: The provisions of this §9.38 adopted to be effective November 13, 1997, 22 TexReg 10951.

7 Tex. Admin. Code § 9.39 Disposition of Exhibits

The agency may dispose of exhibits after a case is final in the manner provided in Texas Rules of Civil Procedure, Rule 14b, and the order of the Texas Supreme Court adopted pursuant to Rule 14b effective January 1, 1988.

History

• Source Note: The provisions of this §9.39 adopted to be effective March 11, 1999, 24 TexReg 1611.

Subchapter C COURT APPEALS

7 Tex. Admin. Code § 9.71 Appeals to the Courts

Appeals to the courts shall be as provided by statute and applicable case law.

History

• Source Note: The provisions of this §9.71 adopted to be effective November 28, 1995, 20 TexReg 9407.

7 Tex. Admin. Code § 9.72 Administrative Record

The party appealing an agency order to the courts must pay the agency the cost of preparing the copy of the record that is to be transmitted to the reviewing court at rates approved by the Office of the Attorney General. If more than one party appeals the agency's order, the cost of the preparation of the record may be divided equally among the appealing parties or as agreed by the parties.

History

• Source Note: The provisions of this §9.72 adopted to be effective November 28, 1995, 20 TexReg 9407; amended to be effective January 9, 2011, 35 TexReg 11849.

Subchapter D RULEMAKING

7 Tex. Admin. Code § 9.81 Rulemaking

Rulemaking proceedings must comply with Government Code, Chapter 2001, Subchapter B (§§2001.021 et seq.).

History

• Source Note: The provisions of this §9.81 adopted to be effective November 28, 1995, 20 TexReg 9407; amended to be effective March 12, 1998, 23 TexReg 2285.

7 Tex. Admin. Code § 9.82 Petitions to Initiate Rulemaking Proceedings

(a) Petitions to initiate rulemaking proceedings pursuant to Texas Government Code, §2001.021, must be submitted to the agency in writing. A petition must include:

(1) a brief explanation of the proposed rule;

(2) the full text of the proposed rule, and, if the petition is to modify an existing rule, the text of the proposed rule prepared in the same manner as an amendment to legislation that clearly identifies any words to be added or deleted from the existing text by underlining new language and striking through language to be deleted;

(3) a concise explanation of the legal authority to adopt the proposed rule, including a specific reference to the particular statute or other authority that authorizes it;

(4) an explanation of how the public would be benefitted by the adoption of the proposed rule;

(5) all available data or information showing a need for the proposed rule;

(6) any request to engage in negotiated rulemaking under §9.85 of this title (relating to Negotiated Rulemaking); and

(7) such other or additional information as the agency may request.

(b) An agency receiving a petition under subsection (a) of this section will present to the finance commission the petition and the agency's recommendation.

(c) The finance commission will vote to initiate a rulemaking proceeding, or to deny the petition and state the reasons for the denial.

History

• Source Note: The provisions of this §9.82 adopted to be effective November 28, 1995, 20 TexReg 9407; amended to be effective January 2, 2020, 44 TexReg 8231.

7 Tex. Admin. Code § 9.83 Agency Action on Petitions To Initiate Rulemaking Proceedings

(a) When the agency receives a rulemaking petition, the agency shall review it for compliance with the requirements of §9.82 of this title (relating to Petitions To Initiate Rulemaking). If the petition is determined to comply, the agency shall notify the applicant that it has been accepted for filing and the petition will be processed in accord with Government Code, §2001.021(c). If the petition is determined not to comply, the agency shall notify the applicant in writing of all deficiencies found and give the petitioner an opportunity to cure them by filing an amended petition. If no amended petition curing the deficiencies is filed with the agency by 5:00 p.m. on the 15th day following the date that the agency mailed a notice of deficiencies to the applicant, the petition shall be deemed denied for the reasons stated in the deficiency notice without the necessity of further action.

(b) If a petition is accepted for filing, within 60 days of the date that the petition was accepted for filing, the agency must either deny the petition for reasons stated in writing or initiate a rulemaking proceeding.

History

• Source Note: The provisions of this §9.83 adopted to be effective November 28, 1995, 20 TexReg 9407.

7 Tex. Admin. Code § 9.84 Hearings on Proposed Rules

(a) The agency shall grant an opportunity for a public hearing before adoption of any proposed rule as required by Government Code, §2001.029(b), or other applicable statute.

(b) The hearing may be held by the agency head(s) or by the administrative law judge or by any other person designated by the agency head(s). In the exercise of discretion, the agency head(s) may impose reasonable time limits on presentation of evidence and argument, determine the order of the presentations, and conduct the hearing in a manner suitable to the particular proceeding. Public hearings on proposed rules are neither contested cases nor full legal adversary proceedings. Ex parte prohibitions do not apply.

History

• Source Note: The provisions of this §9.84 adopted to be effective November 28, 1995, 20 TexReg 9407; amended to be effective March 12, 1998, 23 TexReg 2285.

7 Tex. Admin. Code § 9.85 Negotiated Rulemaking

(a) Initiation of process. An agency may propose to engage in negotiated rulemaking process pursuant to Texas Government Code, Chapter 2008 if:

(1) the finance commission votes to initiate a rulemaking proceeding under §9.82 of this title (relating to Petitions To Initiate Rulemaking) that includes negotiated rulemaking; or

(2) the agency determines that drafting the proposed rule might benefit from the negotiated rulemaking process.

(b) Appointment of a convener. Upon proposing a negotiated rulemaking process under subsection (a) of this section, the agency will appoint a convener to assist in determining whether it is advisable to proceed with negotiated rulemaking. The convener will be appointed pursuant to, and perform the duties described by, Texas Government Code, §2008.052.

(c) Notice of negotiated rulemaking. If the agency decides to engage in negotiated rulemaking after considering the convener's recommendation and report, then the agency will publish timely notice of its intent on its website and with the secretary of state for publication in the Texas Register in compliance with Texas Government Code, §2008.053.

(d) Appointment of facilitator and committee. The agency will appoint a facilitator and members of the negotiated rulemaking committee to carry out the duties described in Texas Government Code, §2008.056.

(e) Adoption of rule. The finance commission may adopt, amend, or refuse to adopt a rule created through the negotiated rulemaking process in its sole discretion.

History

• Source Note: The provisions of this §9.85 adopted to be effective January 2, 2020, 44 TexReg 8231.

Chapter 10 CONTRACT PROCEDURES

Subchapter A NEGOTIATION AND MEDIATION

7 Tex. Admin. Code § 10.1 Purpose and Application

This subchapter governs the negotiation and mediation of a claim of breach of contract asserted by a contractor against a Finance Unit of state government, under Government Code, Chapter 2260.

History

• Source Note: The provisions of this §10.1 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.2 Definitions

The following words and terms, when used in this chapter, shall have the following meaning, unless the context clearly indicates otherwise:

(1) Chief administrative officer--The commissioner, executive director, president or other executive officer responsible for the day to day operations of a unit of state government, or that person's designee.

(2) Commission--The Finance Commission of Texas.

(3) Contract Protest Officer--The person or persons assigned by a Finance Unit to resolve disputes over the solicitation, evaluation, or award of a contract.

(4) Contractor--Independent contractor who has entered into a contract directly with a Finance Unit of state government. The term does not include:

(A) A contractor's subcontractor, officer, employee, agent, or other person furnishing goods or services to a contractor;

(B) An employee of a Finance Unit of state government; or

(C) A student at an institution of higher education.

(5) Day--A calendar day. If an act is required to occur on a day falling on a Saturday, Sunday, or holiday, the first working day which is not one of these days should be counted as the required day for purpose of this chapter.

(6) Finance Agency--The Texas Department of Banking, the Department of Savings and Mortgage Lending, or the Office of Consumer Credit Commissioner.

(7) Finance Unit of state government or Finance Unit--The Commission or any of the Finance Agencies.

(8) Interested parties--All vendors who have submitted bids, proposals or other expressions of interest for the provision of goods or services pursuant to a contract with a Finance Unit of state government.

(9) Parties--The contractor and Finance Unit of state government that have entered into a contract in connection with which a claim of breach of contract has been filed under this subchapter.

(10) Unit of state government--The state or an agency, department, commission, bureau, board, office, council, court, or other entity that is in any branch of state government and that is created by the constitution or a statute of this state, including a university system or institution of higher education. The term does not include a county, municipality, court of a county or municipality, special purpose district, or other political subdivision of this state.

History

• Source Note: The provisions of this §10.2 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.3 Prerequisites to Suit

The procedures contained in this subchapter are exclusive and required prerequisites to suit under the Civil Practice and Remedies Code, Chapter 107, and the Government Code, Chapter 2260.

History

• Source Note: The provisions of this §10.3 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.4 Sovereign Immunity

This subchapter does not waive a Finance Unit of state government's sovereign immunity to suit or liability.

History

• Source Note: The provisions of this §10.4 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.5 Notice of Claim of Breach of Contract

(a) A contractor asserting a claim of breach of contract under the Government Code, Chapter 2260, shall file notice of the claim as provided by this section.

(b) The notice of claim shall:

(1) be in writing and signed by the contractor or the contractor's authorized representative;

(2) be delivered by hand, certified mail return receipt requested, or other verifiable delivery service, to the officer of the Finance Unit of state government designated in the contract to receive a notice of claim of breach of contract under the Government Code, Chapter 2260; if no person is designated in the contract, the notice shall be delivered to the Finance Unit's chief administrative officer; and

(3) state in detail:

(A) the nature of the alleged breach of contract, including the date of the event that the contractor asserts as the basis of the claim and each contractual provision allegedly breached;

(B) a description of damages that resulted from the alleged breach, including the amount and method used to calculate those damages; and

(C) the legal theory of recovery, i.e., breach of contract, including the relationship between the alleged breach and the damages claimed.

(c) The notice of claim shall be delivered no later than 180 calendar days after the date of the event that the contractor asserts as the basis of the claim.

History

• Source Note: The provisions of this §10.5 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.6 Agency Counterclaim

(a) A Finance Unit of state government asserting a counterclaim under the Government Code, Chapter 2260, shall file notice of the counterclaim as provided by this section.

(b) The notice of counterclaim shall:

(1) be in writing;

(2) be delivered by hand, certified mail return receipt requested or other verifiable delivery service to the contractor or representative of the contractor who signed the notice of claim of breach of contract; and

(3) state in detail:

(A) the nature of the counterclaim;

(B) a description of damages or offsets sought, including the amount and method used to calculate those damages or offsets; and

(C) the legal theory supporting the counterclaim.

(c) The notice of counterclaim shall be delivered to the contractor no later than 60 calendar days after the Finance Unit of state government's receipt of the contractor's notice of claim.

(d) Nothing in this subchapter precludes the Finance Unit of state government from initiating a lawsuit for damages against the contractor in a court of competent jurisdiction.

History

• Source Note: The provisions of this §10.6 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.7 Duty to Negotiate

The parties shall negotiate in accordance with the timetable set forth in §10.8 of this subchapter (relating to Timetable) to attempt to resolve all claims and counterclaims filed under this subchapter. No party is obligated to settle with the other party as a result of the negotiation.

History

• Source Note: The provisions of this §10.7 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.8 Timetable

(a) Following receipt of a contractor's notice of claim, the chief administrative officer of the Finance Unit of state government or other designated representative shall review the contractor's claim and the Finance Unit's counterclaim, if any, and initiate negotiations with the contractor to attempt to resolve the claim and counterclaim.

(b) Subject to subsection (c) of this section, the parties shall begin negotiations no later than 120 calendar days following the date the Finance Unit of state government receives the contractor's notice of claim.

(c) The Finance Unit of state government may delay negotiations until after the 180th day after the date of the event giving rise to the claim of breach of contract by:

(1) delivering written notice to the contractor that the commencement of negotiations will be delayed; and

(2) delivering written notice to the contractor when the Finance Unit of state government is ready to begin negotiations.

(d) The parties may conduct negotiations according to an agreed schedule as long as they begin negotiations no later than the applicable deadlines set forth in subsections (b) or (c) of this section, whichever is applicable.

(e) Subject to subsection (f) of this section, the parties shall complete the negotiations that are required by this subchapter as a prerequisite to a contractor's request for contested case hearing no later than 270 days after the Finance Unit of state government receives the contractor's notice of claim.

(f) The parties may agree in writing to extend the time for negotiations on or before the 270th day after the Finance Unit of state government receives the contractor's notice of claim. The agreement shall be signed by representatives of the parties with authority to bind each respective party.

(g) The contractor may request a contested case hearing before the State Office of Administrative Hearings (SOAH) pursuant to §10.13 of this title (relating to Request for Contested Case Hearing) after the 270th day after the Finance Unit of state government receives the contractor's notice of claim, or the expiration of any extension agreed to under subsection (f) of this section.

(h) The parties may agree to mediate the dispute at any time before the 120th day after the Finance Unit of state government receives the contractor's notice of claim and before the expiration of any extension agreed to by the parties pursuant to subsection (f) of this section. The mediation shall be governed by §§10.14 - 10.21 of this subchapter.

(i) Nothing in this section is intended to prevent the parties from commencing negotiations earlier than the deadlines established in subsections (b) and (c) of this section, or from continuing or resuming negotiations after the contractor requests a contested case hearing before SOAH.

History

• Source Note: The provisions of this §10.8 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.9 Conduct of Negotiation

(a) Negotiation is a consensual bargaining process in which the parties attempt to resolve a claim and counterclaim. A negotiation under this subchapter may be conducted by any method, technique, or procedure authorized under the contract or agreed upon by the parties. The parties may conduct negotiations with the assistance of one or more neutral third parties. The parties may choose to mediate their dispute in accordance with §§10.14 - 10.21 of this subchapter.

(b) To facilitate meaningful evaluation and negotiation of the claims and any counterclaims, the parties may exchange relevant documents that support their respective claims, defenses, counterclaims or positions.

History

• Source Note: The provisions of this §10.9 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.10 Settlement Approval Procedures

The parties' settlement approval procedures shall be disclosed prior to, or at the beginning of negotiations. To the extent possible, the parties shall select negotiators who are knowledgeable about the subject matter of the dispute, who are in a position to reach agreement and who can credibly recommend approval of an agreement.

History

• Source Note: The provisions of this §10.10 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.11 Settlement Agreement

(a) A settlement agreement may resolve an entire claim or any designated and severable portion of a claim.

(b) To be enforceable, a settlement agreement must be in writing and signed by representatives of the contractor and the Finance Unit of state government who have authority to bind each respective party.

(c) A partial settlement does not waive a contractor's rights under the Government Code, Chapter 2260, as to the parts of the claim that are not resolved.

History

• Source Note: The provisions of this §10.11 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.12 Costs of Negotiation

Unless the parties agree otherwise, each party shall be responsible for its own costs incurred in connection with a negotiation, including, without limitation, the costs or fees for attorneys, consultants and experts.

History

• Source Note: The provisions of this §10.12 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.13 Request for Contested Case Hearing

(a) If a claim of breach of contract is not resolved in its entirety through negotiation or mediation in accordance with this subchapter on or before the 270th day after the Finance Unit of state government receives the notice of claim, or after the expiration of any extension agreed to by the parties pursuant to §10.8(f) of this subchapter (relating to Timetable), the contractor may file a request with the Finance Unit of state government for a contested case hearing before SOAH.

(b) A request for a contested case hearing shall state the legal and factual basis for the claim, and shall be delivered to the chief administrative officer of the Finance Unit of state government within a reasonable time after the 270th day or the expiration of any written extension agreed to pursuant to §10.8(f) of this subchapter.

(c) The Finance Unit of state government shall forward the contractor's request for a contested case hearing to SOAH within a reasonable period of time, not to exceed thirty days, after receipt of the request.

(d) The parties may agree to submit the case to SOAH before the 270th day after the notice of claim is received by the Finance Unit of state government if they have achieved a partial resolution of the claim or if an impasse has been reached in the negotiations and proceeding to a contested case hearing would serve the interests of justice.

History

• Source Note: The provisions of this §10.13 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.14 Agreement to Mediate

The parties may agree to mediate a claim through an impartial third party. For purposes of this subchapter, "mediation" is assigned the meaning set forth in the Civil Practice and Remedies Code, §154.023. The mediation is subject to the provisions of the Governmental Dispute Resolution Act, Government Code, Chapter 2009. The parties may be assisted in the mediation by legal counsel or another individual.

History

• Source Note: The provisions of this §10.14 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.15 Qualifications and Immunity of the Mediator

The mediator shall possess the qualifications required under the Civil Practice and Remedies Code, §154.052, be subject to the standards and duties prescribed by the Civil Practice and Remedies Code, §154.053 and have the qualified immunity prescribed by the Civil Practice and Remedies Code §154.055, if applicable.

History

• Source Note: The provisions of this §10.15 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.16 Confidentiality of Mediation and Final Settlement Agreement

(a) A mediation conducted under this subchapter is confidential in accordance with the Government Code, §2009.054.

(b) The confidentiality of a final settlement agreement to which a Finance Unit of state government is a signatory that is reached as a result of the mediation is governed by the Public Information Act, Government Code, Chapter 552.

History

• Source Note: The provisions of this §10.16 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.17 Costs of Mediation

Unless the parties agree otherwise in writing, each party shall be responsible for its own costs incurred in connection with a mediation, including without limitation, costs of document reproduction, fees for attorneys, consultants and experts, and the cost of the mediator shall be divided equally between the parties.

History

• Source Note: The provisions of this §10.17 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.18 Settlement Approval Procedures

The parties' settlement approval procedures shall be disclosed by the parties prior to the mediation. To the extent possible, the parties shall select representatives who are knowledgeable about the subject matter of the dispute, who are in a position to reach agreement, and who can credibly recommend approval of an agreement.

History

• Source Note: The provisions of this §10.18 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.19 Initial Settlement Agreement

Any settlement agreement reached during a mediation shall be signed by representatives of the contractor and the Finance Unit of state government, and shall describe any procedures that the parties must follow to obtain final and binding approval of the agreement.

History

• Source Note: The provisions of this §10.19 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.20 Final Settlement Agreement

A final settlement agreement reached during or as a result of a mediation that resolves an entire claim or counterclaim, or any designated and severable portion of a claim or counterclaim, shall comply with §10.11 of this subchapter (relating to Settlement Agreement).

History

• Source Note: The provisions of this §10.20 adopted to be effective November 7, 2010, 35 TexReg 9694.

7 Tex. Admin. Code § 10.21 Referral to State Office of Administrative Hearings

If mediation does not resolve the claim to the satisfaction of the contractor, the contractor may request that the claim be referred to SOAH in accordance with §10.13 of this subchapter (relating to Request for Contested Case Hearing.)

History

• Source Note: The provisions of this §10.21 adopted to be effective November 7, 2010, 35 TexReg 9694.

Subchapter B CONTRACT PROTESTS

7 Tex. Admin. Code § 10.30 Protests

(a) Any actual or prospective bidder, offeror, or contractor who is aggrieved in connection with the solicitation, evaluation, or award of a contract by any Finance Unit of state government may formally protest to the Finance Unit. Such protests must be made in writing and received by the Chief Administrative Officer of the Finance Unit within 10 working days after the protesting party knows, or should have known, of the occurrence of the action that is protested. Formal protests must conform to the requirements of this section. The protesting party must mail or deliver copies of the protest to all other interested parties.

(b) In the event of a timely protest under this section, the Finance Unit of state government shall not proceed further with the solicitation or award of the contract unless the Chief Administrative Officer of such Finance Unit makes a written determination that the contract must be awarded without delay, to protect the best interests of the state.

(c) A formal protest must be sworn and contain:

(1) a specific identification of the statutory or regulatory provision that the protesting party alleges has been violated;

(2) a specific description of each action by the Finance Unit of state government that the protesting party alleges to be a violation of the statutory or regulatory provision that the protesting party has identified pursuant to paragraph (1) of this subsection;

(3) a precise statement of the relevant facts;

(4) a statement of any issues of law or fact that the protesting party contends must be resolved;

(5) a statement of the argument and authorities that the protesting party offers in support of the protest; and

(6) a statement that copies of the protest have been mailed or delivered to all other identifiable interested parties.

(d) The Contract Protest Officer of the Finance Unit of state government may settle and resolve the dispute over the solicitation or award of a contract at any time before the matter is submitted on appeal to the Chief Administrative Officer of the Finance Unit. The Contract Protest Officer of the Finance Unit of state government may solicit written responses to the protest from other interested parties.

(e) If the protest is not resolved by mutual agreement, the Contract Protest Officer of the Finance Unit of state government shall issue a written determination that resolves the protest.

(1) If the Contract Protest Officer of the Finance Unit of state government determines that no violation of statutory or regulatory provisions has occurred, then the Contract Protest Officer shall inform the protesting party and other interested parties by letter that sets forth the reasons for the determination.

(2) If the Contract Protest Officer of the Finance Unit of state government determines that a violation of any statutory or regulatory provisions has occurred in a situation in which a contract has not been awarded, then the Contract Protest Officer of the Finance Unit shall inform the protesting party and other interested parties of that determination by letter that details the reasons for the determination and the appropriate remedy.

(3) If the Contract Protest Officer of the Finance Unit of state government determines that a violation of any statutory or regulatory provisions has occurred in a situation in which a contract has been awarded, then the Contract Protest Officer of the Finance Unit shall inform the protesting party and other interested parties of that determination by letter that details the reasons for the determination. This letter may include termination of the contract.

(f) The protesting party may appeal a determination of a protest by the Contract Protest Officer of the Finance Unit of state government to the Chief Administrative Officer of the Finance Unit. An appeal of the Contract Protest Officer's determination must be in writing and received in the office of the Chief Administrative Officer of the Finance Unit by not later than 10 working days after the date on which written notice of determination was sent. The scope of the appeal shall be limited to review of the Contract Protest Officer's determination. The protesting party must mail or deliver to all other interested parties a copy of the appeal, which must contain a certified statement that such copies have been provided.

(g) A written decision that the Chief Administrative Officer has issued shall be the final administrative action of the Finance Unit of state government.

(h) The Finance Unit of state government shall maintain all documentation on the purchasing process that is the subject of a protest or appeal in accordance with the retention schedule of the Finance Unit.

History

• Source Note: The provisions of this §10.30 adopted to be effective November 7, 2010, 35 TexReg 9694.

Subchapter C CONTRACT MONITORING

7 Tex. Admin. Code § 10.40 Enhanced Contract and Performance Monitoring; Website Posting

(a) Purpose. Under Texas Government Code, §2261.253, the finance agencies apply the following procedures concerning contracts for the purchase of goods or services from private vendors.

(b) Applicability.

(1) Finance agencies. This section applies to the agencies governed by the Finance Commission of the State of Texas: the Texas Department of Banking, the Texas Department of Savings and Mortgage Lending, and the Office of Consumer Credit Commissioner.

(2) Documents not subject to this section. Documents not subject to this section include the following:

(A) memoranda of understanding;

(B) interagency contracts;

(C) interlocal agreements; and

(D) contracts that do not involve a cost.

(c) Contract evaluation and monitoring.

(1) Use of finance agency policies and contract management handbook. Contracts are evaluated and monitored in accordance with each respective finance agency's policies and contract management handbook. Each finance agency maintains a contract management handbook in accordance with Texas Government Code, §2261.256.

(2) Identifying contracts that require enhanced monitoring. Each finance agency will include risk assessment factors in its contract management handbook to identify contracts that require enhanced contract or performance monitoring. The risk assessment factors must include the following:

(A) the total contract amount;

(B) the type of contract purchase;

(C) the impact to the agency and its mission; and

(D) the compliance history of the contractor.

(3) Finance Commission notice. If a finance agency identifies a contract that requires enhanced monitoring, the finance agency will notify the Finance Commission in accordance with its policies and contract management handbook. The finance agency will include in the notification any serious issues or risks identified with the contract.

(d) Website posting.

(1) Posting on finance agency website. Each finance agency will post on its website contracts that meet the posting requirements provided by Texas Government Code, §2261.253.

(2) Redaction of confidential information. Before posting the contracts under paragraph (1) of this subsection, each finance agency must redact information that is confidential by law, information excepted from public disclosure by the Texas Public Information Act (Texas Government Code, Chapter 552), and the social security number of any individual in accordance with Texas Government Code, §2261.253(e).

History

• Source Note: The provisions of this §10.40 adopted to be effective March 8, 2018, 43 TexReg 1257; amended to be effective September 5, 2024, 49 TexReg 6734.

Part 2 TEXAS DEPARTMENT OF BANKING

Chapter 11 MISCELLANEOUS

Subchapter A GENERAL

7 Tex. Admin. Code § 11.10 Definitions

(a) "Complainant" means a person who files a complaint or inquiry.

(b) "Complaint" means a written communication submitted to the department by a person that alleges misconduct by a person believed to be engaging in an activity that is regulated by the department. For purposes of this subchapter, a complaint shall contain at least the following information:

(1) the complainant's name and contact information;

(2) the name of the entity against whom the complaint is submitted;

(3) the date and place of the alleged violation;

(4) a description of the facts or conduct alleged to violate applicable statutes or rules; and

(5) written documentation supporting the complaint.

(c) "Inquiry" means a communication made to the department about an entity believed to be engaging in an activity that is regulated by the department, but such communication does not include all of the required elements of a complaint.

History

• Source Note: The provisions of this §11.10 adopted to be effective September 8, 2019, 44 TexReg 4706.

7 Tex. Admin. Code § 11.11 Complaint Processing

(a) Complaints and inquiries filed with the department are generally considered public information, unless a specific statutory exception applies.

(b) Upon receipt of a complaint or inquiry, the department will make a good faith effort to protect complainant's identity to the extent possible. The department will determine if the complaint or inquiry relates to an activity that the department regulates.

(c) If the department does not regulate the activity that is the subject of the complaint or inquiry, the department shall close the complaint or inquiry, notify the complainant and refer the complaint or inquiry to the appropriate regulatory entity within five business days of receiving the complaint or inquiry, if known.

(d) If the department regulates the activity that is the subject of a complaint, the department shall initiate an investigation into the merits of the complaint by sending, within 10 business days of receiving the complaint, a copy of the complaint and any supporting documentation to the entity that is the subject of the complaint.

(e) The department shall prioritize complaints for purposes of determining the order in which complaints are investigated, taking into account the seriousness of the allegations made in a complaint and the length of time a complaint has been pending.

(f) A regulated entity that receives a complaint forwarded by the department shall respond within 30 days from the date the request is mailed by the department.

(g) The banking commissioner may appoint a hearings officer or other subject matter expert to investigate a complaint received by the department.

(h) The department may, at the discretion of the commissioner, arrange for the services of a qualified mediator or subject matter expert to assist in resolving the complaint.

(i) The department shall monitor how long each complaint is open, and shall make all reasonable efforts to resolve complaints within 90 days of receipt. The department shall notify the complainant of their complaint status at least quarterly if more than 45 days have elapsed since the complaint was received.

(j) If the department determines that the complaint is not supported by the evidence, or if the complaint is resolved to the satisfaction of the parties, the complaint will be dismissed.

(k) The department shall notify all parties to the complaint within 10 business days of closing the complaint.

(l) A complainant who disagrees with the disposition of a complaint may appeal by filing a petition against the department in a district court in Travis County.

History

• Source Note: The provisions of this §11.11 adopted to be effective September 8, 2019, 44 TexReg 4706.

7 Tex. Admin. Code § 11.12 Complaint Review and Reporting

(a) The department shall maintain in accordance with its retention policy records of all complaints received. Such records shall include the information required in Finance Code, §12.108.

(b) A representative sample of complaints closed due to lack of jurisdiction or evidence shall be reviewed quarterly by the head of the division that received the complaint.

(c) At least quarterly, the department shall submit to the Finance Commission a report of the sources, subjects, types, and dispositions of complaint activity during the preceding period.

History

• Source Note: The provisions of this §11.12 adopted to be effective September 8, 2019, 44 TexReg 4706.

7 Tex. Admin. Code § 11.37 How Do I Provide Information to Consumers on How to File a Complaint?

(a) Definitions

(1) "Consumer" means an individual who obtains or has obtained a product or service from you that is to be used primarily for personal, family, or household purposes.

(2) "Privacy notice" means any notice which you give regarding a consumer's right to privacy as required by a specific state or federal law.

(3) "Required notice" means a notice in a form set forth or provided for in subsection (b)(1) of this section.

(4) "You" means a bank, foreign bank, bank holding company, or trust company that is chartered, licensed, or registered by the Texas Department of Banking under the Finance Code.

(b) How do I provide notice of how to file complaints?

(1) You must use a notice that substantially conforms to the language and form of the following notice in order to let your consumers know how to file complaints: The (your name) is (chartered, licensed, or registered) under the laws of the State of Texas and by state law is subject to regulatory oversight by the Texas Department of Banking. Any consumer wishing to file a complaint against the (your name) should contact the Texas Department of Banking through one of the means indicated below: In Person or U.S. Mail: 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, Telephone No.: (877) 276-5554, Fax No.: (512) 475-1313, email: consumer.complaints@dob.texas.gov, Website: www.dob.texas.gov.

(2) You must provide the required notice in the language in which a transaction is conducted.

(3) You must include the required notice with each privacy notice that you send out.

(4) Regardless of whether you are required by any state or federal law to give privacy notices, you must take appropriate steps to let your consumers know how to file complaints by giving them the required notice in compliance with paragraph (1) of this subsection.

(5) You must use the following measures to give the required notice:

(A) In each area where you conduct business on a face-to-face basis, you must conspicuously post the required notice. A notice is deemed to be conspicuously posted if a consumer with 20/20 vision can read it from the place where he or she would typically conduct business or if it is included on a bulletin board, in plain view, on which all required notices to the general public (such as equal housing posters, licenses, Community Reinvestment Act notices, etc.) are posted.

(B) For consumers who are not given privacy notices, you must give the required notice when the consumer first obtains a product or service from you.

(C) Those portions of your website that offer consumer goods and services must contain access to the required notice.

History

• Source Note: The provisions of this §11.37 adopted to be effective January 3, 2002, 26 TexReg 10850; amended to be effective November 4, 2010, 35 TexReg 9695; amended to be effective September 8, 2016, 41 TexReg 6676.

Chapter 12 LOANS AND INVESTMENTS

Subchapter A LENDING LIMITS

7 Tex. Admin. Code § 12.1 Purpose and Scope

(a) Purpose. The purpose of this subchapter is to administer and carry out the objectives of the Finance Code, Title 3, Subtitle A, particularly the Finance Code, §34.201, to protect the safety and soundness of state-chartered banks by preventing excessive loans to one person or a relatively small group of persons who are financially interdependent, and to promote diversification of loans to reduce portfolio and credit risk. Notwithstanding the provisions of the Finance Code, §34.201, and this subchapter, loans and extensions of credit by state banks and their operating subsidiaries remain subject to the exercise of prudent lending standards and safe and sound banking practices.

(b) Scope.

(1) This subchapter applies to all loans and extensions of credit made by a state bank and its operating subsidiaries. This subchapter does not apply to loans made by an insured state bank and its domestic operating subsidiaries to the bank's "affiliates," as that term is defined in 12 U.S.C. §371c(b)(1), pursuant to the Finance Code, §34.201(a)(13), or to loans made by a state bank to the bank's operating subsidiaries, pursuant to the Finance Code, §34.201(a)(14). Except as otherwise provided, this subchapter does not apply to other loans specifically exempted from the lending limit pursuant to the Finance Code, §34.201.

(2) Loans and extensions of credit to affiliates, executive officers, directors, and principal shareholders of state banks, and their related interests, are subject to the limits prescribed by 12 U.S.C. §§371c, 371c-1, 375a, and 375b, Regulation O (12 C.F.R. §215.1 et seq.), and 12 C.F.R. §337.3, in addition to the lending limits established by the Finance Code, §34.201, and this subchapter, where applicable.

(3) The lending limits in this subchapter are separate and apart from the investment limits set forth in the Finance Code, §34.101, and regulations adopted to govern investment limits. A state bank may make loans or extensions of credit to one borrower up to the full amount permitted by this subchapter and also purchase and hold eligible investment securities issued by the same obligor up to the full amount permitted under the Finance Code, §34.101.

History

• Source Note: The provisions of this §12.1 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655.

7 Tex. Admin. Code § 12.2 Definitions

Definitions in the Finance Code, Title 3, Subtitles A and G, are incorporated herein by reference. As used in this subchapter and in Finance Code, Chapter 34, concerning investments and loans, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

(1) Borrower--A person who is named as a borrower, obligor, or debtor in a loan or extension of credit; a person to whom a state bank has credit exposure arising from a derivative transaction or a securities financing transaction, entered by the bank; or any other person, including but not limited to a drawer, endorser, or guarantor who is considered to be a borrower under the direct benefit, source of repayment, or common enterprise tests set forth in §12.9 of this title (relating to Aggregation and Attribution).

(2) Call report--The federal Consolidated Report of Condition and Income required by and filed under 12 U.S.C. §1817 (or under 12 U.S.C. §324 in the case of a bank that is a member of the Federal Reserve System), or a report of financial condition and results of operations of a state bank required by the banking commissioner under Finance Code, §31.108.

(3) Control--Control is presumed to exist when a person directly or indirectly, or acting through or together with one or more persons:

(A) owns, controls, or has the power to vote 25 percent or more of any class of voting securities of another person;

(B) controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person; or

(C) has the power to exercise a controlling influence over the management or policies of another person.

(4) Credit derivative--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(5) Derivative transaction--Includes any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

(6) Effective margining arrangement--A master legal agreement governing derivative transactions between a bank and a counterparty that requires the counterparty to post, on a daily basis, variation margin to fully collateralize that amount of the bank's net credit exposure to the counterparty that exceeds $25 million created by the derivative transactions covered by the agreement.

(7) Eligible credit derivative--A single-name credit derivative or a standard, non-tranched index credit derivative provided that:

(A) the derivative contract meets the requirements of an eligible guarantee, as defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System), and has been confirmed by the protection purchaser and the protection provider;

(B) any assignment of the derivative contract has been confirmed by all relevant parties;

(C) if the credit derivative is a credit default swap, the derivative contract includes the following credit events:

(i) failure to pay any amount due under the terms of the reference exposure, subject to any applicable minimal payment threshold that is consistent with standard market practice and with a grace period that is closely in line with the grace period of the reference exposure; and

(ii) bankruptcy, insolvency, restructuring (for obligors not subject to bankruptcy or insolvency), or inability of the obligor on the reference exposure to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and similar events;

(D) the terms and conditions dictating the manner in which the derivative contract is to be settled are incorporated into the contract;

(E) if the derivative contract allows for cash settlement, the contract incorporates a robust valuation process to estimate loss with respect to the derivative reliably and specifies a reasonable period for obtaining post-credit event valuations of the reference exposure;

(F) if the derivative contract requires the protection purchaser to transfer an exposure to the protection provider at settlement, the terms of at least one of the exposures that is permitted to be transferred under the contract provides that any required consent to transfer may not be unreasonably withheld; and

(G) if the credit derivative is a credit default swap, the derivative contract clearly identifies the parties responsible for determining whether a credit event has occurred, specifies that this determination is not the sole responsibility of the protection provider, and gives the protection purchaser the right to notify the protection provider of the occurrence of a credit event.

(8) Eligible protection provider--An entity that is:

(A) a sovereign entity (a central government, including the U.S. government; an agency; department; ministry; or central bank);

(B) the Bank for International Settlements, the International Monetary Fund, the European Central Bank, the European Commission, or a multilateral development bank;

(C) a Federal Home Loan Bank;

(D) the Federal Agricultural Mortgage Corporation;

(E) a depository institution, as defined in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. §1813(c);

(F) a bank holding company, as defined in section 2 of the Bank Holding Company Act, as amended, 12 U.S.C. §1841;

(G) a savings and loan holding company, as defined in section 10 of the Home Owners' Loan Act, 12 U.S.C. §1467a;

(H) a securities broker or dealer registered with the SEC under the Securities Exchange Act of 1934, 15 U.S.C. §§78o et seq.;

(I) an insurance company that is subject to the supervision of a State insurance regulator;

(J) a foreign banking organization;

(K) a non-U.S.-based securities firm or a non-U.S.-based insurance company that is subject to consolidated supervision and regulation comparable to that imposed on U.S. depository institutions, securities broker-dealers, or insurance companies; or

(L) a qualifying central counterparty.

(9) Qualifying central counterparty--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(10) Qualifying master netting agreement--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(11) Sale of federal funds--A transaction between depository institutions involving the transfer of immediately available funds resulting from credits to deposit balances at Federal Reserve Banks, or from credits to new or existing deposit balances due from a correspondent depository institution.

(12) Securities financing transaction--A repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction.

(13) Tier 1 capital--A state bank's unimpaired capital and surplus. A state bank's Tier 1 capital is calculated under 12 C.F.R. part 324 (or 12 C.F.R. part 217 in the case of a bank that is a member of the Federal Reserve System), is reported in the bank's most recent call report, and is periodically re-calculated as provided by §12.11 of this title (relating to Calculation of Lending Limit).

(14) Unimpaired capital and surplus--A state bank's core capital, equal to its Tier 1 capital calculated under 12 C.F.R. part 324 (or 12 C.F.R. part 217 in the case of a bank that is a member of the Federal Reserve System), and referred to as Tier 1 capital in this chapter.

History

• Source Note: The provisions of this §12.2 adopted to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

7 Tex. Admin. Code § 12.3 Loans and Extensions of Credit

(a) Loans or extensions of credit for purposes of the Finance Code, §34.201, and this subchapter include:

(1) an overdraft, regardless of whether such overdraft was pre-arranged, other than an intra-day overdraft for which payment or deposit is received by the bank before the time at which the bank closes its accounting records for the business day on which the funds were advanced;

(2) a contractual obligation to advance funds to or on behalf of a person, including a bank's obligation to:

(A) make payment, directly or indirectly, to a third party contingent upon default by a customer of the bank in performing an obligation owed to the third party or upon another stated condition;

(B) guarantee or act as surety for the benefit of a person;

(C) advance funds under a legally binding commitment to lend; or

(D) advance funds under a standby letter of credit, a put, or other similar arrangement, however named or described, that represents an obligation to the beneficiary on the part of the issuing bank to repay money borrowed by or advanced to or for the account of the account party (the customer or applicant in a letter of credit transaction), make payment on account of any indebtedness undertaken by the account party, or make payment on account of a default by the account party in the performance of an obligation, but not including a bank's obligation under a commercial letter of credit or similar instrument if the issuing bank reasonably expects the beneficiary to draw on the issuer and the instrument neither guarantees payment nor provides for payment in the event of a default by a third party;

(3) a maker or endorser's obligation arising from the discount of commercial paper;

(4) third-party paper purchased to the extent it is subject to an agreement that the seller will repurchase the paper, including an obligation to repurchase the paper upon default or at the end of a stated period, less any applicable dealer reserves held by the bank as collateral security, unless such transaction is exempt under other provisions of the Finance Code or this subchapter;

(5) the sale of Federal funds with a maturity of more than one business day, but not Federal funds sold with a maturity of one day or less or Federal funds sold under a continuing contract, including contracts that provide for weekly settlement if the parties have the contractual right to obtain their funds at maturity of each transaction;

(6) loans or extensions of credit that have been charged off on the books of the bank, in whole or part, unless the loan or extension of credit is no longer legally enforceable by reason of:

(A) discharge in bankruptcy;

(B) expiration of the statute of limitations or judicial decision; or

(C) another reason, provided the bank maintains sufficient records to demonstrate that the loan is unenforceable;

(7) lease financing transactions made pursuant to the Finance Code, §34.204, unless otherwise exempt under §12.7 of this title (relating to Lease Financing);

(8) nonrecourse or limited recourse loans or extensions of credit;

(9) aggregate cash surrender value of life insurance policies from any one insurance company;

(10) any credit exposure to a person arising from a derivative transaction or a securities financing transaction between a state bank and the person, as determined pursuant to §12.12 of this title (relating to Credit Exposure Arising from Derivative and Securities Financing Transactions); and

(11) another category of transactions that is the equivalent of a loan or extension of credit as determined by the banking commissioner in the exercise of discretion.

(b) Loans or extensions of credit for purposes of the Finance Code, §34.201, and this subchapter do not include:

(1) funds advanced to or for the benefit of a borrower by a bank for taxes or insurance associated with collateral security for a loan or extension of credit, as well as funds advanced for utilities, security, and maintenance expenses associated with real property securing a loan or extension of credit, but only if necessary to preserve the value of the real property or other collateral security and consistent with safe and sound banking practices, provided the bank maintains sufficient records to demonstrate the necessity of the advance, and such advances are included in loans and extensions of credit thereafter until repaid for the purpose of determining whether additional loans or extensions of credit to the same borrower may be made within applicable lending limits;

(2) accrued and discounted interest on an existing loan or extension of credit, including interest that has been capitalized from prior notes and interest that has been advanced under terms and conditions of a loan agreement;

(3) that portion of a loan or extension of credit sold as a participation by a bank on a nonrecourse basis, provided the participation results in a pro rata sharing of credit risk proportionate to respective interests of the originating and participating lenders, except that:

(A) notwithstanding any requirement of Financial Accounting Standard Board Accounting Standard Codification Topic 860, Transfers and Servicing, for lending limit purposes, if the participation agreement provides that repayment must be applied first to the portions sold, a pro rata sharing will be considered to exist only if, in the event of default or comparable event provided in the agreement, the participants share in all subsequent repayments and collections in proportion to their actual percentage participation at the time of the occurrence of the event;

(B) if the originating bank funds the entire loan, the participants must be contractually obligated to remit their portion to the bank before the close of business (the time at which the bank closes its accounting records for the business day) on the next business day of the originating bank or its portion funded by the originating bank will be considered a loan by the originating bank to the borrower;

(C) in the case of a participation sold in an existing loan, the amount of the participation may not be subtracted from the outstanding loans and extensions of credit of the originating bank until the proceeds of sale are in the possession of the originating bank; and

(D) a loan participation agreement that provides for weekly settlement of amounts due to and from the participants meets the requirements of this paragraph if the outstanding balance to the borrower from the originating bank does not at any time exceed the bank's legal lending limit;

(4) an advance against uncollected funds in the normal course of collection pursuant to the bank's availability schedule issued in compliance with Regulation CC (12 C.F.R. §229.1 et seq.), including the amount of an item that must be credited to the customer under the bank's availability schedule but remains uncollected and unreturned because of a delay or defect in the collection system;

(5) the sale of Federal funds with a maturity of one day or less, or Federal funds sold under a continuing contract, including contracts that provide for weekly settlement if the parties have the contractual right to obtain their funds at maturity of each transaction;

(6) intra-day credit exposures arising from a derivative transaction or a securities financing transaction;

(7) a renewal or restructuring of a nonconforming loan as a new loan or extension of credit, subject to compliance with §12.10(b) of this title (relating to Nonconforming Loans); and

(8) that portion of one or more loans or extensions of credit, not to exceed 15% of the bank's Tier 1 capital, with respect to which the bank has purchased protection in the form of a single-name eligible credit derivative from an eligible protection provider if the reference obligor is the same legal entity as the borrower in the loan or extension of credit and the maturity of the protection purchased equals or exceeds the maturity of the loan or extension of credit.

History

• Source Note: The provisions of this §12.3 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective January 2, 2003, 27 TexReg 12185; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

7 Tex. Admin. Code § 12.4 Loan Commitments

(a) A commitment to lend, when combined with all other loans or extensions of credit to a borrower, must be within the bank's legal lending limit at the time the commitment becomes binding, and advances may be made under a binding commitment to lend even if the advances would exceed the bank's lending limit on the date of funding. In determining whether a commitment to lend is within a bank's lending limit when made, the bank may deduct from the amount of the commitment the amount of each legally binding loan participation agreement executed before or concurrently with the bank's commitment that would be excluded from a loan or extension of credit under §12.3(b)(3) of this title (relating to Loans and Extensions of Credit).

(b) Pursuant to the Finance Code, §34.201(b)(2), a state bank may renew a commitment to lend and complete funding under that commitment to one borrower in circumstances where the renewed commitment would exceed the bank's current, general lending limit if:

(1) the completion of funding is consistent with safe and sound banking practices and is made to protect the position of the bank;

(2) the completion of funding will enable the borrower to complete the project for which the original, expiring commitment to lend was made; and

(3) the amount of the additional funding does not exceed the unfunded portion of the bank's original, expiring commitment to lend.

History

• Source Note: The provisions of this §12.4 adopted to be effective March 1, 1996, 21 TexReg 1383.

7 Tex. Admin. Code § 12.5 Percentage Lending Limits

(a) General lending limit. Generally, a bank's total outstanding loans and extensions of credit to one borrower, as provided in the Finance Code §34.201, may not exceed 25% of the bank's Tier 1 capital. However, certain loans or extensions of credit are subject to special lending limits as set forth in this section. These special lending limits are cumulative of one another and of the general lending limit under this subsection except as otherwise provided.

(b) Loans secured by title to readily marketable goods.

(1) Pursuant to the Finance Code, §34.201(a)(3), loans to one borrower secured by a bill of lading, bonded warehouse receipt, or similar document transferring or securing title to readily marketable goods may not exceed 50% of the bank's Tier 1 capital, in addition to the amount for that borrower allowed under the bank's general lending limit for loans and extensions of credit other than as provided by this subsection, provided the bank's interest in the collateral is adequately insured against loss if it is customary to do so. The market value of the goods securing the loan must at all times equal at least 115% of the amount of the outstanding loan that exceeds the general lending limit. The duration of the loan or extension of credit may not exceed six months if secured by goods that are refrigerated or frozen, or ten months if secured by nonperishable goods.

(2) The holder of the bonded warehouse receipts, order bills of lading, documents of title (as defined under the Business and Commerce Code), or other similar documents must have control and be able to obtain immediate possession of the goods so that the bank is able to sell the underlying goods and promptly transfer title to the buyer if default were to occur on a loan secured by such documents. The requirement under applicable law for a brief notice period or other similar procedural condition prior to disposal of the goods will not affect the eligibility of the instruments for this special lending limit.

(3) For purposes of this subsection, readily marketable goods are articles of commerce or industry in the form of fungible units that are easy to sell in a market with sufficiently frequent price quotations, and includes basic metals, such as tin, copper, or lead, consumer goods, and packaged processed foods, including refrigerated or frozen foods. The exact price must be easy to determine and the article itself must be easy to sell at any time at a price that would not be considerably less than the amount at which it is valued as collateral. Whether an article qualifies as readily marketable goods is determined on the basis of the conditions existing at the time the loan or extension of credit secured by the article is made. Whether goods are nonperishable must be determined on a case-by-case basis because of the differences in types of goods and differences in the shipping, handling, and storing of goods.

(c) Loans secured by liens on stored agricultural products.

(1) Pursuant to the Finance Code, §34.201(a)(4), loans to one borrower secured by liens on agricultural products in secure and properly documented storage in bonded warehouses or elevators may not exceed 50% of the bank's Tier 1 capital, in addition to the amount for that borrower allowed under the bank's general lending limit for loans and extensions of credit other than as provided by this subsection, provided the bank's interest in the collateral is adequately insured against loss. The market value of the agricultural products securing the loan must at all times equal at least 125% of the amount of the outstanding loan. The duration of the loan or extension of credit arising from a single transaction or the same agricultural products may not exceed six months if secured by agricultural products that are refrigerated or frozen, or exceed ten months if secured by nonperishable agricultural products.

(2) The bank must have control and be able to obtain immediate possession of the agricultural products so that the bank is able to sell the underlying products and promptly transfer title to the buyer if default were to occur on a loan secured by such products. The requirement under applicable law for a brief notice period or other similar procedural condition prior to disposal of the products will not affect the eligibility of the products for this special lending limit.

(3) Field warehouse receipts are an acceptable form of collateral when issued by a duly bonded and licensed grain elevator or warehouse having exclusive possession and control of the agricultural products even though the grain elevator or warehouse is maintained on the premises of the owner of the products. Warehouse receipts issued by the borrower-owner that is a grain elevator or warehouse company, duly bonded and licensed and regularly inspected by state or federal authorities, may be considered eligible collateral under this provision only when the receipts are registered with an independent registrar whose consent is required before the products may be withdrawn from the warehouse.

(4) Agricultural products are any product of agriculture, excluding livestock but not the products of livestock, and includes wheat and other grains, cotton, wool, flowers, eggs, and milk. Whether agricultural products are nonperishable must be determined on a case-by-case basis because of the differences in types of agricultural products and differences in the shipping, handling, and storing of agricultural products.

(d) Loans secured by readily marketable collateral.

(1) Pursuant to the Finance Code, §34.201(a)(12), loans or extensions of credit to one borrower may exceed the bank's general lending limit by an additional 15% of the bank's Tier 1 capital if the amount that exceeds the bank's general lending limit is fully secured by readily marketable collateral. The bank must properly perfect its security interest in the collateral to qualify for this added special lending limit and the collateral at all times must have a market value of at least 100% of the amount of the loan or extension of credit that exceeds the bank's general lending limit.

(2) For purposes of this subsection, readily marketable collateral must be financial instruments or bullion that can be promptly sold under ordinary market conditions at a fair market value determined by reliable and continuously available price quotations, based upon actual transactions on an auction or similarly available daily bid and ask price market. Financial instruments are stocks, bonds, notes, and debentures traded on a national securities exchange, over-the-counter margin stocks as defined in Regulation U (12 C.F.R. §§221.1 et seq), commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in a money market mutual fund of the type that issues shares in which banks may perfect a security interest, but not including individual mortgages. Financial instruments may be denominated in foreign currencies that are freely convertible into United States dollars.

(e) Loans secured by documents covering livestock.

(1) Pursuant to the Finance Code, §34.201(b)(2), loans or extensions of credit to one borrower secured by shipping documents or instruments that transfer or secure title to or grant a first lien security interest in livestock may not exceed 15% of the bank's Tier 1 capital, in addition to the amount allowed under the bank's general lending limit. The market value of the livestock securing the loan must at all times equal at least 115% of the amount of the outstanding loan that exceeds the general lending limit.

(2) The bank must maintain in its files an inspection and valuation for the livestock pledged that is reasonably current, taking into account the nature and frequency of turnover of the livestock to which the documents relate, but in no event more than 12 months old.

(3) For purposes of this subsection, livestock includes dairy and beef cattle, hogs, sheep, goats, poultry, and fish, whether or not held for resale.

(f) Loans secured by dairy cattle paper. Pursuant to the Finance Code, §34.201(b)(2), loans and extensions of credit to one borrower arising from the discount by dealers in dairy cattle of paper given in payment for the cattle may not exceed 15% of the bank's Tier 1 capital, in addition to the amount allowed under the bank's general lending limit. To qualify, the paper must carry the full recourse endorsement or unconditional guarantee of the seller and must be secured by the cattle sold, pursuant to liens that allow the bank to maintain a perfected security interest in the cattle under applicable law.

History

• Source Note: The provisions of this §12.5 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655.

7 Tex. Admin. Code § 12.6 Loans Not Subject to Lending Limits

(a) Loans arising from the discount of commercial or business paper.

(1) Pursuant to the Finance Code, §34.201(a)(1), loans or extensions of credit arising from the discount of negotiable commercial or business paper that evidences an obligation to the person negotiating the paper are not subject to the lending limits of the Finance Code, §34.201, or this subchapter, provided that:

(A) the paper is given in payment of the purchase price of commodities purchased for resale, fabrication of a product, or another business purpose that may reasonably be expected to provide funds for payment of the paper; and

(B) the paper bears the full recourse endorsement of the owner of the paper, except that paper discounted in connection with export transactions may be transferred without recourse or with limited recourse if supported by an assignment of appropriate insurance, acceptable to the banking commissioner, covering the political, credit, and transfer risks applicable to the paper, such as insurance provided by the Export-Import Bank.

(2) A default in the payment of principal or interest on commercial or business paper when due does not disqualify the exception under this subsection or result in a loan or extension of credit to the maker or endorser of the paper that is subject to lending limits, provided that the amount of such defaulted paper must be included in loans and extensions of credit thereafter until the default is remedied for the purpose of determining whether additional loans or extensions of credit to the same borrower may be made within applicable lending limits.

(b) Bankers' acceptances. Pursuant to the Finance Code, §34.201(a)(2), acceptance of drafts eligible for rediscount under 12 U.S.C. §372 and §373, or a bank's purchase of acceptances created by other banks that are eligible for rediscount under those sections, is not subject to the limits of the Finance Code, §34.201, or this subchapter. Bankers' acceptances within this exception do not include:

(1) acceptance of drafts ineligible for rediscount, thereby resulting in a loan from the bank to the customer for whom the acceptance was made, in the amount of the draft;

(2) purchase of ineligible acceptances created by other banks, thereby resulting in a loan from the purchasing bank to the accepting bank, in the amount of the purchase price; or

(3) a bank's purchase of its own acceptances, thereby resulting in a loan to the bank's customer for whom the acceptance was made, in the amount of the purchase price.

(c) Obligations of state or local government. Pursuant to the Finance Code, §34.201(a)(8), a loan or extension of credit to this state or an agency or political subdivision of this state, including a county or municipality or an agency or political subdivision of a county or municipality, is not subject to the limitations of the Finance Code, §34.201, or this subchapter to the extent the loan or extension of credit constitutes a legally created general obligation of the borrower, if the lending bank has obtained an opinion of counsel or the opinion of the attorney general that the loan or extension of credit is a valid and enforceable general obligation of the borrower.

(d) Loans secured by U.S. obligations. Pursuant to the Finance Code, §34.201, a loan or extension of credit to a borrower is not subject to the limitations of the Finance Code, §34.201, or this subchapter if the bank perfects a security interest in the collateral under applicable law and the bank is fully secured by the current market value of:

(1) bonds, notes, certificates of indebtedness, or Treasury bills of the United States or by similar obligations fully and unconditionally guaranteed as to principal and interest by the United States; or

(2) loans to the extent unconditionally guaranteed as to repayment of principal by the full faith and credit of the United States, as further described by subsection (f) of this section.

(e) Loans to a federal agency. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to an agency or instrumentality of the United States including a department, agency, bureau, board, commission, or establishment of the United States, or any corporation wholly owned directly or indirectly by the United States, is not subject to the limitations of the Finance Code, §34.201, or this subchapter.

(f) Government guaranteed loans. Pursuant to Finance Code, §34.201(a)(8), a loan or extension of credit to a borrower is not subject to the limitations of the Finance Code, §34.201, or this subchapter to the extent secured by unconditional takeout commitments, insurance, or guarantees of a governmental entity described in subsection (c) or (e) of this section, provided the commitment or guarantee is payable only in cash or its equivalent. If the purchasing, insuring, or guaranteeing entity is described in subsection (c) of this section, the lending bank must obtain an opinion of counsel that the unconditional takeout commitment, insurance, or guarantee is a valid and enforceable general obligation of the purchasing, insuring, or guaranteeing entity. A takeout commitment, insurance, or guarantee is considered unconditional if the protection afforded the bank is not substantially diminished or impaired if loss should result from factors beyond the bank's control. Protection against loss is not materially diminished or impaired by procedural requirements such as an agreement to pay on the obligation only in the event of default, including default over a specific period of time, a requirement that notification of default be given within a specific period after its occurrence, or a requirement of good faith on the part of the bank.

(g) Loans secured by segregated deposit accounts. Pursuant to the Finance Code, §34.201(a)(10), loans or extensions of credit are not subject to the limitations of the Finance Code, §34.201, and this subchapter to the extent secured by a segregated deposit account in the lending bank, provided that:

(1) the lending bank has perfected its security interest in the deposit under applicable law;

(2) if the deposit is eligible for withdrawal before the secured loan matures, the bank establishes internal procedures to prevent release of the security without the lending bank's prior consent; and

(3) if the deposit is denominated and payable in a currency other than that of the loan or extension of credit that it secures, the deposit currency is freely convertible to U.S. dollars, except that only that portion of the loan or extension of credit that is fully secured by the U.S. dollar value of the deposit qualifies for exception and only if the lending bank establishes procedures to periodically revalue foreign currency deposits to ensure that the loan or extension of credit remains fully secured at all times.

(h) Discount of installment consumer paper.

(1) Loans and extensions of credit to one borrower arising from the discount of negotiable or nonnegotiable installment consumer paper that carries a full recourse endorsement or unconditional guarantee of payment by the person transferring the paper to the bank is considered a loan or extension of credit to the transferor, as well as the maker, and subject to the general lending limit, except that the loan or extension of credit will not be considered made to the transferor to the extent the bank has met the requirements of the Finance Code, §34.201(a)(11), and this subsection. If the transferor of the paper offers only partial recourse to the bank, the exception provided by the Finance Code, §34.201(a)(11), and this subsection is available only to the extent of the total amount of paper the transferor may be obligated to repurchase or has guaranteed. An unconditional guarantee may be in the form of a repurchase agreement, separate guarantee agreement, or other agreement having the same effect. A condition reasonably within the power or control of the bank to perform will not render conditional an otherwise unconditional guarantee.

(2) In order to claim the installment consumer paper exception under the Finance Code, §34.201(a)(11), and this subsection, the bank must demonstrate its reliance on the maker of the paper by maintaining records supporting the bank's independent credit analysis of the maker's ability to repay the loan or extension of credit, maintained by the bank or a third party that is contractually obligated to make those records available for examination purposes, and a written certification by an officer of the bank, specifically designated by the board of the bank for this purpose, that the bank is relying primarily on the maker for repayment of the loan or extension of credit and not on a full recourse endorsement or unconditional guarantee by the transferor. If installment consumer paper is purchased in substantial quantities, the required records, evaluation, and certification must be in a form appropriate for the class and quantity of paper involved. The bank may use sampling techniques, or other appropriate methods, to independently verify the reliability of the credit information supplied by the seller.

(3) As used in this subsection, a consumer is the end user of a product, commodity, good, or service, whether leased or purchased, but not a person who purchases products or commodities for the purpose of resale or fabrication into goods for sale. Consumer paper includes paper relating to the lease or purchase of automobiles, mobile homes, residences, office equipment, household items, tuition fees, insurance premiums, and other consumer items. Consumer paper also includes paper relating to the lease or purchase of equipment for use in manufacturing, farming, construction, or excavation, if the bank is neither the lessor nor owner of the property.

(4) A bank may purchase and temporarily hold mortgages for sale to investors in the secondary market, and consider the purchases as loans to individual mortgagors rather than a mortgage warehouse facility, by purchasing without recourse to the transferor or, if purchased with recourse, by complying with this subsection. Whether an actual purchase is considered to occur depends on both the nature of the relationship established between the bank and other parties to the contractual arrangements and on assessment of the economic substance of the transaction. Failure to meet any one of the criteria listed below does not necessarily result in characterization of an ostensible purchase transaction as a mortgage warehouse facility to the originator. In determining whether the economic substance of a transaction constitutes a purchase, the banking commissioner will consider whether:

(A) provisions of the contractual arrangements governing the mortgage transfers consistently reflect a relationship of buyer and seller between the bank and the transferor, and whether the bank in fact acts as the owner of the mortgages;

(B) the bank obtains possession or control of the bearer instruments conveying ownership, including the original note, deed of trust, assignment from the transferor, and a power of attorney from the transferor for instruments endorsed in blank, provided that possession or control may also be established through safekeeping or custodial arrangements between the bank and a third party agent or bailee;

(C) the bank takes possession or control of underlying underwriting documents, provided that possession or control of the underwriting documents by the investor is not inconsistent with characterization of the bank as a purchaser and owner of the mortgages;

(D) the bank receives and controls the sales proceeds when remitted from the investor;

(E) the bank demonstrates reliance on the maker by reviewing the credit quality and documentation underlying a mortgage prior to committing to make the purchase, provided that a bank purchasing mortgages in significant quantities may use sampling techniques or other appropriate methods to independently verify the reliability of the credit information supplied by the transferor;

(F) recourse and repurchase obligations of the transferor are subject to conditions outside the control of the transferor, such as a commitment to repurchase the mortgage if rejected by the investor for reasons other than fraud or underwriting deficiency; and

(G) the bank earns interest on the mortgages according to the interest rate on the face of each note rather than at a rate separately negotiated with the transferor.

(i) Credit exposures arising from transactions financing certain government securities. Pursuant to Finance Code, §34.201(b)(2), credit exposures arising from securities financing transactions in which the securities financed are securities in which a state bank may invest without limit pursuant to Finance Code, §34.101(d), are not subject to the limitations of Finance Code, §34.201, and this subchapter.

History

• Source Note: The provisions of this §12.6 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective July 10, 2003, 28 TexReg 5149; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective January 4, 2024, 48 TexReg 8329.

7 Tex. Admin. Code § 12.7 Lease Financing

(a) Loans to industrial development authorities. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to an industrial development authority or similar public entity created to construct and lease a plant facility, including a health care facility, to an industrial occupant is considered a loan to the lessee, provided that:

(1) the bank documents the basis for its reliance on the industrial occupant as the primary source of repayment before the loan is extended to the authority;

(2) the authority's liability on the loan is limited solely to whatever interest it has in the particular facility;

(3) the authority's interest is assigned to the bank as security for the loan or the industrial occupant issues a promissory note to the bank that provides a higher order of security than the assignment of a lease; and

(4) the industrial occupant's lease rentals are assigned and paid directly to the bank.

(b) Loans to or leases purchased from leasing companies. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to a leasing company for the purpose of purchasing equipment for lease, or a lease purchased from a leasing company, is considered a loan to the lessee, provided that:

(1) the bank documents the basis for its reliance on the lessee as the primary source of repayment before the loan is extended to, or lease is purchased from, the leasing company;

(2) the loan is made, or lease is purchased, without recourse to the leasing company;

(3) the bank receives a security interest in the equipment and, in the event of default, may proceed directly against the equipment and the lessee for any deficiency resulting from the sale of the equipment;

(4) the leasing company assigns all of its rights under the lease to the bank;

(5) the lessee's lease payments are assigned and paid to the bank directly by the lessee; and

(6) the lease terms are subject to the same limitations that would apply to a state bank acting as a lessor under the Finance Code, §34.204.

History

• Source Note: The provisions of this §12.7 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective May 10, 2012, 37 TexReg 3395.

7 Tex. Admin. Code § 12.8 Other Exceptions

(a) By application. The banking commissioner in the exercise of discretion may grant an exception to any legal lending limit in the Finance Code, §34.201, or this subchapter, based on extenuating facts and circumstances. A decision to deny a requested exception is not appealable. In deciding whether to grant an exception under this subsection, the banking commissioner will consider:

(1) the proposed transaction for which the exception is sought;

(2) how the requested exception would affect the capital adequacy and safety and soundness of the requesting bank if the exception is not granted or, if the exception is granted, if the proposed borrower should ultimately default;

(3) how the requested exception would affect the loan portfolio diversification of the requesting bank;

(4) the competency of management to handle the proposed transaction and any resulting safety and soundness issues;

(5) the marketability and value of the proposed collateral; and

(6) the extenuating facts and circumstances that warrant an exception in light of the purpose of legal lending limits as set forth in §12.1 of this title (relating to Purpose and Scope).

(b) Emergency lending limits. In the event that a bank's Tier 1 capital declines sufficiently to seriously impair the bank's ability to effectively operate in its marketplace or serve the needs of its customers or the community in which it is located, the banking commissioner may, upon written application, grant the bank temporary permission to fund loans or extensions of credit in excess of the bank's legal lending limit. The banking commissioner in the exercise of discretion may limit emergency lending authority under this section to particular types or classes of loans or extensions of credit.

History

• Source Note: The provisions of this §12.8 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655.

7 Tex. Admin. Code § 12.9 Aggregation and Attribution

(a) General rule. A loan or extension of credit to one borrower is attributed to another person, and each person will be considered a borrower, if:

(1) proceeds of the loan or extension of credit are to be used for the direct benefit of the other person, to the extent of the proceeds so used, as provided by subsection (b) of this section;

(2) a common enterprise is deemed to exist between the persons as provided by subsection (c) of this section; or

(3) the expected source of repayment for each loan or extension of credit is the same for each person as provided by subsection (d) of this section; or

(4) notwithstanding another provision of this section, the banking commissioner determines that a loan should be attributed to another person pursuant to the Finance Code, §34.201(c).

(b) Direct benefit. The proceeds of a loan or extension of credit to a borrower is considered used for the direct benefit of another person and attributed to the other person if the proceeds, or assets purchased with the proceeds, are transferred in any manner to or for the benefit of the other person, other than in a bona fide arm's length transaction where the proceeds are used to acquire property, goods, or services.

(c) Common enterprise.

(1) A common enterprise is considered to exist and loans to separate borrowers will be aggregated in the case of:

(A) loans or extensions of credit made to affiliated borrowers if substantial financial interdependence exists between or among the borrowers; or

(B) loans made to separate persons for the purpose of acquiring more than 50% of the voting securities or voting interests of a business enterprise, in which case the acquisition loans are aggregated and attributed to the business enterprise.

(2) For purposes of paragraph (1)(A) of this subsection, borrowers are affiliated if one borrower directly or indirectly controls, is controlled by, or is under common control with another borrower. Substantial financial interdependence exists if 50% or more of one borrower's gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other borrower and is presumed to exist, subject to rebuttal, if 25% or more of one borrower's gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other borrower. Gross receipts and expenditures include gross revenues and expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments.

(d) Source of repayment. The expected source of repayment for each loan or extension of credit is considered the same if the primary source of repayment is the same for each borrower. An employer will not be considered a primary source of repayment under this subsection solely because of wages and salaries paid to an employee, unless the standards of subsection (c)(1) of this section are met.

(e) Loans to a corporate group. Pursuant to the Finance Code, §34.201(c), loans or extensions of credit by a bank to a corporate group may not exceed 60% of the bank's Tier 1 capital. This limitation applies only to loans subject to the general lending limit. For purposes of this subsection, a corporate group is comprised of a person and all of its subsidiaries, and a corporation or other entity is a subsidiary of a person if the person owns or beneficially owns directly or indirectly more than 50% of the voting securities or voting interests of the corporation or other entity. Subject to the special limit of this subsection, loans or extensions of credit to a person and its subsidiary, or to different subsidiaries of a person, are not aggregated or attributed to other members of the corporate group unless either the direct benefit, common enterprise, or source of repayment test is met.

(f) Loans to partnerships or partners.

(1) A loan or extension of credit to a partnership, joint venture, or association is considered to be a loan or extension of credit to each member of the partnership, joint venture, or association other than those partners or members that, by the terms of the partnership or membership agreement, are not held generally liable for the debts or actions of the partnership, joint venture, or association, provided those provisions are valid against third parties under applicable law, and that have not otherwise agreed to guarantee or be personally liable on the loan or extension of credit.

(2) A loan or extension of credit to a member of a partnership, joint venture, or association is generally not attributed to the partnership, joint venture, or association, or to other members of the partnership, joint venture, or association, except as otherwise required by subsections (b) - (d) of this section, provided that a loan or extension of credit made to a member of a partnership, joint venture or association for the purpose of purchasing an interest in the partnership, joint venture or association, is attributed to the partnership, joint venture or association.

(g) Guarantors and accommodation parties. The derivative obligation of a drawer, endorser, or guarantor of a loan or extension of credit, including a contingent obligation to purchase collateral that secures a loan, is not aggregated with direct loans or extensions of credit to such drawer, endorser, or guarantor if the lending bank is relying primarily on the creditworthiness of the primary obligor and none of the tests set forth in this section are satisfied. The reliance of the lending bank on the primary obligor must be evidenced by the certification of an officer of the bank that the bank is, on stated facts, relying primarily on the responsibility and financial condition of the primary obligor for payment of the loan or extension of credit and not on the guarantee, or commitment in whatever form, of the guarantor, drawer, or endorser. In the event that the loan or extension of credit to the primary obligor, considered by the bank to be of sufficient credit quality at its inception, experiences subsequent deterioration to the point that the primary obligor is no longer performing in accordance with the terms of the initial loan agreement, such event will not result in a lending limit violation on behalf of the guarantor by virtue of the primary obligator's nonperformance. However, the total amount of the deteriorated loans guaranteed by such accommodating person must be combined with all other obligations of such guarantor in determining whether the guarantor may obtain additional loans or extensions of credit from the bank.

History

• Source Note: The provisions of this §12.9 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective May 10, 2012, 37 TexReg 3395.

7 Tex. Admin. Code § 12.10 Nonconforming Loans

(a) A loan or extension of credit, within a bank's legal lending limit when made, will not be considered a violation of the applicable lending limit but will be cited as nonconforming if the loan no longer complies with the bank's legal lending limit because:

(1) the bank's Tier 1 capital has declined;

(2) borrowers have merged or otherwise become affiliated in such a way as to invoke aggregation under §12.9 of this title (relating to Aggregation and Attribution);

(3) the bank has merged with another depository institution or the bank has purchased all or substantially all of the assets of a failed depository institution from the Federal Deposit Insurance Corporation as receiver of such institution on or shortly after the date of its closing;

(4) the lending limit or capital definitions or standards have changed after the date the loan or extension of credit was originated;

(5) in the case of a credit exposure arising from a transaction identified in §12.12(a) of this title (relating to Credit Exposure Arising from Derivative and Securities Financing Transactions) and measured by the model method specified in §12.12(b)(1)(A) or (c)(1)(A), the current exposure method specified in §12.12(b)(1)(C), or the Basel collateral haircut method specified in §12.12(c)(1)(C), an increase in the credit exposure subject to the lending limits of Finance Code, §34.201, or this subchapter after execution of the transaction; or

(6) collateral securing the loan or extension of credit to satisfy the requirements of a special lending limit or lending limit exception has declined in value.

(b) A bank must exercise reasonable efforts to bring a loan or extension of credit that is nonconforming as a result of circumstances described in subsection (a)(1) - (5) of this section into conformity with the legal lending limit, consistent with safe and sound banking practices. As a last resort, a bank may renew or restructure an existing, nonconforming loan or extension of credit as a new, nonconforming loan or extension of credit without violating the Finance Code or this subchapter, unless:

(1) additional funds are advanced by the bank to the borrower, except as permitted by §12.4(b) of this title (relating to Loan Commitments);

(2) the original borrower is replaced by a new borrower; or

(3) the banking commissioner determines that the renewal or restructuring of the loan or extension of credit is designed to evade the bank's lending limit.

(c) A bank must bring a loan or extension of credit that is nonconforming as a result of the circumstance described in subsection (a)(5) of this section into conformity with the legal lending limit on or before the 31st day after the nonconformity is discovered unless judicial proceedings, regulatory action, or other extraordinary circumstances beyond the bank's control prevent the bank from taking action.

History

• Source Note: The provisions of this §12.10 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective May 10, 2012, 37 TexReg 3395; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685.

7 Tex. Admin. Code § 12.11 Calculation of Lending Limit

(a) Calculation date. For purposes of determining compliance with Finance Code, §34.201, and this subchapter, a state bank shall determine its lending limit as of the most recent of the following dates:

(1) the last day of the preceding calendar quarter; or

(2) the date on which there is a change in the bank's capital category for purposes of 12 U.S.C. §1831o and 12 C.F.R. §324.402 (or 12 C.F.R. §324.402 in the case of a bank that is a member of the Federal Reserve System).

(b) Effective date.

(1) A bank's lending limit calculated in accordance with subsection (a)(1) of this section is effective as of the earlier of the following dates:

(A) the date on which the bank's call report is submitted; or

(B) the date on which the bank's call report is required to be submitted under applicable federal law.

(2) A bank's lending limit calculated in accordance with subsection (a)(2) of this section is effective on the date that the limit is required to be calculated.

(c) More frequent calculations. The banking commissioner may permit a state bank to recalculate its lending limit at a point during a quarter based on a material change in a bank's capital arising from corporate activities, such as a merger or stock issuance. For safety and soundness reasons, the banking commissioner may provide written notice to a state bank directing the bank to calculate its lending limit at a more frequent interval than required by subsection (a) of this section, and the bank shall thereafter calculate its lending limit at that interval until further notice.

History

• Source Note: The provisions of this §12.11 adopted to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 4, 2024, 48 TexReg 8329.

7 Tex. Admin. Code § 12.12 Credit Exposure Arising from Derivative and Securities Financing Transactions

(a) Scope. This section sets forth the rules for calculating the credit exposure arising from a derivative transaction or a securities financing transaction entered into by a state bank for purposes of determining the bank's lending limit pursuant to Finance Code, §34.201, and this subchapter.

(b) Derivative transactions.

(1) Non-credit derivatives. Subject to paragraphs (2) - (4) of this subsection, a state bank shall calculate the credit exposure to a counterparty arising from a derivative transaction by one of the following methods. Subject to paragraphs (3) and (4) of this subsection, a bank shall use the same method for calculating counterparty credit exposure arising from all of its derivative transactions.

(A) Model method.

(i) Credit exposure. The credit exposure of a derivative transaction under the model method is equal to the sum of the current credit exposure of the derivative transaction and the potential future credit exposure of the derivative transaction.

(ii) Calculation of current credit exposure. A bank shall determine its current credit exposure by the mark-to-market value of the derivative contract. If the mark-to-market value is positive, then the current credit exposure equals that mark-to-market value. If the mark-to-market value is zero or negative, then the current credit exposure is zero.

(iii) Calculation of potential future credit exposure. A bank shall calculate its potential future credit exposure by using an internal model that has been approved in writing for purposes of 12 C.F.R. §324.132(d) (or 12 C.F.R. §217.132(d) in the case of a bank that is a member of the Federal Reserve System), provided that the bank notifies the commissioner prior to its use for purposes of this section, or another model approved by the department based on the views of the bank's primary federal banking regulatory agency and any third party testing and evaluation reports submitted to the commissioner. Any substantive revisions to an internal model made after the bank has provided notice of its use, or after the commissioner has approved the use of an alternate model, must be approved by the commissioner before a bank may use the revised model for purposes of this section.

(iv) Net credit exposure. A bank that calculates its credit exposure by using the model method pursuant to this subparagraph may net credit exposures of derivative transactions arising under the same qualifying master netting agreement.

(B) Conversion factor matrix method. The credit exposure arising from a derivative transaction under the conversion factor matrix method is equal to and will remain fixed at the potential future credit exposure of the derivative transaction, which equals the product of the notional amount of the derivative transaction and a fixed multiplicative factor determined by reference to Table 1 of this section.

Attached Graphic

(C) Current exposure method. The credit exposure arising from a derivative transaction (other than a credit derivative transaction) under the current exposure method is calculated in the manner provided by 12 C.F.R. §324.34(b)-(c) (or 12 C.F.R. §217.34(b)-(c) in the case of a bank that is a member of the Federal Reserve System).

(2) Credit derivatives.

(A) Counterparty exposure.

(i) General rule. Notwithstanding paragraph (1) of this subsection and subject to clause (ii) of this subparagraph, a state bank that uses the conversion factor matrix method or the current exposure method, or that uses the model method without entering an effective margining arrangement as defined in §12.2 of this title (relating to Definitions), shall calculate the counterparty credit exposure arising from credit derivatives entered by the bank by adding the net notional value of all protection purchased from the counterparty on each reference entity.

(ii) Special rule for certain effective margining arrangements. A bank must add the effective margining arrangement threshold amount to the counterparty credit exposure arising from credit derivatives calculated under the model method. The effective margining arrangement threshold is the amount under an effective margining arrangement with respect to which the counterparty is not required to post variation margin to fully collateralize the amount of the bank's net credit exposure to the counterparty.

(B) Reference entity exposure. A state bank shall calculate the credit exposure to a reference entity arising from credit derivatives entered into by the bank by adding the net notional value of all protection sold on the reference entity. A bank may reduce its exposure to a reference entity by the amount of any eligible credit derivative purchased on that reference entity from an eligible protection provider.

(3) Special rule for central counterparties. In addition to amounts calculated under paragraphs (1) and (2) of this subsection, the measure of counterparty exposure to a central counterparty must also include the sum of the initial margin posted by the bank plus any contributions made by it to a guaranty fund at the time such contribution is made. However, this requirement does not apply to a bank that uses an internal model pursuant to paragraph (1)(A) of this subsection if such model reflects the initial margin and any contributions to a guaranty fund.

(4) Mandatory or alternative use of method. The commissioner may in the exercise of discretion require or permit a state bank to use a specific method or methods set forth in this subsection to calculate the credit exposure arising from all derivative transactions, from any category of derivative transactions, or from a specific derivatives transaction if the commissioner in the exercise of discretion finds that such method is consistent with the safety and soundness of the bank.

(c) Securities financing transactions.

(1) In general. Except as provided by paragraph (2) of this subsection, a state bank shall calculate the credit exposure arising from a securities financing transaction by one of the following methods. A state bank shall use the same method for calculating credit exposure arising from all of its securities financing transactions.

(A) Model method. A state bank may calculate the credit exposure of a securities financing transaction by using an internal model that has been approved in writing for purposes of 12 C.F.R. §324.132(b) (or 12 C.F.R. §217.132(b) in the case of a bank that is a member of the Federal Reserve System), provided that the bank notifies the commissioner prior to its use for purposes of this section, or another model approved by the department based on the views of the bank's primary federal banking regulatory agency and any third party testing and evaluation reports submitted to the commissioner. Any substantive revisions to an internal model made after the bank has provided notice of its use, or after the commissioner has approved the use of an alternate model, must be approved by the commissioner before a bank may use the revised model for purposes of this section.

(B) Basic method. A state bank may calculate the credit exposure of a securities financing transaction as follows:

(i) Repurchase agreement. The credit exposure arising from a repurchase agreement shall equal and remain fixed at the market value at execution of the transaction of the securities transferred to the other party less cash received.

(ii) Securities lending.

(I) Cash collateral transactions. The credit exposure arising from a securities lending transaction where the collateral is cash shall equal and remain fixed at the market value at execution of the transaction of securities transferred less cash received.

(II) Non-cash collateral transactions. The credit exposure arising from a securities lending transaction where the collateral is other securities shall equal and remain fixed as the product of the higher of the two haircuts associated with the two securities, as determined by reference to Table 2 of this section, and the higher of the two par values of the securities. Where more than one security is provided as collateral, the applicable haircut is the higher of the haircut associated with the security lent and the notional-weighted average of the haircuts associated with the securities provided as collateral.

(iii) Reverse repurchase agreements. The credit exposure arising from a reverse repurchase agreement shall equal and remain fixed as the product of the haircut associated with the collateral received, as determined by reference to Table 2 of this section, and the amount of cash transferred.

(iv) Securities borrowing.

(I) Cash collateral transactions. The credit exposure arising from a securities borrowed transaction where the collateral is cash shall equal and remain fixed as the product of the haircut on the collateral received, as determined by reference to Table 2 of this section, and the amount of cash transferred to the other party.

(II) Non-cash collateral transactions. The credit exposure arising from a securities borrowed transaction where the collateral is other securities shall equal and remain fixed as the product of the higher of the two haircuts associated with the two securities, as determined by reference to Table 2 of this section, and the higher of the two par values of the securities. Where more than one security is provided as collateral, the applicable haircut is the higher of the haircut associated with the security borrowed and the notional-weighted average of the haircuts associated with the securities provided as collateral.

Attached Graphic

(C) Basel collateral haircut method. A state bank may calculate the credit exposure of a securities financing transaction in the manner provided by 12 C.F.R. §324.132(b)(2)(i) and (ii) (or 12 C.F.R. §217.132(b)(2)(i) and (ii) in the case of a bank that is a member of the Federal Reserve System).

(2) Mandatory or alternative use of method. The commissioner may in the exercise of discretion require or permit a state bank to use a specific method or methods set forth in this subsection to calculate the credit exposure arising from all securities financing transactions, from any category of securities financing transactions, or from a specific derivatives transaction if the commissioner finds in the exercise of discretion that such method is consistent with the safety and soundness of the bank.

History

• Source Note: The provisions of this §12.12 adopted to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

Subchapter B LOANS

7 Tex. Admin. Code § 12.31 Loans Secured by Affiliate-Issued Securities

A loan subject to Finance Code, §34.102(d), must be subtracted from the capital of a lending bank if the loan proceeds are used directly, or indirectly, for the purpose of recapitalizing the lending bank, unless the loan is fully secured by irrevocable letters of credit or other liquid assets.

History

• Source Note: The provisions of this §12.31 adopted to be effective May 17, 1996, 21 TexReg 3935; amended to be effective July 10, 2003, 28 TexReg 5149.

7 Tex. Admin. Code § 12.32 Loan Fees and Charges

(a) Applicability.

(1) Finance Code, §34.203, and this section apply to:

(A) closed end first lien residential real estate loans;

(B) loans other than for personal, family, or household use (i.e., commercial loans including all commercial real estate loans); and

(C) loans for personal, family, or household use that are repayable in a single installment (i.e., single pay consumer loans).

(2) Finance Code, §34.203, and this section do not apply to a consumer loan payable in two or more installments that is subject to Finance Code, Title 4, Subtitle B.

(b) Reasonable fees authorized. A bank may require a borrower to pay all reasonable expenses and fees incurred in connection with the making, closing, disbursing, extending, readjusting, or renewing of a loan subject to this section, including fees paid to third parties as well as charges and fees paid to the bank itself for the services of the bank employees. However, such charges may not include fees paid by the bank (in addition to regular salary or director's fee) to an officer or director for services rendered within the course and scope of his or her employment with the bank. Subject to limitations of other law, possible fees and charges which may be charged and collected under this section include fees for underwriting, appraisal, document preparation, title insurance or abstract and opinion, insurance (including casualty coverage for collateral and credit products), credit reports, escrows, and filing fees, among others.

(c) Calculation of reasonable fee.

(1) Authorized loan fees must be reasonably related to the costs incurred by the bank. In establishing loan fees, a bank may establish fixed fees for underwriting activities for various categories of loans. In establishing such fixed fees, the bank may take into consideration its average costs in various activities, including but not limited to the average cost of taking an application, obtaining necessary reports and documentation, review of credit reports, analysis of the loan proposal and the prospective borrower's ability to repay, preparation of documents, loan review, and closing activities, plus a reasonable overhead factor. In lieu of conducting its own analysis, where relevant a bank may accept as reasonable and rely on the functional cost analysis prepared by the Board of Governors of the Federal Reserve System.

(2) This section does not require a bank to charge its borrower the full, true cost of accepting and consummating a lending transaction. For example, a bank may choose to assess a lower than actual cost loan fee on smaller consumer single pay loans in the interest of making loans more affordable to low to moderate income borrowers, or may deliberately underestimate its actual costs to provide a margin of security regarding compliance with law.

(3) Fees and expenses charged and collected in accordance with the Finance Code, §34.203, and in accordance with this section are not considered interest or compensation charged by the bank for the use, forbearance, or detention of money. However, fees and expenses which do not comply with these requirements may be characterized in litigation as interest.

(d) Collection of fee. Loan fees may be collected separately or added to the amount of the promissory note and financed as part of the loan.

History

• Source Note: The provisions of this §12.32 adopted to be effective May 17, 1996, 21 TexReg 3935; amended to be effective November 13, 1997, 22 TexReg 10954; amended to be effective May 6, 2004, 29 TexReg 4141.

7 Tex. Admin. Code § 12.33 Debt Cancellation Contracts and Debt Suspension Agreements

(a) Definitions.

(1) "Actuarial method" means the method of allocating payments made on a debt between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency added to, the unpaid balance of the amount financed.

(2) "Closed-end credit" means consumer credit other than open-end credit as defined in this section.

(3) "Contract" means a debt cancellation contract or a debt suspension agreement.

(4) "Customer" means an individual who obtains an extension of credit from a bank primarily for personal, family, or household purposes.

(5) "Debt cancellation contract" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents.

(6) "Debt suspension agreement" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to suspend all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents. The term "debt suspension agreement" does not include loan payment deferral arrangements in which the triggering event is the borrower's unilateral election to defer repayment, or the bank's unilateral decision to allow a deferral of repayment.

(7) "Open-end credit" means consumer credit extended by a bank under a plan in which:

(A) The bank reasonably contemplates repeated transactions;

(B) The bank may impose a finance charge from time to time on an outstanding unpaid balance; and

(C) The amount of credit that may be extended to the customer during the term of the plan (up to any limit set by the bank) is generally made available to the extent that any outstanding balance is repaid.

(8) "Residential mortgage loan" means a loan secured by a 1-4 family, residential real property.

(b) Authority, purpose, and scope.

(1) Authority. A state bank is authorized to enter into debt cancellation contracts and debt suspension agreements and charge a fee therefor under Finance Code, §32.001.

(2) Purpose. This section sets forth the standards that apply to debt cancellation contracts and debt suspension agreements entered into by state banks. The purpose of these standards is to ensure that state banks offer and implement such contracts and agreements consistent with safe and sound banking practices, and subject to appropriate consumer protections.

(3) Scope. This section applies to debt cancellation contracts and debt suspension agreements entered into by state banks in connection with an extension of credit they make. State banks' debt cancellation contracts and debt suspension agreements are governed by this section and applicable provisions in the Finance Code, and not by state insurance laws.

(c) Prohibited Practices.

(1) Anti-tying. A state bank may not extend credit nor alter the terms or conditions of an extension of credit conditioned upon the customer entering into a debt cancellation contract or debt suspension agreement with the bank.

(2) Misrepresentations. A state bank may not engage in any practice or use any advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous belief with respect to information that must be disclosed under this section.

(3) Prohibited Contract Terms. A state bank may not offer debt cancellation contracts or debt suspension agreements that contain terms:

(A) giving the bank the right unilaterally to modify the contract or agreement unless:

(i) the modification is favorable to the customer and is made without additional charge to the customer; or

(ii) the customer is notified of any proposed change and is provided a reasonable opportunity to cancel the contract without penalty before the change goes into effect; or

(B) requiring a lump sum, single payment for the contract payable at the outset of the contract, where the debt subject to the contract is a residential mortgage loan.

(d) Refunds of fees on termination or prepayment.

(1) Refunds. If a debt cancellation contract or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the bank shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise. A state bank may offer a customer a contract that does not provide a refund only if the bank also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.

(2) Method of calculating refund. The bank shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.

(e) Payment of fees. Except as provided in subsection (c)(3)(B) of this section, a state bank may offer a customer the option of paying the fee for a contract in a single payment, provided the bank also offers the customer a bona fide option of paying the fee for that contract in monthly or periodic payments. If the bank offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the bank must also disclose to the customer, whether and under what terms the customer may cancel the agreement and receive a refund.

(f) Disclosures.

(1) Content of short form of disclosures. The short form of disclosures required by this section must include the information described in subparagraphs (A) through (F) of this paragraph that is appropriate to the product offered. Short form disclosures made in a form that is substantially similar to these disclosures will satisfy the short form disclosure requirements of this subsection.

(A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."

(B) Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."

(C) Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose (product name) with a refund provision or without a refund provision. Prices of refund and no-refund products are likely to differ."

(D) Refund of fee paid in lump sum (applicable where the customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan). Either:

(i) "You may cancel (product name) at any time and receive a refund;"

(ii) "You may cancel (product name) within _______ days and receive a full refund;" or

(iii) "If you cancel (product name) you will not receive a refund."

(E) Additional disclosures. "We will give you additional information before you are required to pay for (product name)." If applicable: "This information will include a copy of the contract containing the terms of (product name)."

(F) Eligibility requirements, conditions, and exclusions. "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)." Either:

(i) "You should carefully read our additional information for a full explanation of the terms of (product name);" or

(ii) "You should carefully read the contract for a full explanation of the terms."

(2) Content of long form of disclosures. The long form of disclosures required by this section must include the information described in subparagraphs (A) through (I) of this paragraph that is appropriate to the product offered. Long form disclosures made in a form that is substantially similar to these disclosures will satisfy the long form disclosure requirements of this subsection.

(A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."

(B) Explanation of debt suspension agreement (applicable if the contract has a debt suspension feature). "If (product name) is activated, your duty to pay the loan principal and interest to the bank is only suspended. You must fully repay the loan after the period of suspension has expired." If applicable: "This includes interest accumulated during the period of suspension."

(C) Amount of fee.

(i) For closed-end credit: "The total fee for (product name) is _____________."

(ii) For open-end credit, either:

(I) "The monthly fee for (product name) is based on your account balance each month multiplied by the unit-cost, which is _______;" or

(II) "The formula used to compute the fee is ______________."

(D) Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."

(E) Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan.) "You have the option to purchase (product name) that includes a refund of the unearned portion of the fee if you terminate the contract or prepay the loan in full prior to the scheduled termination date. Prices of refund and no-refund products may differ."

(F) Refund of fee paid in lump sum (applicable where customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan). Either:

(i) "You may cancel (product name) at any time and receive a refund;"

(ii) "You may cancel (product name) within ______ days and receive a full refund;" or

(iii) "if you cancel (product name) you will not receive a refund."

(G) Use of card or credit line restricted (applicable if the contract restricts the use of card or credit line when customer activates protection). "If (product name) is activated, you will be unable to incur additional charges on the credit card or use the credit line."

(H) Termination of (product name). Either:

(i) "You have no right to cancel (product name)"; or

(ii) "You have the right to cancel (product name) in the following circumstances _____________:" and

(I) "The bank has no right to cancel (product name);" or

(II) "The bank has the right to cancel (product name) in the following circumstances ___________________."

(I) Eligibility requirements, conditions, and exclusions. "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)." Either:

(i) "The following is a summary of the eligibility requirements, conditions, and exclusions (summary provided by bank);" or

(ii) "You may find a complete explanation of the eligibility requirements, conditions, and exclusions in paragraphs _________ of the (product name) agreement."

(3) Disclosure requirements; timing and method of disclosures.

(A) Short form disclosures. The bank shall make the short form disclosures orally at the time the bank first solicits the purchase of a contract.

(B) Long form disclosures. The bank shall make the long form disclosures in writing before the customer completes the purchase of the contract. If the initial solicitation occurs in person, then the bank shall provide the long form disclosures in writing at that time.

(C) Special rule for transactions by telephone. If the contract is solicited by telephone, the bank shall provide the short form disclosures orally and shall mail the long form disclosures and, if appropriate, a copy of the contract to the customer within 3 business days, beginning on the first business day after the telephone solicitation.

(D) Special rule for solicitations using written mail inserts or "take one" applications. If the contract is solicited through written materials such as mail inserts or "take one" applications, the bank may provide only the short form disclosures in the written materials if the bank mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the bank to respond to the solicitation, subject to the requirements of subsection (g)(3) of this section.

(E) Special rule for electronic transactions. The disclosure described in this section may be provided electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business and Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §7001 et seq.

(4) Form of disclosures.

(A) Disclosures must be understandable. The disclosures required by this subsection must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.

(B) Disclosures must be meaningful. The disclosures required by this subsection must be in a meaningful form. Examples of methods that could call attention to the nature and significance of the information provided include:

(i) a plain-language heading to call attention to the disclosures;

(ii) a typeface and type size that are easy to read;

(iii) wide margins and ample line spacing;

(iv) boldface or italics for key words; and

(v) distinctive type style and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.

(5) Advertisements and other promotional material. The short form disclosures are required in advertisements and promotional material for contracts unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the bank.

(g) Affirmative election to purchase and acknowledgment of receipt of disclosures required.

(1) Affirmative election and acknowledgment of receipt of disclosures. Before entering into a contract the bank must obtain a customer's written affirmative election to purchase a contract and written acknowledgment of receipt of the disclosures required by subsection (f) of this section. The election and acknowledgment information must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to their significance. The election and acknowledgment satisfy these standards if they conform with the requirements in subsection (f)(2) of this section.

(2) Special rule for telephone solicitations. If the sale of a contract occurs by telephone, the customer's affirmative election to purchase may be made orally, provided the bank:

(A) maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the contract;

(B) mails the affirmative written election and written acknowledgment, together with the long form disclosures required by subsection (f)(2) of this section, to the customer within 3 business days after the telephone solicitation, and maintains sufficient documentation to show it made reasonable efforts to obtain the documents from the customer; and

(C) permits the customer to cancel the purchase of the contract without penalty not later than 30 days after the date the bank has mailed the long form disclosures to the customer.

(3) Special rule for solicitations using written mail inserts or "take one" applications. If the contract is solicited through written materials such as mail inserts or "take one" applications and the bank provides only the short form disclosures in the written materials, then the bank shall mail the acknowledgment of receipt of disclosures, together with the long form disclosures required by subsection (f) of this section, to the customer within 3 business days, beginning on the first business day after the customer contacts the bank or otherwise responds to the solicitation. The bank may not obligate the customer to pay for the contract until after the bank has received the customer's written acknowledgment of receipt of disclosures unless the bank:

(A) maintains sufficient documentation to show that the bank provided the acknowledgment of receipt of disclosures to the customer as required by this section;

(B) maintains sufficient documentation to show that the bank made reasonable efforts to obtain from the customer a written acknowledgment of receipt of long form disclosures; and

(C) permits the customer to cancel the purchase of the contract without penalty within 30 days after the bank has mailed the long form disclosures to the customer.

(4) Special rule for electronic election. The affirmative election and acknowledgment may be made electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business and Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

(h) Safety and soundness. A state bank must manage the risks associated with debt cancellation contracts and debt suspension agreements in accordance with safe and sound banking principles. Accordingly, a state bank must establish and maintain effective risk management and control processes over its debt cancellation contracts and debt suspension agreements. These processes include appropriate recognition and financial reporting of income, expenses, assets and liabilities, and appropriate treatment of all expected and unexpected losses associated with the products. A bank should also assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its debt cancellation contract and debt suspension agreement programs.

(i) Notwithstanding the foregoing, until further notice, compliance with the following provisions of this section will not be required when a state bank, in connection with closed-end consumer credit extended by the bank (other than a residential mortgage loan), offers a debt cancellation contract or debt suspension agreement through an unaffiliated, non-exclusive agent:

(1) the requirement set forth in subsection (e) of this section to offer a periodic payment option;

(2) the requirement set forth in subsection (d)(1) of this section that a bank offering a customer a debt cancellation contract or debt suspension agreement without a refund provision also must offer the customer an option to purchase a comparable debt cancellation contract or debt suspension agreement that provides for a refund;

(3) the long-form disclosure requirement set forth in subsection (f)(2) of this section;

(4) the second short form disclosure set forth in subsection (f)(1)(B) of this section, informing the customer that he or she has the option to pay the fee in a single lump sum or in periodic payments;

(5) the third short form disclosure set forth in subsection (f)(1)(C) of this section, informing the customer that he or she has the option to purchase a debt cancellation contract or debt suspension agreement with a refund provision;

(6) the fifth short form disclosure set forth in subsection (f)(1)(E) of this section, indicating that the customer will receive additional information before being required to pay for the debt cancellation contract or debt suspension agreement; and

(7) the requirement set forth in subsection (g)(1) of this section to obtain a customer's written acknowledgment of receipt of disclosures.

History

• Source Note: The provisions of this §12.33 adopted to be effective May 1, 2003, 28 TexReg 3494; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective September 9, 2010, 35 TexReg 8101; amended to be effective January 4, 2024, 48 TexReg 8329.

Subchapter C INVESTMENT LIMITS

7 Tex. Admin. Code § 12.61 Calculation of Investment Limit

(a) The term "unimpaired capital and surplus" has the meaning assigned by §12.2 of this title (relating to Definitions).

(b) For purposes of determining compliance with investment restrictions under Finance Code, Chapter 34, a state bank shall determine its investment limit at the same time and in the same manner as it determines its lending limit under §12.11 of this title (relating to Calculation of Lending Limits), to be effective at the same time as its lending limit is effective under §12.11(b) of this title.

History

• Source Note: The provisions of this §12.61 adopted to be effective September 6, 2007, 32 TexReg 5655.

7 Tex. Admin. Code § 12.62 Hedging Investments

(a) A hedging investment is an asset held incidental to a permissible banking activity in order to hedge the bank's obligations, rather than as a security held by the bank for investment. The transaction is used to manage risks arising from otherwise permissible banking activities and not entered into for speculative purposes.

(b) A state bank may make an otherwise prohibited investment or exceed the statutory limits for an investment if for the purpose of hedging risks and not for engaging in speculative activities. Documentation underlying the investment decision must demonstrate that the hedging investment offers a particularly well matched and effective risk management mechanism for specific banking risks.

History

• Source Note: The provisions of this §12.62 adopted to be effective September 6, 2007, 32 TexReg 5655.

Subchapter D INVESTMENTS

7 Tex. Admin. Code § 12.91 Other Real Estate Owned

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code, §31.002, have the same meanings as defined in the Finance Code. The following words and terms when used in this subchapter shall have the following meanings unless the context clearly indicates the contrary.

(1) Appraisal-A written report by a state certified or licensed appraiser containing sufficient information to support the state bank's evaluation of OREO taking into consideration market value, analyzing appropriate deductions or discounts, and conforming to generally accepted appraisal standards unless principles of safe and sound banking require stricter standards.

(2) Appraiser-A state certified or licensed staff appraiser or a state certified or licensed third party fee appraiser with relevant and competent experience and background as related to a particular appraisal assignment.

(3) Bank facility-Real property, including improvements, owned or leased to the extent of the lease by a state bank if the real estate is held for the purposes set forth in the Finance Code, §34.001, and is not disqualified under the Finance Code, §34.002(b). The term also includes capitalized leasehold improvements if held for the same purposes.

(4) Coterminous sublease-A lease with the same duration as the remainder of the master lease.

(5) Evaluation-A written report prepared by an evaluator describing the OREO and its condition, the source of information used in the analysis, the actual analysis and supporting information and the estimate of the OREO's market value, with any limiting conditions.

(6) Evaluator-An individual who has related real estate training or experience and knowledge of the market relevant to the OREO but who has no direct or indirect interest in the OREO. An appraiser may be an evaluator.

(7) Generally accepted appraisal standards-The Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board, Appraisal Foundation, Washington, D.C.

(8) Market value-The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(A) buyer and seller are typically motivated;

(B) both parties are well informed or well advised, and acting in what they consider their own best interests;

(C) a reasonable time is allowed for exposure in the open market;

(D) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(9) Non-coterminous sublease-A lease with a duration shorter than the remainder of the master lease.

(10) Other Real Estate Owned (OREO)-Real estate, including improvements, mineral interests, surface, and subsurface rights, owned in whole or in part or leased by a state bank, no matter how acquired, which is not a bank facility as defined by paragraph (3) of this subsection or leasehold property as permitted under the Finance Code, §34.204(a), but excluding nonparticipating royalty interests classified as personal property pursuant to Finance Code, §34.004.

(11) Staff appraiser-An appraiser on the staff of a state bank who has no direct or indirect interest in the OREO.

(12) Third party fee appraiser-An appraiser who has an independent contractor relationship with a state bank and has no direct or indirect interest in the OREO.

(13) Year-For the purposes of this section, a calendar year.

(b) Prohibition on real estate ownership. A state bank may not acquire or hold real estate except as specifically provided under the Finance Code, §§34.001 - 34.003 and 34.204(a), and this section.

(c) Acquisition of OREO. A state bank may acquire OREO only by:

(1) purchase under judicial or nonjudicial foreclosure, or through a deed in lieu of foreclosure, of real estate that is security for a debt or debts previously contracted in good faith;

(2) purchase to protect its interest in a debt or debts previously contracted if prudent and necessary to avoid or minimize loss;

(3) purchase of an employee's principal residence to facilitate a change of duty assignment or relocation upon employment;

(4) with prior written approval of the banking commissioner, an exchange of OREO or personal property for real estate to avoid or minimize loss on the real estate exchanged or to facilitate the disposition of OREO;

(5) with prior written approval of the banking commissioner, purchase of additional real estate to avoid or minimize loss on OREO currently held;

(6) involuntary acquisition of an ownership interest or leasehold interest in real estate as a result of or incidental to a judicial or nonjudicial foreclosure, or by adverse possession, or by operation of law without any action on the part of the state bank to obtain such interest; or

(7) loss of designation of real estate owned or leased by the state bank as a bank facility.

(d) Appraisal requirements.

(1) Subject to paragraph (2) of this subsection, when OREO is acquired, a state bank must substantiate the market value of the OREO by obtaining an appraisal within 90 days of the date of acquisition, unless extended by the banking commissioner. An evaluation may be substituted for an appraisal if the recorded book value of the OREO is $500,000 or less.

(2) An additional appraisal or evaluation is not required when a state bank acquires OREO if a valid appraisal or appropriate evaluation was made in connection with the real estate loan that financed the acquisition of the OREO and the appraisal or evaluation is less than one year old.

(3) An evaluation shall be made on all OREO at least once a year. An appraisal shall be made at least once every three years, unless extended by the banking commissioner, on OREO with a recorded book value in excess of $500,000.

(4) Notwithstanding another provision of this section, the banking commissioner may require an appraisal of OREO if the banking commissioner considers an appraisal necessary to address safety and soundness concerns.

(e) Additional expenditures on OREO. A state bank may re-fit OREO for new tenants or make normal repairs and incur routine maintenance costs to preserve or protect the value of the OREO or to render the OREO in saleable condition without prior notification to or approval by the banking commissioner. Other advances or additional expenditures on OREO must have the prior written approval of the banking commissioner, and must not be:

(1) made for the purpose of speculation in real estate;

(2) made for the purpose of changing or altering the current status or intended use of the OREO; and

(3) inconsistent with safe and sound banking practices.

(f) Holding period.

(1) A state bank must dispose of OREO no later than five years after the date it was acquired, ceases to be used as a bank facility, or ceases to be a bank facility as provided by Finance Code, §34.002(b), unless an extension of time for disposing of the real estate is granted in writing by the banking commissioner pursuant to Finance Code, §34.003(d).

(2) The holding period commences on the date that:

(A) ownership is acquired by the state bank pursuant to subsection (c)(1) - (5) of this section;

(B) OREO is acquired by a state bank through merger/consolidation, conversion or purchase and assumption;

(C) the bank first learns of its ownership interest in real estate which has devolved to the bank by operation of law under subsection (c)(6) of this section;

(D) the bank ceases to use a former bank facility or completes its relocation from a former bank facility to a new bank facility; or

(E) is three years following the acquisition of real estate as a bank facility for future expansion or relocation of the bank if the real estate has not been occupied by the bank, unless the banking commissioner has granted written approval to a further delay in the improvement and occupation of the real estate.

(3) The banking commissioner may grant one or more additional extensions of time for disposing of OREO if the banking commissioner finds that the state bank has made a good faith effort to dispose of the OREO or that disposal of the OREO would be detrimental to the safety and soundness of the state bank.

(g) Disposition Efforts; Documentation. A state bank must make diligent and ongoing efforts to dispose of OREO and must maintain documentation adequate to reflect those efforts. Such documentation must be available for inspection by the banking commissioner.

(h) Disposition of OREO. A state bank may dispose of OREO by:

(1) selling the OREO in a transaction that qualifies as a sale under regulatory accounting principles;

(2) selling the OREO pursuant to a land contract or contract for deed;

(3) retaining the OREO for its own use as a bank facility, subject to the approval of the banking commissioner, including residential OREO retained for the purpose of providing temporary housing for employees if:

(A) the bank has two or more locations of sufficient distance that overnight travel is required in connection with business at either location; and

(B) the board has certified that the cost of purchasing and maintaining the property is reasonable in comparison to other options for temporarily housing employees;

(4) transferring the OREO to a majority-owned subsidiary in compliance with 12 C.F.R. §362.4(b)(5)(i);

(5) transferring the OREO for market value to an affiliate, subject to the Finance Code, §33.109, and applicable federal law, including 12 U.S.C. §§371c, 371c - 1, and 1828(j);

(6) if the OREO is a master lease, obtaining a coterminous sublease or an assignment of a coterminous sublease, provided that if the bank acquires or obtains assignment of a non-coterminous sublease, the holding period during which the master lease must be divested is suspended for the duration of the sublease and will commence running again upon termination of the sublease; or

(7) entering into a transaction that does not qualify for disposal under paragraphs (1) - (5) of this section; provided that its obligation to dispose of the OREO is not met until the bank receives or accumulates from the purchaser an amount in cash, principal and interest payments, and private mortgage insurance totaling 10% of the sales price, as measured in accordance with regulatory accounting principles.

(i) Accounting for OREO. Investment in OREO, and disposition of OREO, must be accounted for in accordance with regulatory accounting principles.

History

• Source Note: The provisions of this §12.91 adopted to be effective March 1, 1996, 21 TexReg 1527; amended to be effective November 13, 1997, 22 TexReg 10954; amended to be effective July 10, 2003, 28 TexReg 5149; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 5, 2017, 41 TexReg 10562; amended to be effective September 10, 2020, 45 TexReg 6228.

Chapter 15 CORPORATE ACTIVITIES

Subchapter A FEES AND OTHER PROVISIONS OF GENERAL APPLICABILITY

7 Tex. Admin. Code § 15.1 Definitions

Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A or Subtitle G, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Accepted filing--An application, request, notice, or protest filed with the banking commissioner pursuant to the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code if:

(A) the appropriate fee has been paid pursuant to §15.2 of this title (relating to Filing and Investigation Fees); and

(B) the banking commissioner has received sufficient information to reach an informed decision and has notified the person or entity who submitted the filing, in writing, that the submission is complete and has been accepted for filing.

(2) Community--The area delineated by a state bank as the local community or communities that comprise a state bank's entire community pursuant to the Community Reinvestment Act (CRA), 12 United States Code (USC), §§2901 et seq and any rules or regulations adopted pursuant to CRA. The community may include the delineated area for the purposes of CRA in which the person or entity that is required or authorized to publish public notice proposes to engage in business, is currently engaged in business, or wishes to abandon.

(3) Day--A calendar day.

(4) Eligible bank--A state bank that:

(A) is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o, or is operating in compliance with a capital plan approved in writing by the banking commissioner;

(B) received a composite rating of either 1 or 2 as defined by the Uniform Financial Institutions Rating System at the most recent examination by the department or federal regulatory agencies;

(C) received a CRA rating of either outstanding or satisfactory at the bank's most recent inspection by the appropriate federal regulatory agency;

(D) is not presently operating in violation of a regulatory condition or commitment letter imposed by a state or federal banking regulatory agency; and

(E) is not presently operating under a memorandum of understanding; determination letter or other notice of determination; order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency.

(5) General interest items--Include, but are not limited to, local and international news, weather, sports, features, comics, entertainment and advertisements directed to the general public.

(6) Low or moderate income area--A designated geography for CRA purposes, as defined in 12 CFR, §228.12(m)(1) and (m)(2), for state member banks, or 12 CFR, §345.12(m)(1) and (m)(2), for state nonmember banks.

(7) Newspaper of general circulation--A newspaper that:

(A) devotes not less than 25% of its total column lineage to general interest items, provided that a newspaper of general circulation does not include a specialized newspaper or other periodical directed to a specific interest group or occupation, such as a legal notice or court related newspaper;

(B) is published at least once a week;

(C) is entered as second class postal matter in the county where published; and

(D) has been published regularly and continuously for at least 12 months before the applicant, protesting party or other entity publishes notice, provided that a weekly newspaper is considered to have been published regularly and continuously if the newspaper omits not more than three issues in a 12-month period.

(8) Public notice--A notice published in a newspaper of general circulation concerning the subject matter of a submitted filing.

(9) Submitted filing--An application, request, notice, or protest, that is neither an accepted filing nor an abandoned filing, filed under the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code.

History

• Source Note: The provisions of this §15.1 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective September 15, 1997, 22 TexReg 8948; amended to be effective March 12, 1998, 23 TexReg 2287; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.2 Filing and Investigation Fees

(a) Types of fees. Subsection (b) of this section contains filing fees for specified applications and notices filed with the department, and subsection (c) of this section requires a fee for protesting an application. These fees are due at the time of filing the application or protest. Subsection (d) of this section requires an investigation fee to be paid in certain cases once an application has been accepted by the department for filing, and in other cases may require payment of investigative costs upon written request of the department. Pursuant to subsection (e) of this section, an applicant may seek waiver or reduction of required fees.

(b) Filing fees. Simultaneously with a submitted application or notice, an applicant shall pay to the department:

(1) $15,000 for an application for bank charter pursuant to Finance Code, §32.003, provided that the department will not require a filing fee for an application for a bank charter to be located in a low or moderate income area and where no other depository institution operates a branch or home office;

(2) a fee for an application for conversion to a state bank charter pursuant to Finance Code, §32.502, and §15.108 of this title (relating to Conversion of a Financial Institution into a State Bank), based on total assets as follows, except that the listed fee may be reduced by 50% if the application is eligible for expedited treatment pursuant to §15.103 of this title (relating to Expedited Filings):

(A) $5,000 for an applicant with total assets of less than $100 million;

(B) $10,000 for an applicant with total assets of $100 million or more but less than $500 million;

(C) $15,000 for an applicant with total assets of $500 million or more but less than $1 billion; or

(D) $25,000 for an applicant with total assets of more than $1 billion;

(3) a fee for an application to authorize a merger or share exchange (including an interstate transaction) pursuant to Finance Code, §32.302, and §15.104 of this title (relating to Application for Merger or Share Exchange), based on total combined assets as follows:

(A) $7,500 for a merger or share exchange with combined assets of less than $1 billion, or $4,000 if the application is eligible for expedited treatment pursuant to §15.103 of this title; or

(B) $15,000 for a merger or share exchange with combined assets of $1 billion or more, or $7,500 if the application is eligible for expedited treatment pursuant to §15.103 of this title;

(4) $2,000 for each request to authorize an additional merger if more than one affiliated merger is to occur simultaneously;

(5) $5,000 for an application to authorize a purchase of assets exceeding three times the amount of the bank's unimpaired capital and surplus (including an interstate transaction) pursuant to Finance Code, §32.401, and §15.105 of this title (relating to Application for Authority to Purchase Assets of Another Financial Institution), or $2,500 if the application is eligible for expedited treatment pursuant to §15.103 of this title;

(6) $2,500 for an application to authorize the sale of assets exceeding three times the amount of unimpaired capital and surplus (including an interstate transaction) pursuant to Finance Code, §32.405, and §15.106 of this title (relating to Application for Authority to Sell Assets);

(7) $2,000 for an application to establish a branch office (including an interstate transaction) pursuant to Finance Code, §32.203, and §15.42 of this title (relating to Establishment and Closing of a Branch Office), or $1,000 if the application is eligible for expedited treatment pursuant to §15.3 of this title (relating to Expedited Filings), provided that the department will not require a filing fee for an application for a new branch office to be located in a low or moderate income area and where no other depository institution operates a branch or home office;

(8) $200 for a notice of branch relocation pursuant to §15.42(j) of this title;

(9) $1,000 for a subsidiary notice letter pursuant to Finance Code, §34.103, plus an amount up to an additional $3,500 if the banking commissioner notifies the applicant that additional information and analysis is required;

(10) $10,000 for an application regarding acquisition of control pursuant to Finance Code, §33.002, and §15.81 of this title (relating to Application for Acquisition or Change of Control of State Bank), or $5,000 if the applicant has previously been approved to control another state bank and no material changes in the applicant's circumstances have occurred since the prior approval;

(11) $500 for a notice to change the home office to an existing branch office while retaining the existing home office as a branch office pursuant to Finance Code, §32.202, and §15.41(a) of this title (relating to Written Notice or Application for Change of Home Office);

(12) $2,000 for an application to relocate the home office pursuant to Finance Code, §32.202, and §15.41(b) of this title, or $1,000 if the application is eligible for expedited treatment pursuant to §15.3 of this title, provided that the fee is $5,000 for an application to relocate the home office of a to-be-acquired charter without significant business activities;

(13) $500 for a notice regarding establishment of an office pursuant to §3.91 of this title (relating to Loan Production Offices), or §3.93 of this title (relating to Deposit Production Offices);

(14) $5,000 for an application for a foreign bank branch or agency license pursuant to Finance Code, §204.101, and §3.41(a) of this title (relating to Applications, Notices and Reports Related to Foreign Bank Branches and Agencies);

(15) $1,000 for the statement of registration of a foreign bank representative office pursuant to Finance Code, §204.201, and §3.44(b) of this title (relating to Statements of Registration, Notices and Filings Related to Foreign Bank Representative Offices);

(16) $300 for an application to amend a bank charter (certificate of formation) pursuant to Finance Code, §32.101;

(17) $2,500 for an application to authorize a reverse stock split subject to the substantive provisions of §15.122 of this title (relating to Amendment of Certificate to Effect a Reverse Stock Split);

(18) $2,000 for filing a copy of an application to acquire a bank or bank holding company pursuant to Finance Code, §202.001;

(19) $1,000 for filing a copy of an application to acquire a nonbank entity pursuant to Finance Code, §202.004;

(20) $100 for a request for a "no objection" letter to use a name containing a term listed in Finance Code, §31.005;

(21) $1,000 for an application to authorize acquisition of treasury stock pursuant to Finance Code, §34.102, and §15.121 of this title (relating to Acquisition and Retention of Shares as Treasury Stock);

(22) $1,000 for a request to authorize an increase or reduction in capital and surplus pursuant to Finance Code, §32.103; and

(23) $500 for an application for release from a final removal or prohibition order pursuant to Finance Code, §35.0071.

(c) Filing fee for protest. A person or entity filing a protest to the application of another person or entity shall pay a fee of $2,500 simultaneously with such protest filing. The purpose of the fee required under this subsection is to partially offset the department's increased cost of processing and reduce the costs incurred by the applicant resulting solely from the protest.

(d) Investigative fees and costs. An applicant for a bank charter or conversion to a state bank shall pay an investigation fee of $10,000 once the application has been accepted for filing. If required by the banking commissioner, an applicant under another type of application or filing listed in subsection (b) of this section shall pay the reasonable investigative costs of the department incurred in any investigation, review, or examination considered appropriate by the department, calculated as provided by §3.36(h) of this title (relating to Annual Assessments and Specialty Examination Fees). Such investigation fee or costs must be paid by the applicant upon written request of the department. Failure to timely pay the investigation fee or a bill for investigative costs constitutes grounds for denial of the submitted or accepted filing.

(e) Reduction or waiver of fees. Fees paid are nonrefundable and the banking commissioner shall charge fees on a consistent and nondiscriminatory basis. However, in the exercise of discretion, the banking commissioner may reduce, waive, or refund all or part of a filing fee, investigation fee, or bill for investigative costs if the banking commissioner concludes that:

(1) the application demonstrates that the fee creates an unreasonable hardship on the applicant; or

(2) the nature of the application will result in substantially reduced processing time compared to normal expectations for an application of that type.

(f) Severability. If any fee or cost recovery set forth in this section is finally determined by a court of competent jurisdiction to be invalid, that fee or cost recovery shall be severed from this section and the remainder of this section shall remain fully enforceable.

History

• Source Note: The provisions of this §15.2 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective March 12, 1998, 23 TexReg 2287; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective March 8, 2012, 37 TexReg 1497; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2014, 38 TexReg 9482; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.3 Expedited Filings

(a) An eligible bank may file an expedited filing according to forms and instructions provided by the department solely for the following matters, together with the fee required by §15.2 of this title (relating to Filing and Investigation Fees):

(1) a branch application pursuant to Finance Code, §32.203, and §15.42 of this title (relating to Establishment and Closing of a Branch Office); and

(2) home office relocations less than one mile with no abandonment of the community pursuant to the Finance Code, §32.202(c), and §15.41 of this title (relating to Written Notice or Application for Change of Home Office).

(b) Notwithstanding another provision of this section, the banking commissioner may deny expedited filing treatment to an eligible bank, in the exercise of discretion, if the banking commissioner finds that the filing involves one or more of the following:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction will result in a fixed asset investment in excess of the limitation contained in the Finance Code, §34.002(a);

(4) the proposed transaction requires the approval of the banking commissioner under the Finance Code, §33.109(b);

(5) the proposed transaction involves an issue of parity between state and national banks pursuant to the Finance Code, §32.009;

(6) the proposed transaction significantly impacts the strategic plan of the bank;

(7) the proposed transaction will result in a decrease in capital below the levels required to qualify as an eligible bank;

(8) the proposed transaction will result in an abandonment of the community pursuant to the Finance Code, §32.202(d);

(9) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(10) the application is deficient and specific additional information is required, or the filing fee has not been paid.

(c) The department shall notify the applicant on or before the 15th day after receipt of the application if expedited filing treatment is not available under this section. Such notification of denial must be in writing and must indicate the reason why expedited treatment is not available. Notification is effective when mailed by the department and is not subject to appeal.

(d) If expedited filing treatment is denied, the applicant shall submit any additional fee required by §15.2 of this title on or before the fifth business day after receipt of the notice.

(e) Unless the applicant is otherwise notified by the department, an expedited filing is approved on the 15th day after the later of the date the application is complete and accepted for filing, or expiration of the period for filing a comment, protest, response or reply, whichever is the last to occur, unless a protest is filed. If a protest is filed, the application will be processed under §15.41 or §15.42 of this title, whichever is applicable.

History

• Source Note: The provisions of this §15.3 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2014, 38 TexReg 9482; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.4 Required Information and Abandoned Filings

(a) Required information. The banking commissioner may investigate and evaluate facts related to a submitted filing or accepted filing to the extent necessary to reach an informed decision. The banking commissioner may require any person or entity connected with the matter to which the submitted or accepted filing pertains to submit additional information, including, but not limited to, an opinion of counsel with respect to a matter of law or an opinion, review or compilation prepared by a certified public accountant.

(b) On or before the 15th day after initial submission of an application, the banking commissioner shall issue a written notice informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(c) Time limit for providing required information. An applicant must provide all information necessary for the banking commissioner to declare that a submission is an accepted filing, whether the information is required by form or rule or is requested by the department. The information must be provided to the department on or before the 61st day after the date of initial submission of the filing, except as otherwise provided by law. Upon a finding of good and sufficient cause, the banking commissioner shall grant an applicant additional time to complete the application. Extensions will be communicated to the applicant before the expiration of the filing period.

(d) Abandoned filing. The banking commissioner may determine any submitted or accepted filing to be abandoned, without prejudice to the right to refile, if the information required by the Finance Code, this chapter, or any rule or regulation adopted pursuant to the Finance Code, or additional requested information, is not furnished within the time period specified by subsection (c) of this section or as requested by the department, in writing, to the person or entity making the submission. The banking commissioner may determine a submitted or accepted filing, for which additional fees or costs are required by the Finance Code or by this chapter to be abandoned if those amounts are not paid by the deadline stated by the department, which shall be at least 14 days from the date the deadline is communicated in writing to the applicant.

(e) Notice. The banking commissioner shall give written notice of any submitted or accepted filing considered to be abandoned. Notice of abandonment shall be effective upon mailing by the department. Fees paid related to an abandoned filing are nonrefundable.

History

• Source Note: The provisions of this §15.4 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective February 14, 1997, 22 TexReg 1311; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective September 4, 2014, 39 TexReg 6824; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.5 Public Notice

(a) General. A person or entity required or authorized to file public notice, including a person or entity requesting authorization for a merger, purchase of assets, a conversion, an applicant for a foreign bank agency, or another application requiring public notice, shall publish notice in a newspaper of general circulation in its specified community or in an alternative form of publication acceptable to the banking commissioner and in such other locations as may be required by the banking commissioner.

(b) Contents. The public notice must state that a filing is being made; the date (or expected date) of the filing; sufficient information describing the proposed transaction, and other related information required by the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code. The notice must also contain any other information as may be required by the banking commissioner. In addition, the notice must include substantially the following text as a separately stated paragraph: "Any person wishing to comment on this application, either for or against, may file written comments with the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294 on or before the 14th day after the date of this publication. Such comments will be made a part of the record before and considered by the banking commissioner. Any person wishing to formally protest and oppose (describe type of application in general terms) and participate in the application process may do so by filing a written notice of protest with the Texas Department of Banking on or before the 14th calendar day after the date of this publication accompanied by a protest filing fee of $2,500. The protest fee may be reduced or waived by the banking commissioner upon a showing of substantial hardship."

(c) Publisher's affidavit. A person or entity required to file public notice under this section shall file with the banking commissioner a copy of the notice and a publisher's affidavit attesting to the date of publication.

(d) One Publication Sufficient. Unless otherwise required by the Finance Code or rules and regulations adopted pursuant to the Finance Code, one public notice publication per submitted or accepted filing in each community specified by the banking commissioner is sufficient if in substantial compliance with this section and chapter and with the Finance Code, as determined by the banking commissioner. The banking commissioner reserves the right to require additional publication based on a determination that a particular publication is insufficient or is otherwise not in compliance.

History

• Source Note: The provisions of this §15.5 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective March 21, 1997, 22 TexReg 2608; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.6 Applications for Bank Charter: Notices to Applicants; Application Processing Times; Appeals

(a) Form of application. An application to engage in a business under the Finance Code, §32.003, must be filed on a form prescribed by the banking commissioner.

(b) Notice to applicant. The banking commissioner shall issue a written notice as required by §15.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. If a protest is timely filed, the department will notify the applicant of the protest.

(c) Action on applications. If an application is not protested and if the banking commissioner has not ordered a hearing, the banking commissioner shall approve or deny an application for a state bank charter or an application for conversion of a financial institution to a state bank on or before the 180th day after the date the application is accepted for filing, unless extended by written agreement between the applicant and the banking commissioner. If the application is protested, the application will be acted on in accordance with §15.10 of this title (relating to Protested Applications).

(d) Violation of Processing Times. If an application is not protested or a hearing is not convened, an applicant may appeal directly to the banking commissioner for a timely resolution of a dispute arising from a violation of a processing period set forth in this section. An applicant may appeal by filing a written request with the banking commissioner on or before the 30th day after the date the decision is made on the application, requesting review by the banking commissioner to determine whether the established period for the granting or denying of the application has been exceeded. The decision on the appeal shall be based on the written appeal filed by the applicant, any response by the department, and any agreements between the parties. The banking commissioner may convene a hearing to take evidence on the matter.

(e) Decision on Appeal. The banking commissioner shall decide the appeal in the applicant's favor if the banking commissioner determines that the time periods established in this section have been exceeded and the department has failed to establish good cause for the delay. The banking commissioner shall issue a written decision to the applicant on or before the 60th day after the filing of an appeal. If an appeal is decided in an applicant's favor, the department will reimburse the application fee paid by the applicant. A decision in favor of the applicant under this subsection does not affect a decision to grant or deny the application based on applicable substantive law without regard to whether the application was timely processed.

History

• Source Note: The provisions of this §15.6 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective July 10, 2008, 33 TexReg 5275; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.7 Submission of Documents and Reproductions

(a) Scope. This section governs submission of documents to the department for processing by the corporate activities division of the department pursuant to this chapter, and does not permit, prohibit, or affect correspondence with or documents submitted to the department for another purpose, including:

(1) applications submitted to the non-depository supervision division of the department; and

(2) documents submitted to the department as required or permitted by Government Code, Chapter 2001, and Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings).

(b) Reproduction. For purposes of this section, the term reproduction means:

(1) a photographic or photostatic copy or similar reproduction of an original document that is submitted to the department by mail or hand delivery;

(2) a facsimile copy of an original document submitted by telephonic document transmission to the fax number specified by the department; or

(3) if permitted by the department with respect to a specific filing, an electronic copy of an original document submitted by electronic means as authorized by the department.

(c) Filings. Subject to the length limitations of subsection (d) of this section, a document required or authorized to be filed with the department may be a reproduction, including an application or a supplement to or substitution for a portion of a previously filed and accepted application. Receipt of a reproduction by the department is not equivalent to accepted for filing.

(d) Page limitations. A document submitted by telephonic document transmission to the department's fax machine may not exceed 25 pages in total length, including the transmittal document required by subsection (e) of this section, or it will be rejected for filing. The transmission of portions of any particular filing at different times is treated as one reproduction for purposes of this subsection.

(e) Transmittal document. A cover sheet or transmittal document must accompany every reproduction submitted under this section and must:

(1) clearly identify the sender by name, address, and phone number, the documents being delivered or transmitted, and the number of pages in the submission;

(2) contain clear and concise instructions concerning the sender's request with respect to the submission; and

(3) contain complete and accurate information regarding the payment of required filing fees, if any.

(f) Time of receipt. To be considered received by the department, a document must be in clearly legible form. Documents submitted by mail or hand delivery must be delivered during regular business hours of the department. For documents submitted by mail or hand delivery, the date and time the submission is actually received by the department will determine the time of receipt. For reproductions submitted by telephonic document transmission, the date and time imprinted by the department's fax machine on the last page of a reproduction submitted by telephonic document transfer will determine the time of receipt. For reproductions submitted by email, the date and time reflected by the department's email system will determine the time of receipt. Any document received after 4:30 p.m. on a business day, or on a non-business day, is considered received at 8:00 a.m. on the next business day. A document will not be considered received until the department receives the entire document and the required filing fee, if any.

(g) Equivalent of original. For all purposes attendant to filing, a reproduction of a document filed with the department under this section, including reproduction of signatures thereon, is considered an original document.

History

• Source Note: The provisions of this §15.7 adopted to be effective July 17, 1997, 22 TexReg 6429; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.9 Corporate Filings

(a) In accordance with the applicable provisions of the Finance Code, Title 3, Subtitle A or G, the following corporate forms regarding a state bank, along with the applicable filing fees, must be filed with the banking commissioner:

(1) a certificate of correction as authorized by Texas Business Organizations Code (TBOC), §4.101;

(2) certificate of amendment under the Finance Code, §32.101;

(3) restated, or, amended and restated, certificate of formation under the Finance Code, §32.101, and TBOC, §3.059 and §21.052;

(4) certificate of merger under the Finance Code, §32.301 et seq, as supplemented by the TBOC, §10.151;

(5) certificate of exchange under TBOC, §10.151;

(6) statement of event or fact pursuant to TBOC, §4.055;

(7) establishment of a series of shares by the board of directors under the Finance Code, §32.102, as supplemented by TBOC, §21.155 and §21.156;

(8) statement regarding a restriction on the transfer of shares under TBOC, §21.212; and

(9) abandonment of a merger or interest exchange prior to its effective date under TBOC, §4.057.

(b) For purposes of corporate filings with the banking commissioner under subsection (a) of this section, state banks may utilize a modified version of forms promulgated by the secretary of state if the banking commissioner or the finance commission has not promulgated an appropriate corporate form; however, the banking commissioner may require the submission of additional information. The modified corporate forms must:

(1) specifically reference the applicable provisions of the Finance Code;

(2) change references from "corporation" to "association"; and

(3) change the references to "stated capital" and similar terms defined in the TBOC to an appropriate reference to terms defined in the Finance Code.

(c) In accordance with the applicable provisions of the Finance Code and the TBOC, a state bank may file the following corporate forms with the secretary of state as instructed in the Finance Code or the TBOC:

(1) name registrations under TBOC, §§5.151 - 5.155;

(2) assumed name certificates under TBOC, §5.051;

(3) a statement appointing an agent authorized to receive service of process under Finance Code, §201.103;

(4) an amendment to a statement appointing an agent to receive service of process under Finance Code, §201.103; and

(5) a cancellation of the appointment of an agent to receive service of process under Finance Code, §201.103.

(d) The following corporate forms are inapplicable to state banks and are not required to be filed by a state bank with either the secretary of state or the banking commissioner:

(1) changes of registered office or agent under TBOC, §5.202 or §5.203;

(2) name reservations under TBOC, §5.101;

(3) certificate of termination under TBOC, §11.101; and

(4) certificate of reinstatement under TBOC, §11.202.

History

• Source Note: The provisions of this §15.9 adopted to be effective July 10, 2008, 33 TexReg 5275; amended to be effective September 9, 2010, 35 TexReg 8101; amended to be effective November 7, 2013, 38 TexReg 7687.

7 Tex. Admin. Code § 15.10 Protested Applications

(a) A protest of a charter application must be received by the department before the 15th day after the date the organizers publish notice and must be accompanied by any fee required by §15.5(b) of this title (relating to Public Notice). If the protest is untimely, the department will return all fees and deposits to the protesting party. If the protest is timely, the department shall notify the applicant of the protest and mail or deliver a complete copy of the nonconfidential sections of the charter application to the protesting party before the 15th day after the later of the date of receipt of the protest or receipt of the charter application.

(b) A protesting party must file a detailed protest responding to each contested statement in the nonconfidential portion of the application not later than the 20th day after the date the protesting party receives the application from the department. The protesting party must relate each statement and response in his protest to the standards for approval set forth in Finance Code §32.003(b).

(c) The applicant must file a written reply to the protesting party's detailed response on or before the 10th day after the date the response is filed.

(d) The protesting party's response and the applicant's reply must be in the form and must be served as required by Finance Code §32.005(b). Any comment received by the department and any reply of the applicant to the comment shall be made available to the protesting party.

History

• Source Note: The provisions of this §15.10 adopted to be effective July 10, 2008, 33 TexReg 5275.

7 Tex. Admin. Code § 15.11 Hearings on Applications

(a) The banking commissioner may not be compelled to hold a hearing before granting or denying the charter application. The banking commissioner may grant a hearing at the request of an applicant or a protesting party. The banking commissioner may order a hearing without any party having requested one.

(b) A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record complied under §15.10(b) - (d) of this title (relating to Protested Applications) and why the issues cannot be determined.

(c) If the banking commissioner sets a hearing, the banking commissioner shall conduct a public hearing and one or more prehearing conferences as the banking commissioner considers advisable and consistent with applicable law. The banking commissioner shall also allow the parties to undertake such discovery as the banking commissioner considers advisable and consistent with applicable law, except that the banking commissioner may not permit discovery of confidential information in the charter application or the investigation report.

History

• Source Note: The provisions of this §15.11 adopted to be effective July 10, 2008, 33 TexReg 5275.

7 Tex. Admin. Code § 15.12 Waiver of Requirements

The banking commissioner in the exercise of discretion may waive or modify any requirement imposed by this chapter, unless specifically required by statute.

History

• Source Note: The provisions of this §15.12 adopted to be effective July 10, 2008, 33 TexReg 5275.

Subchapter B BANK CHARTERS

7 Tex. Admin. Code § 15.23 Application for Interim Bank Charters

(a) General. The banking commissioner may issue an interim state bank charter solely for the purpose of facilitating the acquisition, reorganization, or merger of a pre-existing bank, if the resulting bank will engage in the business of banking in substantially the same markets. The applicant must submit the application for an interim bank charter on a form prepared and prescribed by the banking commissioner and tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The applicant must describe in detail the entire transaction in which the interim bank charter is proposed to be used and identify the resulting bank after completion of the transaction.

(b) Public Notice. Upon submission of application, the applicant shall publish notice as required by §15.5 of this title (relating to Public Notice) and in the community where the resulting bank is to be located.

(c) Public Comment. No hearing will be held regarding the issuance of an interim bank charter unless the banking commissioner, in the exercise of discretion, sets and convenes a hearing. Persons or entities submitting comments will not be entitled to further notice of or participation in the interim bank charter application proceedings.

(d) Adequacy of Capital. The banking commissioner shall determine the adequacy of capital for a proposed interim bank charter, except that an interim bank may not be chartered with a capital less than $5,000.

History

• Source Note: The provisions of this §15.23 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.24 Option to Withhold Identity of Officers

An applicant for a state bank may, at its option, withhold the identity of prospective officers until such time as the banking commissioner issues a final order on the application. Approval of the application is conditioned upon filing, with the banking commissioner, the required information and authorizations on qualified proposed officers. Upon receipt of the required information, the banking commissioner shall review and investigate the qualification of the proposed officers and deliver the certificate of authority pursuant to the Finance Code, §32.006, if the banking commissioner finds that the proposed officers meet the requirements of the Finance Code, §32.003(b)(4).

History

• Source Note: The provisions of this §15.24 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 12, 2003, 28 TexReg 9825.

Subchapter C BANK OFFICES

7 Tex. Admin. Code § 15.41 Written Notice or Application for Change of Home Office

(a) Relocation by notice. Unless an application under subsection (b) of this section is required, a state bank may change its home office to one of its previously established branches pursuant to the Finance Code, §32.202(b), by filing a written notice containing the information required by subsection (c) of this section, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees). A bank may relocate its home office immediately after the required notice and fee has been acknowledged in writing as complete and accepted for filing by the banking commissioner. An application under subsection (b) of this section is required if the proposed home office relocation:

(1) will result in an abandonment of all or part of the community served by the bank's present home office location; or

(2) is anticipated to result in a reduction in banking services presently offered by the bank at its present home office location within the 18 month period after the effective date of the relocation.

(b) Relocation by application.

(1) A state bank relocating its home office must file an application setting forth the information required by subsection (c) of this section, accompanied by the required filing fee pursuant to §15.2 of this title if it is a relocation pursuant to:

(A) the Finance Code, §32.202(b) and subsection (a) of this section does not apply; or

(B) the Finance Code, §32.202(c).

(2) An eligible bank may file an expedited application pursuant to §15.3 of this title (relating to Expedited Filings).

(3) On or before the 15th day after initial submission of an application, the banking commissioner will issue the written notice required by §15.4(b) of this title (relating to Required Information and Abandoned Filings).

(4) Except as otherwise provided in this section and to the extent applicable, the banking commissioner will evaluate an application under this subsection in light of the Finance Code, §32.202(d), and apply the criteria applicable to an application for a branch office under §15.42(e) of this title (relating to Establishment and Closing of a Branch Office).

(5) An applicant under this subsection may not relocate its home office without the prior written approval of the banking commissioner.

(c) Contents of notice or application. The notice filed under subsection (a) of this section or the application submitted under subsection (b) of this section must disclose:

(1) the name of the bank requesting the home office relocation;

(2) the street address of the bank's home office before the requested home office relocation;

(3) the street address of the bank's proposed home office;

(4) the effective date of the home office relocation under subsection (a) of this section, or the requested effective date for a proposed home office relocation under subsection (b) of this section;

(5) a copy of the resolution adopted by the bank's board of directors authorizing the proposed home office relocation;

(6) a written statement signed by the principal executive officer of the bank or a majority of the bank's board of directors stating whether or not the proposed home office relocation will result in an abandonment of all or part of the community served by the bank's present home office location and, if so, an explanation of how the abandonment promotes the public convenience and advantage;

(7) a written statement signed by the principal executive officer of the bank or a majority of the bank's board of directors stating whether or not, within the 18 month period after the proposed effective date of the relocation, a reduction in banking services presently offered by the bank at its present home office location is anticipated and, if so, an explanation of:

(A) the anticipated reduction in banking services; and

(B) how:

(i) the diminution in services is consistent with the original determination of public necessity for the establishment of the bank at its existing location; or

(ii) the public convenience and advantage would be promoted by the home office relocation;

(8) a description of any actual, proposed, or contemplated financial involvement in the home office relocation by an officer, director, manager, managing participant, or principal shareholder or participant of the state bank;

(9) evidence that the bank has considered the applicability of federal law governing main office or branch closing or relocation, such as 12 United States Code, §1828(d)(1), and regulations and policy statements issued thereunder; and

(10) other information as the banking commissioner may require.

(d) Public notice.

(1) Within 14 days prior to or 14 days after the initial submission of a written application under subsection (b) of this section, the applicant must publish notice of the submission, as required by §15.5 of this title (relating to Public Notice). Notice must be published in the community where the current home office of the bank is located and in the community of the proposed home office.

(2) The notice must contain the content required by §15.5(b) of this title, the current home office address, and the proposed home office address.

(e) Public comment and protest. For 14 days after publication of the notice or longer if the banking commissioner allows more time for good cause shown, the public may submit written comments or protests regarding an application under subsection (b) of this section. There is no fee or cost for submitting a comment, but persons commenting are not entitled to further notice of or participation in the proceedings. In the event of a properly filed protest, each protesting party has the rights and responsibilities of a protesting party to a branch application under §15.42 of this title.

(f) Certificate of Formation. An amendment to the certificate of formation of the state bank is not required to effect a change in the location of its home office. However, if the certificate of formation is subsequently amended or restated, the resulting certificate of formation must include the bank's current home office address.

History

• Source Note: The provisions of this §15.41 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective September 13, 1996, 21 TexReg 8455; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.42 Establishment and Closing of a Branch Office

(a) Forms. If a state bank wants to establish and operate a branch office in this state or an interstate branch office pursuant to Finance Code, §32.203 and §203.001(a), then a branch application must be completed and filed on forms prescribed by the department. An application for an interstate branch must also provide information regarding applicable host state law and evidence of compliance with the law. Eligible banks may file an expedited application pursuant to §15.3 of this title (relating to Expedited Filings).

(b) Filing. The banking commissioner will issue a written notice as required by §15.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(c) Public notice.

(1) Within 14 days prior to or 14 days after the initial submission of its application, the applicant must publish notice of the application, as required by §15.5 of this title (relating to Public Notice), in the community of the proposed branch.

(2) The notice must comply with the content requirement of §15.5(b) of this title and include the proposed location of the branch or service area.

(3) With respect to an application to establish an interstate branch office pursuant to Finance Code, §32.203 and §203.001(a), the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(d) Public comment and protest. For 14 days after publication of notice, or longer if the banking commissioner allows more time for good cause shown, the public may submit written comments or protests regarding the application. There is no fee or cost for submitting a comment, but persons commenting are not entitled to further notice of or participation in the branch application proceedings. Each protesting party has the rights and responsibilities set forth in subsections (f) and (g) of this section.

(e) Criteria for branch approval: "Significant supervisory or regulatory concerns."

(1) To determine whether there are significant supervisory concerns regarding a proposed branch, the banking commissioner will consider the financial condition of the applicant, the financial effect of the branch on the applicant, the management abilities of the applicant, and the history and prospects of the applicant and its affiliates regarding fulfillment of responsibilities to regulatory agencies and to the public, including, but not limited to, the responsibility of the applicant to meet the credit needs of its entire community pursuant to the Community Reinvestment Act (CRA), 12 United States Code, §2901 et seq. An application will ordinarily be denied if the applicant is in less than satisfactory financial condition as of its most recent examination or has a less than satisfactory rating regarding compliance with CRA.

(2) To determine whether there are significant regulatory concerns regarding a proposed branch, the banking commissioner will consider the need to maintain a sound banking system. The banking commissioner will follow the principles that the marketplace normally is the best regulator of economic activity, and that healthy competition promotes a sound and more efficient banking system that serves customers well. Accordingly, absent significant supervisory concerns, the general policy of the banking commissioner is to approve applications to establish and operate branches, provided that approval would not otherwise violate the provisions of federal or state law (including any requirements for federal banking agency approval).

(3) In determining whether there are significant supervisory or regulatory concerns as set forth in paragraphs (1) and (2) of this subsection, the banking commissioner will consider written material in the record, including the application, comments on file, protests on file, and any replies of the applicant, the department's files as they relate to the current financial condition of the applicant, and any data that the banking commissioner may properly officially notice. Specifically, the banking commissioner will approve a branch if:

(A) the department's files do not indicate significant regulatory concerns as they relate to the current financial condition of the applicant, including but not limited to its capital, asset quality, management, earnings and liquidity (these files are confidential pursuant to the Finance Code, Chapter 31, Subchapter D, and rules adopted pursuant to the Finance Code, are not open or available to either the applicant or a protesting party or to the public);

(B) the costs of establishing the proposed branch office, including costs of purchasing or leasing the branch site, necessary furnishings, staffing and equipment and the effect of these costs do not significantly affect the operations of the applicant as a whole;

(C) the projected earnings appear reasonable and sufficient to support expenses attributable to the branch without jeopardizing the safety and soundness of the applicant;

(D) the depth and quality of management of the applicant and the proposed branch is sufficient to justify a belief that the bank will operate in compliance with the Finance Code;

(E) the bank has demonstrated compliance with CRA as determined by the rating assigned in the applicant's most recent CRA evaluation;

(F) the applicant has demonstrated a responsiveness to recommendations made in past state and federal bank examination reports and the applicant has generally been operated in substantial compliance with all applicable state and federal laws; and

(G) the banking commissioner, in the exercise of discretion, determines there are no areas of general supervisory concern.

(4) The banking commissioner will direct the department to assemble, evaluate, and make a recommendation regarding all relevant documentation and data as set forth in this subsection within 30 days after the application is complete and accepted for filing, or expiration of the period for filing a comment, protest, response or reply, whichever is the last to occur. If a hearing is granted pursuant to subsection (g) of this section, then the banking commissioner will request the administrative law judge for the Finance Commission of Texas (administrative law judge) to discharge this function through the hearings process. Portions of the assembled record that are confidential pursuant to the Finance Code, Chapter 31, Subchapter D, must be segregated and clearly marked as confidential.

(5) If no hearing is granted, the banking commissioner will either approve, conditionally approve, or deny the application on or before the 30th day after receipt of the department's recommendation.

(f) Protest.

(1) A person may initiate a protest by submitting a written notice of intent to protest the application with the department within the time period allowed by subsection (d) of this section, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees). If the protest is untimely, the filing fee will be returned to the protesting party. If the protest is timely, the department will notify the applicant of the protest and mail or deliver a complete copy of the non-confidential sections of the application to the protesting party on or before the 14th day after receipt of the protest or the application, whichever occurs later.

(2) A protesting party must file a detailed protest responding to each substantive statement contained in the non-confidential sections of the application within 20 days after the protesting party receives the application from the department. The protesting party's response must indicate whether each substantive statement is admitted or denied. The applicant must file a written reply to the protesting party's detailed response on or before the tenth day after the response is filed. Both the protesting party's response and the applicant's reply must be verified by affidavit and certify that a copy was served upon the opposing party. When applicable, statements in the response and in the reply may be supported by references to data available in sources of which official notice may properly be taken. Comments received by the department and any replies of the applicant to the comments will be made available to the protesting party.

(3) The banking commissioner may extend any time period set forth in this subsection for good cause shown. Good cause includes, but is not limited to, failure of the department to furnish required documentation, forms or information within a reasonable time to permit its effective use by the recipient, or failure of a party to timely serve a filed document on an opposing party. The date a document is actually received by the department is its filing date and not the date it is mailed. Failure to timely file a required document is considered an abandonment of the application or protest, as applicable. Rule 21a, Texas Rules of Civil Procedure, will govern methods and manner of authorized service and the computation of time periods under this subsection.

(g) Hearing.

(1) Pursuant to the Finance Code, §32.203, the banking commissioner may not be compelled to hold a hearing prior to granting or denying approval to establish a branch.

(2) In the exercise of discretion, the banking commissioner may consider granting a hearing on a branch application at the request of either the applicant or a protesting party. The banking commissioner may order a hearing even if no hearing has been requested by the parties. A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record compiled pursuant to subsection (e) of this section and why the issues cannot be so determined. The request for hearing and the banking commissioner's decision with regard to granting a hearing will be made a part of the record.

(3) If a hearing is not requested or if a request for hearing is denied, the banking commissioner will consider the application in the manner set forth in and solely on the basis of the written record established pursuant to subsection (e) of this section.

(4) The administrative law judge will enter appropriate order(s) and conduct a hearing within 30 days after the date a hearing is granted, or as soon thereafter as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and the Administrative Procedure Act (Texas Government Code, Chapter 2001). The administrative law judge may require submission of written and prefiled testimony. Evidence will not be received on matters not in dispute. The administrative law judge will not consider issues or evidence that are not relevant to the standards set forth in subsection (e) of this section or that are not supported by the application, response, or reply.

(5) A proposal for decision, exceptions and replies to the proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title.

(h) Beginning operations. Any activity approved pursuant to this section must commence within 18 months from the date of approval unless the banking commissioner extends that date in writing. Approval will automatically expire 18 months from the date of approval if no extension is granted.

(i) Emergency branches. The banking commissioner may authorize banks to establish temporary branch locations in the event of an emergency as defined by the Finance Code, §37.001. The procedures set forth in subsections (c), (d), (f) and (g) of this section do not apply to:

(1) situations in which the banking commissioner has authorized a temporary branch location because of an emergency; or

(2) branch applications made as a part of a transaction for the purpose of assuming all or a portion of the assets and liabilities of any financial institution deemed by the banking commissioner to be in hazardous condition.

(j) Branch relocation. A bank may relocate a branch within a one-mile radius by submitting a completed written notice on a form prescribed by the banking commissioner and tendering the required filing fee pursuant to §15.2 of this title. A bank may relocate the branch beginning on the 31st day after the date the banking commissioner receives the bank's notice or immediately after the banking commissioner notifies the bank in writing that the required notice is complete.

(k) Closing a branch. Before closing an approved branch, a bank must comply with the notice requirements of federal law, and provide the department with a copy of the branch closing notice filed with the appropriate federal banking regulator simultaneously with its filing. Once a bank closes a branch the bank cannot reopen the branch except upon application for a new branch in compliance with this section.

History

• Source Note: The provisions of this §15.42 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.43 Establishment and Operation of a Remote Service Unit

(a) "Remote service unit" means an automated facility, operated by a customer of a bank, that conducts banking functions such as receiving deposits, paying withdrawals, or lending money, and includes an unmanned or automated teller machine, an automated loan machine, and an automated device for receiving deposits. A remote service unit may be equipped with a telephone or video device that allows contact with bank personnel.

(b) A remote service unit is not a branch within the meaning of Finance Code, §31.002(a)(8). A remote service unit established, operated, and maintained by a state bank is not subject to licensing, registration, or prior regulatory approval.

History

• Source Note: The provisions of this §15.43 adopted to be effective July 5, 2007, 32 TexReg 3977.

7 Tex. Admin. Code § 15.44 Establishment and Operation of a Center of Monetary Education for Texans

(a) "Center Of Monetary Education for Texans" (COMET) means a financial education program in which a state bank participates and provides services such as receiving deposits, paying withdrawals, or lending money.

(b) A COMET is not a branch within the meaning of Finance Code §31.002(a)(8), nor is it subject to licensing, registration, or prior regulatory approval, so long as it meets the following conditions:

(1) The service or services are provided on school premises, or a facility used by the school;

(2) The service or services are provided at the discretion of the school;

(3) The principal purpose of each program is financial education. For example, the principal purpose of a program would be considered to be financial education if the program is designed to teach students the principles of personal financial management, banking operations, or the benefits of saving for the future, and is not designed for the purpose of profit-making; and

(4) The program is conducted in a manner that is consistent with safe and sound banking practices and complies with applicable law.

(c) A state bank shall give the banking commissioner 30 days written notice before it begins providing services at a COMET, except that the banking commissioner may waive or shorten the notice period if the banking commissioner does not have a significant supervisory or regulatory concern regarding the bank or its planned COMET. The written notice must include the name of the school and the physical address of the planned COMET, a list of the specific activities to be performed at the planned COMET, the anticipated date for the opening of the COMET, and other information which the banking commissioner may reasonably request.

History

• Source Note: The provisions of this §15.44 adopted to be effective November 6, 2008, 33 TexReg 8906.

Subchapter E CHANGE OF CONTROL APPLICATIONS

7 Tex. Admin. Code § 15.81 Application for Acquisition or Change of Control of State Bank

(a) Definitions. Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code.

(b) General. Without the prior written consent of the banking commissioner, a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a state bank or a corporation or other entity owning voting securities of a state bank if, after the acquisition, the person or entity would control the state bank. Except as otherwise provided in this section, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

(c) Form of application. The applicant must submit a fully completed, verified application in a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The Interagency Notice of Change of Control and the Interagency Biographical and Financial Report may be submitted in lieu of the commissioner prescribed forms if they are accompanied by the executed and notarized signature pages of the commissioner prescribed forms. The application must, except to the extent expressly waived in writing by the banking commissioner, disclose:

(1) the identity, biographical data, business background, and experience relating to banking matters, and a current statement of financial condition, a statement of changes in net worth and a statement of cash flows of each person by whom, or on whose behalf, the acquisition is to be made and by each person acting in concert with others seeking to acquire voting securities subject to the Finance Code and to this section. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(2) a completed authorization to release employment, financial, credit, fingerprint information and criminal history records to the department;

(3) a completed confirmation inquiry form;

(4) the identity of each entity other than a natural person seeking to acquire control or working in concert with others to acquire control of a state bank or bank holding company and a copy of the entity's most recent audited financial statement. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(5) a description of all material, pending or adjudicated legal or administrative proceedings in which each acquiring person or entity is or was a party. A material legal proceeding includes a proceeding in which the person or entity has been charged with, cited for, or convicted under a state or federal law relating to banking or other financial institutions, securities or financial instrument reporting, or a felony or crime involving moral turpitude under the laws of a state, the United States, or another country. A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or may result in a judgment, against the acquiring person or entity and this loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material. A material administrative proceeding includes a proceeding in which the person or entity is or has been subject to a cease and desist, removal, enforcement, or other order, including an order of supervision or conservatorship issued by a state, federal, or foreign regulatory agency;

(6) the terms and conditions of the proposed acquisition or change of control and the manner in which the acquisition or change of control is to be made;

(7) the identity, source, and amount of the funds or other consideration used or to be used in making the acquisition or change of control;

(8) if a portion of the funds or other consideration to be used in making the acquisition has been borrowed or is to be borrowed or otherwise obtained for the purpose of making the acquisition, a complete description of the transaction, the names of the parties to the transaction, and a summary of all arrangements, agreements, or understandings with the parties including terms of repayment;

(9) the applicant's current or proposed business or strategic plan including amendments to a current plan;

(10) plans or proposals to liquidate the state bank or bank holding company, to sell its assets or merge it with another bank or holding company, or to make other major changes in its business, corporate structure, or management;

(11) plans or proposals to change officers and directors of the state bank or bank holding company and the related bank or financial institution management experience of proposed or current officers and directors;

(12) the terms and conditions of an offer, invitation, agreement, or arrangement under which a voting security will be acquired and any contract affecting the security or its financing after it is acquired;

(13) pro forma financial statements with projections indicating whether the acquired or controlled state bank or bank holding company will be adequately capitalized for a period of not less than two years from the date of acquisition; and

(14) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or reject the proposed acquisition. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Not later than 21 days from the date the banking commissioner notifies the applicant of acceptance of the initial application, the applicant must publish notice as required by the Finance Code, §33.002(d), and §15.5 of this title (relating to Public Notice) in the county where the state bank's or bank holding company's home office is located. One publication under this subsection is adequate unless the banking commissioner expressly requires additional notice.

(e) Confidentiality. Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or an officer or employee of the department, subject only to disclosure as may be permitted by the Finance Code, §§31.301 - 31.308 or 33.002(d), or by §3.111 of this title (relating to Confidential Information).

(f) Grandfather clause. A person or entity considered to be in control solely as a result of changed standards in the Texas Banking Act as effective September 1, 1995 (codified as Finance Code, Title 3, Subtitle A, effective September 1, 1997), is exempt from filing an application under this section as long as the person or entity was in compliance with applicable law immediately prior to September 1, 1995, and has not acquired additional shares of voting securities on or after September 1, 1995. This subsection specifically applies to a principal shareholder or principal participant of a state bank or bank holding company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state bank or holding company than another shareholder or participant.

(g) Exemptions. In addition to the acquisitions specifically exempted pursuant to the Finance Code, §33.005, these involuntary acquisitions of control do not require prior written approval of the banking commissioner pursuant to the Finance Code, §33.001:

(1) the inadvertent acquisition of control of a state bank or bank holding company by a shareholder as a result of a stock redemption or repurchase by the issuer if the potential controlling shareholder or participant of a state bank or bank holding company did not vote or have any direct or indirect input into the issuer's decision to repurchase or redeem the voting securities;

(2) the acquisition and control by a qualified employee stock ownership plan (ESOP) of less than 25% of voting securities of a state bank or bank holding company unless an officer, director, or principal shareholder or participant directly or indirectly controls the voting securities held by the ESOP, in which event an application for acquisition of control must be filed by the officer, director or principal shareholder or participant, if as a result that person would control over 25% of the voting securities;

(3) the acquisition of control of a state bank as a result of a shareholder receiving proportionate voting securities in a state bank arising from the liquidation of a bank holding company;

(4) the acquisition of additional shares of voting securities of a state bank or bank holding company by virtue of a pro-rata stock dividend or stock split not resulting in increased ownership percentage;

(5) the acquisition of control of a state bank or bank holding company as a result of a gift made in good faith, provided:

(A) the donee is related to the donor within the second degree of consanguinity or affinity;

(B) neither the donor nor donee is under an enforcement order; and

(C) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section; and

(6) the acquisition of control of a state bank or bank holding company as a result of the transfer of voting securities by gift to a limited partnership or other estate planning vehicle, if determined by the banking commissioner to have an equivalent effect, if:

(A) the limited partnership owns no other voting securities other than the securities transferred;

(B) the donor is the sole general partner of the limited partnership who retains sole voting authority over the voting securities;

(C) neither the donor nor donee is under an enforcement order; and

(D) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section.

(h) Notices in lieu of filing. If an applicant is not required to file an application because of an exemption under the Finance Code, §33.005, or subsection (g) of this section, but is required to file an application with a federal regulatory authority or a regulatory authority of another state, a copy of that application must be filed with the banking commissioner within seven days of the date of filing it with the federal or state agency. A notice in lieu of filing is required of a person claiming an exemption under the Finance Code, §33.005(1) or (3), or subsection (g)(5) or (6) of this section. This notice must be filed before the securities acquired are voted and must be accompanied by a completed authorization pursuant to subsection (c)(2) of this section. No filing fees are required for notices filed under this section; however, if the banking commissioner determines that an application is required, the appropriate filing fee pursuant to §15.2 of this title is required.

(i) Approval. Automatic approval; conditional approval. If an application filed under this section is not approved by the banking commissioner or is not set for hearing on or before the 60th day after the date notice is published, the transaction may be consummated. Before the expiration of the initial 60-day period, the banking commissioner may give the applicant written notice that the application is approved; upon receipt of the notice, the applicant may immediately consummate the transaction. Before the expiration of the initial 60-day period, the banking commissioner may also give an applicant written notice that the application is conditionally approved subject to certain conditions. The applicant must enter into a written agreement with the banking commissioner concerning these conditions on or before the 30th day after the date the applicant receives notification of conditional approval. An agreement entered into by the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant and the bank and is considered for all purposes an agreement under the provisions of the Finance Code. If an applicant receives conditional approval, but does not enter into an agreement with the banking commissioner as required by this subsection, the banking commissioner will set the matter for hearing.

(j) Consummation of an acquisition or change of control transaction. The acquisition or change of control of the voting securities must be consummated as proposed in the application, in the agreement concerning conditional approval as provided in subsection (i) of this section, or as provided in a final order pursuant to subsection (m) of this section. A transaction approved or conditionally approved under this section must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner reserves the right to alter, suspend or withdraw approval if an interim development warrants it.

(k) Notification by banking commissioner. A notification by the banking commissioner under this section may be sent by registered or certified mail, return receipt requested, and is considered delivered upon deposit in the United States mail postage prepaid, return receipt requested, addressed to the applicant at the address furnished in the application.

(l) Abandoned filing. The banking commissioner may determine an application to be abandoned pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings).

(m) Hearing on application. The banking commissioner will set an application for hearing on or before the 60th day after notice is published as required by the Finance Code, §33.002(d), and subsection (i) of this section. The notice of hearing must comply with Government Code, §2001.051, and will state that the purpose of the hearing is to give the applicant an opportunity to show that it has met all required qualifications for the banking commissioner's approval of the acquisition or change of control application. The applicant has the burden of showing all required qualifications by a preponderance of evidence. The hearing must comply with Government Code, Chapter 2001 (the Administrative Procedure Act). After the hearing, the banking commissioner will grant or deny the application based solely upon the evidence presented at the hearing. An applicant may not appeal the denial of an application or conditional approval of an application until a final order is issued. If after a hearing is held, the banking commissioner enters an order denying the application, and the order has become final, the applicant may appeal the final order by filing a petition for judicial review under the substantial evidence rule in the District Court of Travis County, Texas, and not elsewhere, as provided by the Finance Code, §33.004, and the Government Code, Chapter 2001.

History

• Source Note: The provisions of this §15.81 adopted to be effective July 12, 1996, 21 TexReg 6073; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 4, 2018, 42 TexReg 7580; amended to be effective January 2, 2020, 44 TexReg 8232.

Subchapter F APPLICATIONS FOR MERGER, CONVERSION, AND PURCHASE OR SALE OF ASSETS

7 Tex. Admin. Code § 15.101 Definitions

(a) Words and terms used in this subchapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code.

(b) When these words and terms are used in this subchapter they will have these meanings, unless the context clearly indicates otherwise.

(1) Annual report--Formal financial statements and accompanying narrative of management issued yearly for the benefit of shareholders and other interested parties.

(2) Chartering agency--A government authority that has chartering jurisdiction over an entity involved in a transaction under this subchapter.

(3) Conversion--The conversion of a state bank into a successor form of financial institution pursuant to the Finance Code, §32.501, or the conversion of a financial institution into a state bank pursuant to the Finance Code, §32.502.

(4) Corporation or domestic corporation--A corporation for profit subject to the provisions of the Texas Business Organizations Code, except a foreign corporation.

(5) CRA--The federal Community Reinvestment Act, 12 United States Code, §§2901 et seq.

(6) Current financial statements--Audited financial statements dated as of a date not more than 180 days prior to the date of submission of an application, or unaudited financial statements dated as of a date not more than 90 days prior to the date of submission of an application.

(7) Financial institution--An entity defined as a financial institution under Finance Code §201.101(1)(A) - (D).

(8) Foreign corporation--A corporation for profit organized under laws other than the laws of this state.

(9) Low-quality asset--An asset as defined in 12 United States Code, §371c(b)(10), currently an asset that falls in any one or more of these categories:

(A) an asset classified as "substandard," "doubtful," or "loss," or treated as "other loans especially mentioned" in the most recent report of examination or inspection of an affiliate prepared by either a federal or state supervisory agency;

(B) an asset in a nonaccrual status;

(C) an asset on which principal or interest payments are more than 30 days past due; or

(D) an asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor.

(10) Material administrative proceeding--A past or pending proceeding by a state, federal, or foreign regulatory agency against the applicant or other person involved in a transaction under this subchapter that resulted in or could result in the issuance of a cease and desist, removal, enforcement action, determination letter or other order, including an order of supervision or conservatorship; excluding, however, a past proceeding that resulted in an order, other than a removal order, that has been satisfied or otherwise terminated more than five years prior to the date the application or notice requesting the information is submitted.

(11) Material legal proceeding--

(A) a past or pending criminal proceeding against the applicant or other person involved in a transaction under this subchapter that resulted or may result in conviction of the applicant or other person of a crime under a state or federal law or the law of a foreign country relating to banks, other financial institutions, securities, financial instrument reporting, or another crime involving moral turpitude; or

(B) a past or pending proceeding that has or may result in a judgment against the applicant or other person or entity involved in a transaction under this subchapter and the loss contingency must be disclosed in the financial statements of the entity under generally accepted accounting principles, or is otherwise material.

(12) Merger--A transaction that is:

(A) the division of a financial institution into two or more new financial institutions or into a surviving financial institution or one or more new financial institutions, domestic or foreign corporations, or other entities, at least one of which is a state bank or is not a financial institution; or

(B) the combination of one or more financial institutions with one or more financial institutions, domestic or foreign corporations, or other entities, at least one of which is a state bank, resulting in:

(i) one or more surviving financial institutions, domestic or foreign corporations, or other entities;

(ii) the creation of one or more new financial institutions, domestic or foreign corporations, or other entities; or

(iii) one or more surviving financial institutions, domestic or foreign corporations, or other entities and the creation of one or more new financial institutions, domestic or foreign corporations, or other entities; or

(C) another transaction involving a financial institution or other entity, at least one of which is a state bank, which is considered a merger under the Texas Business Organizations Code.

(D) an interstate merger transaction as defined in Finance Code, §201.002(a)(27).

(13) Other entity--An entity, whether or not organized for profit, other than a financial institution or a domestic or foreign corporation, including without limitation a not-for-profit corporation, limited or general partnership, joint venture, joint stock company, cooperative, association, insurance company, trust company, or other legal entity organized pursuant to the laws of this state or another state or country to the extent the laws or the constituent documents of that entity, consistent with the laws, permit that entity to enter into a merger or share exchange subject to this subchapter.

(14) Principal executive officer--An officer primarily responsible for the execution of board policies and operation of the bank in accordance with the Finance Code, §33.106.

(15) Purchase of assets--The purchase other than in the ordinary course of business of all or substantially all of the assets of a state bank or another entity. This may include an interstate merger transaction as defined in Finance Code, §201.002(a)(27)(B).

(16) Regulatory restriction--A memorandum of understanding, determination letter, notice of determination, order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency, or another limitation imposed on a financial institution by a state or federal banking regulatory agency that restricts its ability to act without authorization from the regulatory agency imposing the condition.

(17) Resulting state bank--A state bank subject to the provisions of this subchapter that is a surviving entity in a merger.

(18) Sale of assets--The sale, lease, exchange, or other disposition of substantially all of the assets of a state bank other than in the ordinary course of business. This may include an interstate merger transaction as defined in Finance Code, §201.002(a)(27)(B).

(19) Share exchange--A transaction by which one or more financial institutions, domestic or foreign corporations, or other entities acquire all of the outstanding shares of one or more classes or series of one or more state banks under the authority of the Finance Code, §32.008, and the Texas Business Organizations Code.

(20) Substantially all of the assets--More than 50% of the assets or assets sufficient to materially impact the net earnings of a state bank involved in a transaction under this subchapter.

(21) Verified--Documents submitted by the applicant that have been attested to as true and correct. Attested documents filed pursuant to this subchapter are not required to be notarized.

History

• Source Note: The provisions of this §15.101 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

7 Tex. Admin. Code § 15.102 General

Without the prior written consent of the banking commissioner, a state bank may not consummate a merger, conversion, sale of assets, purchase of assets, or share exchange. Except as otherwise provided in the Finance Code, Chapter 32, Subchapters D, E, and F, or in this subchapter, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

History

• Source Note: The provisions of this §15.102 adopted to be effective September 15, 1997, 22 TexReg 8948.

7 Tex. Admin. Code § 15.103 Expedited Filings

(a) A financial institution that would be an eligible bank as defined in §15.1 of this title (relating to Definitions) if it was a state bank may file an expedited filing in lieu of an application required under §15.104 of this title (relating to Application for Merger or Share Exchange), §15.105 of this title (relating to Application for Authority to Purchase Assets of Another Financial Institution), or §15.108 of this title (relating to Conversion of a Financial Institution into a State Bank), and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees).

(b) An expedited filing consists of a letter application including, except to the extent waived by the banking commissioner, these items:

(1) a summary of the transaction;

(2) a current pro forma balance sheet and income statement for all parties to the transaction, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application, demonstrating that each resulting state bank is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o;

(3) a completed Worksheet to Determine Eligibility form as prescribed by the commissioner;

(4) a completed Worksheet for Expedited Filings form as prescribed by the commissioner;

(5) an executed opinion of counsel conforming to the requirements of the section of this subchapter that would apply had the applicant not filed an expedited filing;

(6) copies of all other required regulatory notices or filings submitted concerning the transaction; and

(7) a copy of the public notice published in conformity with the section of this subchapter that would apply had the applicant not filed an expedited filing.

(c) The banking commissioner must notify the applicant on or before a date that is 15 days after receipt of the application if expedited filing treatment is not available under this section for any reason. Notification must be in writing and must indicate the reason expedited treatment is not available. Notification is effective when mailed by the banking commissioner and is not subject to appeal.

(d) The banking commissioner, in the exercise of discretion, may withdraw an application from expedited processing or may deny expedited filing treatment to an otherwise eligible applicant if the banking commissioner finds that the application involves one or more of these issues:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction contemplates a resulting entity that is not a financial institution;

(4) the proposed transaction involves a financial institution or other entity that is not domiciled in Texas;

(5) the proposed transaction would cause the assets of a resulting state bank to increase more than:

(A) 100% if it had total assets of one billion dollars or less prior to the transaction; or

(B) 35% if it had total assets of more than one billion dollars prior to the proposed transaction;

(6) the proposed transaction involves a state bank that has experienced, since the last commercial examination by a state or federal regulatory agency, asset growth, through acquisition or otherwise, greater than:

(A) 100% if it had total assets of one billion dollars or less at the last examination; or

(B) 35% if it had total assets of more than one billion dollars at the last examination;

(7) the proposed transaction involves a resulting state bank that would not be well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o;

(8) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(9) the banking commissioner determines that a conversion examination is necessary for financial institutions converting into a state bank.

(e) The banking commissioner must approve or deny an expedited filing on or before a date that is 30 days after the date the expedited filing is accepted for filing pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings). The banking commissioner may, in the exercise of discretion, before the expiration of the period for decision, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application, and the decision will thereafter be made in accordance with §15.113 of this title (relating to Approval; Conditional Approval; Denial of Application; Hearings).

(f) The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the expedited filing.

History

• Source Note: The provisions of this §15.103 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.104 Application for Merger or Share Exchange

(a) Scope. This section governs an application for merger or share exchange pursuant to the Finance Code, §§32.301-32.303 and 32.008, or §203.001(b). This section does not apply to a merger, reorganization, or conversion of a state bank into another form of financial institution pursuant to the Finance Code, §32.501, governed by §15.107 of this title (relating to Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution).

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The Interagency Bank Merger Act application may be used in lieu of the commissioner prescribed form if it is accompanied by the signature page and supplemental page of the commissioner prescribed form. The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the merger or share exchange;

(3) certificate and plan of merger or share exchange in accordance with the Texas Business Organizations Code, which must include:

(A) a current draft of the certificate of merger or share exchange, and additional copies equal to the number of surviving, new, or acquired entities, executed and acknowledged by an authorized officer for each party to the merger or share exchange;

(B) the plan of merger or share exchange;

(C) the restated certificate of formation of each resulting state bank;

(D) the restated certificate of formation, or other constitutive documents, of each surviving entity other than the resulting state bank;

(E) the certificate of formation, or other constitutive documents, of each new resulting entity;

(F) if a party to a merger is an entity required to file documents with the Texas secretary of state before the transaction can be legally consummated, a provision in the certificate of merger conditioning the merger upon the approval of the banking commissioner, containing wording substantially as follows, as applicable: This merger will become effective upon the final approval and filing of the certificate of merger by the Secretary of State of Texas and with the Banking Commissioner of Texas which must be on or before ________ (date), which is the 90th day after the date of filing of the certificate of merger with the Secretary of State;

(4) for each party to the merger or share exchange, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the merger or share exchange, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger or share exchange, or an explanation of the basis for concluding that this action was not required;

(5) for each resulting state bank, an assessment of its future prospects, proposed officers and directors, and proposed branches and other locations;

(6) an assessment of the current regulatory and financial condition of each party to the transaction;

(7) if a merger or share exchange will change the existing CRA delineated community of a resulting state bank, a copy of a map depicting the proposed delineated community of the resulting state bank;

(8) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(9) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(10) a copy of that portion of the most recent watch list for each financial institution involved in the proposed transaction that identifies low-quality assets;

(11) a description of the due diligence review conducted by or for a state bank that is a party to the transaction and a summary of findings;

(12) a description of all material legal or administrative proceedings involving any party to the merger or share exchange;

(13) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the merger or share exchange has been duly authorized by the board and shareholders or participants of each participating state bank in accordance with the Finance Code, §32.301, and the Texas Business Organizations Code;

(B) the merger or share exchange will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(C) all deposit and other liabilities of every state bank that is a party to the merger or share exchange will be discharged or otherwise assumed or retained by a financial institution that is authorized by law to do so;

(D) each surviving, new, or acquiring entity that is not a financial institution will not be engaged in the unauthorized business of banking, and each resulting state bank will not be engaged in a business other than banking or a business incidental to banking; and

(E) all conditions with respect to the merger or share exchange that have been imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(14) a copy of each filing or application regarding the proposed merger or share exchange required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(15) a current pro forma balance sheet and income statement for each party to the transaction, with adjustments, reflecting the proposed merger or share exchange as of the most recent quarter ended immediately prior to the filing of the application;

(16) a copy of the strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of each resulting state bank as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (15) of this subsection;

(17) an explanation of compliance with or nonapplicability of provisions of governing law relating to rights of dissenting shareholders or participants to the merger or share exchange;

(18) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders or participants of a party concerning the merger or share exchange;

(19) an explanation of the manner and basis of converting or exchanging any of the shares or other evidences of ownership of an entity that is a party to the merger or share exchange into shares, obligations, evidences of ownership, rights to purchase securities, or other securities of one or more of the surviving, acquiring, or new entities, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities, or other securities of another person or entity, or into a combination of the foregoing;

(20) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application;

(21) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed merger or share exchange; and

(22) in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A) any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B) information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant, the target entity, and the resulting bank are or will be located. With respect to an interstate merger transaction, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(e) Approval by the banking commissioner and filings with a chartering agency.

(1) The banking commissioner will approve a merger or share exchange only if the application indicates substantial compliance with all conditions of the Finance Code, §32.302(b) and §32.304.

(2) If a party is required to file certificate of merger or exchange with its chartering agency after acceptance for filing pursuant to §15.4(b) of this title (relating to Required Information and Abandoned Filings), an applicant for merger or share exchange must file the original certificate of merger or exchange as certified by the chartering agency with the banking commissioner.

(3) After approval of an application under this section, the banking commissioner will accept the certificate of merger or exchange previously filed with the chartering agency (if applicable), issue a certificate of merger or exchange, and perform the duties required by the Finance Code, §32.302(c). With respect to a transaction that requires filing with the Texas secretary of state, if the banking commissioner does not approve the certificate of merger or exchange on or before the 90th day after the filing of the certificate of merger or exchange with the Texas secretary of state, the applicant must refile the certificate of merger or exchange with both the Texas secretary of state and with the banking commissioner.

(4) After issuance of the certificate of merger or exchange by the banking commissioner, the applicant must file a statement with the chartering authority, if applicable, certifying as to the date that each future event upon which the effectiveness of the merger was conditioned has been satisfied.

(5) The date of issuance of the certificate of merger by the banking commissioner is the date of approval unless the merger agreement provides for a later effective date approved by the banking commissioner pursuant to the Finance Code, §32.302(d).

History

• Source Note: The provisions of this §15.104 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.105 Application for Authority to Purchase Assets of Another Financial Institution

(a) Scope. This section governs an application for the purchase of assets pursuant to the Finance Code, §§32.001(c) and 32.401-32.404 or Finance Code, §203.001(b).

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction, including a description of the types and total dollar amounts of liabilities and obligations expressly assumed;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the transaction;

(3) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the transaction, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or an explanation of the basis for concluding that this action was not required;

(4) an assessment of the applicant's future prospects, proposed officers and directors, and proposed branches and other locations;

(5) an assessment of the current regulatory and financial condition of each party to the transaction;

(6) if the proposed transaction will change the existing CRA delineated community of the applicant, a copy of the proposed CRA map depicting the proposed delineated community of the applicant;

(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(8) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(9) a copy of that portion of the most recent watch list for the applicant and that portion of the watch list of the selling party that identifies low-quality assets being acquired or liabilities being assumed;

(10) a description of the due diligence review conducted by or for the applicant and a summary of findings;

(11) a description of all material legal or administrative proceedings involving the applicant;

(12) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the transaction will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(B) the liabilities and obligations of the purchasing bank will be limited to those expressly assumed under the purchase agreement, unless otherwise required by law; and

(C) all conditions with respect to the transaction imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(13) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(14) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application;

(15) a copy of the applicant's strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of the applicant as of the quarter ending one year from the date of its current pro forma financial statement required in accordance with paragraph (14) of this subsection;

(16) an explanation of the manner and basis of valuing any of the shares or other evidences of ownership of an entity that is to constitute part of the consideration used to acquire assets;

(17) the location of each new branch of the applicant that will result from the transaction;

(18) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application, if applicable;

(19) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed transaction; and

(20) in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A) any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B) information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the specified communities where the home offices of the applicant and other financial institutions involved in the transaction are located. With respect to an interstate merger transaction, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

History

• Source Note: The provisions of this §15.105 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.106 Application for Authority to Sell Assets

(a) Scope. This section governs an application for the sale of assets pursuant to the Finance Code, §32.405. A state bank that seeks to continue engaging in the business of banking after selling assets for a sales price exceeding an amount equal to three times the bank's unimpaired capital and surplus, pursuant to Finance Code, §32.405(a), may not consummate the sale of assets without the written approval of the banking commissioner. A state bank seeking to sell all or substantially all of its assets after obtaining approval of its shareholders must submit a plan of voluntary dissolution and liquidation to the banking commissioner for approval under the Finance Code, §32.405(c) and §§36.101 et seq, and the transaction is outside the scope of this section. A sale of assets requiring shareholder approval in which all liabilities of the seller are assumed by a depository institution, which is in substance and intent a merger, is considered to be a merger subject to §15.104 of this title (relating to Application for Merger or Share Exchange) or §15.107 of this title (relating to Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution).

(b) Subsection (f) of this section specifically addresses a sale of assets without shareholder approval under the Finance Code, §32.405(c) or Finance Code, §203.003.

(c) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction, including a description of the types and total dollar amounts of assets and liabilities transferred;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the transaction;

(3) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the transaction, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or an explanation of the basis for concluding that this action was not required;

(4) an assessment of the continuing viability of the applicant, including a description of its future prospects, proposed officers and directors, and proposed branches and other locations;

(5) an assessment of the current regulatory and financial condition of each party to the transaction;

(6) if the proposed transaction will change the existing CRA delineated community of the applicant, a copy of the proposed CRA map depicting the proposed delineated community of the applicant;

(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(8) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(9) that portion of the watch list of the applicant that identifies low-quality assets being sold or related liabilities being transferred;

(10) a description of all material, legal or administrative proceedings involving the applicant;

(11) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the sale of assets by the applicant has been duly authorized by the board and shareholders or participants of the applicant in accordance with the Texas Business Organizations Code, or that such authorization is not required, stating the basis for that conclusion;

(B) the transaction will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(C) all deposit liabilities transferred in the transaction will be discharged or otherwise assumed or retained by a financial institution that is authorized by law to do so;

(D) each purchasing entity that is not a financial institution will not be engaged in the unauthorized business of banking; and

(E) all conditions with respect to the transaction imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(12) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(13) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed sale of assets as of the most recent quarter ended immediately prior to the filing of the application;

(14) a copy of the applicant's strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of the applicant as of the quarter ending one year from the date of its current pro forma financial statement required in accordance with paragraph (13) of this subsection;

(15) an explanation of compliance with or nonapplicability of the provisions of governing law relating to the rights of dissenting shareholders;

(16) an explanation of the manner and basis of valuing any of the shares or other evidences of ownership of a party that will constitute part of the consideration received for the sold assets;

(17) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application, if applicable; and

(18) other information that the banking commissioner, in the exercise of discretion considers necessary to make an informed decision to approve or deny the proposed transaction.

(d) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(e) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the community where its home office is located and in other communities as the banking commissioner may direct.

(f) Sale of assets without shareholder approval under the Finance Code, §32.405(c). The board of a state bank, with the prior written approval of the banking commissioner, may cause a bank to sell all or substantially all of its assets without shareholder or participant approval if the banking commissioner finds the interests of depositors and creditors are jeopardized because of insolvency or imminent insolvency and that the sale is in their best interest.

(1) To obtain approval of the banking commissioner under this subsection, the applicant must submit a verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title. The application must, except to the extent waived by the banking commissioner under §15.12 of this title (relating to Waiver of Requirements), include:

(A) a copy of each filing regarding the sale that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(B) a copy of the transaction agreement executed by an authorized representative of each party to the transaction, which must include an assumption and promise by the buyer to pay or otherwise discharge:

(i) all of the applicant's liabilities to depositors;

(ii) all of the applicant's liabilities for salaries of the applicant's employees incurred before the date of the sale;

(iii) obligations incurred by the banking commissioner arising out of the supervision or sale of the applicant; and

(iv) fees and assessments due the department;

(C) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and, with respect to the purchaser, shareholder or participant meetings at which action was taken regarding approval of the transaction or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or in the alternative, an explanation of the basis for concluding that this action was not required;

(D) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(E) that portion of the most recent watch list of the applicant that identifies low-quality assets;

(F) a description of all material legal or administrative proceedings involving the applicant; and

(G) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed transaction. With respect to a proposed interstate merger transaction, the applicant must contact the department to determine additional information that the banking commissioner requires in the application.

(2) The banking commissioner will expedite processing of an application under this subsection to the extent required to protect the interests of the depositors and creditors of the applicant. An application under this subsection is not subject to the notice and publication requirements of §15.5 of this title except as may otherwise be required by the banking commissioner.

History

• Source Note: The provisions of this §15.106 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.107 Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution

(a) Scope. This section governs notice of the merger, reorganization, or conversion of a state bank into another form of financial institution pursuant to the Finance Code, §32.501 and §32.304.

(b) Form of notice. A state bank does not cease to be subject to the jurisdiction of the banking commissioner until the banking commissioner is given written notice of intent to merge, reorganize, or convert before the 31st day preceding the date of the proposed transaction and the merger, reorganization, or conversion has otherwise become effective. The notice must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a copy of all agreements or other documentation related to the proposed transaction executed by an authorized representative of the applicant and other parties, if any;

(3) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(4) a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the merger, reorganization, or conversion, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger, reorganization, or conversion;

(5) Opinion of legal counsel. An opinion of legal counsel that conforms with the requirements of §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the merger, reorganization, or conversion of the state bank has been duly authorized by its board and shareholders or participants in accordance with the Finance Code, §32.501(b), and the Texas Business Organizations Code;

(B) all deposit and other liabilities of the state bank will be discharged or otherwise retained by the successor financial institution; and

(C) all conditions with respect to the merger, reorganization, or conversion imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(6) a publisher's certificate showing publication of notice as required by subsection (c) of this section;

(7) an explanation of compliance with the provisions of the Texas Business Organizations Code relating to rights of dissenting shareholders or participants; and

(8) in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A) any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B) information regarding applicable host state law and evidence of compliance with the law.

(c) Notices, publication, and certificate of authority.

(1) The applicant must submit a copy of the published notice of the proposed transaction required by the successor regulatory authority or must publish notice as required by §15.5 of this title (relating to Public Notice). Submission of the notice, with the publisher's certificate required by subsection (b)(6) of this section, is considered notice of the transaction in accordance with the Finance Code, §32.501(c)(2). The banking commissioner may require, upon written notice to the applicant, other publication requirements at the times and places and in the manner considered appropriate.

(2) With respect to an interstate merger application, the banking commissioner must determine whether the notice required by the successor regulatory authority is considered adequate notice in accordance with Finance Code, §32.501(c)(2). The applicant must inform the department of the publication requirements in the host state of the acquiring financial institution for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(3) Within 14 days after receipt of the certificate of authority to do business, or another document issued by the successor regulatory authority authorizing the consummation of the merger, reorganization, or conversion, the successor financial institution must provide written notice to the banking commissioner of the effective date and a copy of the certificate of authority or other document.

(d) Filing fees. A filing fee is not required in connection with notice under this section.

History

• Source Note: The provisions of this §15.107 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

7 Tex. Admin. Code § 15.108 Conversion of a Financial Institution into a State Bank

(a) Scope. This section governs the application for conversion of a financial institution into a state bank pursuant to the Finance Code, §32.502.

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender a filing fee in the amount required for the filing of an application for a new bank charter pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a statement explaining whether the proposed state bank will be in compliance with each standard detailed in the Finance Code, §32.502(b), certified by the principal executive officer of the applicant;

(3) a copy of the plan of conversion executed by an authorized representative of the applicant;

(4) certificate of conversion, including:

(A) the plan of conversion;

(B) the certificate of formation of the proposed state bank;

(C) a provision conditioning the conversion upon the approval of the banking commissioner;

(5) a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the conversion, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the conversion;

(6) an assessment of the future prospects, proposed officers and directors, and proposed branches and other locations of the proposed state bank;

(7) an assessment of the current regulatory and financial condition of the applicant;

(8) if the conversion changes the existing CRA delineated community, a copy of a map depicting the proposed delineated community of the resulting state bank;

(9) a copy of the latest annual report for the applicant and, if applicable, its holding company;

(10) a copy of that portion of the most recent watch list for the applicant that identifies low-quality assets;

(11) a description of all material legal or administrative proceedings involving the applicant or an officer, director, or principal shareholder of the applicant;

(12) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the conversion of the applicant has been duly authorized by its board and shareholders in accordance with governing law, and the applicant has in all material respects complied with the procedures prescribed by the federal, state, or foreign laws governing the exit of the applicant from its current regulatory system;

(B) the conversion will not cause or result in any material violation of the laws of this state concerning the organization and operation of state banks;

(C) the proposed state bank will not be engaged in a business other than banking or a business incidental to banking; and

(D) all conditions with respect to the conversion imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(13) a copy of each filing regarding the proposed conversion that is required by another governmental authority, complete with all related attachments, exhibits and related correspondence;

(14) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed conversion as of the most recent quarter ended immediately prior to the filing of the application;

(15) a copy of the applicant's current strategic plan with a comparison to the strategic plan requirements contained in the department's Memorandum 1009, including projections of the balance sheet and income statement of the resulting state bank as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (14) of this subsection;

(16) an explanation of compliance with or nonapplicability of the provisions of governing law relating to rights of dissenting shareholders to the conversion;

(17) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders in connection with the proposed conversion;

(18) an explanation of the manner and basis of converting any shares or other evidences of ownership of the applicant into shares, obligations, evidences of ownership, rights to purchase securities or other securities of the proposed state bank, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities or other securities of another person or entity, or into any combination of these;

(19) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed conversion; and

(20) in addition to all other requirements of this subsection, with respect to conversion of an out-of-state financial institution into a state bank:

(A) any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B) information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of an initial application under this section, the applicant must publish notice in accordance with §15.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant is located, and where the home office of the proposed state bank will be located, if different. With respect to a conversion of an out-of-state financial institution into a Texas state bank, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(e) Approval by the banking commissioner. The banking commissioner will approve a conversion only if the application indicates substantial compliance with all conditions of the Finance Code, §32.502(b).

History

• Source Note: The provisions of this §15.108 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg7687; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.109 Opinion of Legal Counsel

(a) An opinion of legal counsel required by this subchapter must be addressed to the banking commissioner and state the opinions expressed, the specific documents reviewed and the matters considered of both law and fact, as legal counsel has considered necessary or appropriate in the exercise of professional judgment for the opinions expressed, and the assumptions, qualifications, limitations, and exceptions made or taken with respect to the opinions expressed. A draft opinion may be submitted with an application under this chapter provided a final, signed opinion is delivered to the banking commissioner prior to final action on the application. Any variation in the final opinion from the draft version must be specifically called to the attention of the banking commissioner.

(b) An opinion letter required under this subchapter will be governed by and interpreted in accordance with the Third Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law (American Bar Association, 1991), available in pamphlet form as reprinted from the November 1991 issue of The Business Lawyer (Volume 47, Number 1, Page 167), (the Accord), or a successor document officially promulgated by an appropriate authority.

(c) Unless specifically noted in the opinion, the department will assume that the opinions expressed are based upon and subject to the assumptions, qualifications, limitations and exceptions set forth in the Accord, provided the Accord is incorporated by reference. In addition, whether or not stated in the Accord, if specifically noted in the opinion, counsel:

(1) need not express an opinion as to the laws of the United States or a foreign jurisdiction, except as required by §15.108(b)(12)(A) of this title (relating to Conversion of a Financial Institution into a State Bank), or the laws of a state jurisdiction other than this state;

(2) may assume that the parties to the transaction have engaged only in activities provided in their respective constitutive documents, and that all surviving parties to the transaction will engage only in activities provided in their respective constitutive documents;

(3) may assume that the transaction will be consummated in accordance with its terms as disclosed in the application; and

(4) may qualify the opinions given as opinions solely for the benefit of the department that may not be quoted in whole or in part or otherwise referred to in another document or report, and that may not be furnished to a person or entity other than the department and its representatives without the written consent of counsel, except as may be permitted or required by law, including the Finance Code, §31.303, and the Government Code, Chapter 552.

(d) Legal counsel must specifically notify the banking commissioner of any substantive deviation from the assumptions, qualifications, limitations and exceptions allowed in this section and the Accord, and any substantive deviation from the opinion requirements of the section of this subchapter that governs a particular application. Deviations may result in a processing delay of the application to the extent additional analysis is required to understand the purpose of the deviation. A substantive deviation from the requirements of this subchapter applicable to legal opinions that is not brought to the attention of the banking commissioner will be considered a material misrepresentation in the application.

(e) Legal counsel rendering an opinion under this subchapter must be an attorney in good standing admitted to practice before the highest court of a state, territory or district of the United States. However, legal counsel must be well versed and professionally competent in applicable Texas law, or should seek the advice and opinion of an attorney in good standing admitted to practice before the highest courts in this state if legal counsel may not properly and ethically render opinions regarding applicable Texas law. An opinion of local legal counsel must be disclosed if relied on by legal counsel. Additionally, with respect to an interstate merger transaction, conversion of an out-of-state financial institution into a Texas bank, or other transaction under Finance Code, Title 3, Subtitle G, legal counsel must be well versed and professionally competent in applicable home state and host state law and United States law regarding interstate banking and branching.

(f) Legal counsel rendering an opinion under this subchapter must be independent of the applicant, the notice provider, or another person or entity required to submit an opinion of counsel pursuant to this section. Legal counsel is considered independent if able to exercise independent professional judgment and render candid advice, whether in private practice or employed by an applicant.

History

• Source Note: The provisions of this §15.109 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80.

7 Tex. Admin. Code § 15.110 Rights of Dissenting Shareholders

The rights of dissenting shareholders or participants to a merger, share exchange, or conversion under this subchapter are governed by the Finance Code, §32.303, and the Texas Business Organizations Code or other applicable law relating to the rights of dissenters, and applicants must provide evidence of compliance with or inapplicability of these provisions of law.

History

• Source Note: The provisions of this §15.110 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

7 Tex. Admin. Code § 15.111 Investigation of Application

(a) Authority. An application under this subchapter is subject to an investigation as considered necessary, in the banking commissioner's sole discretion, in order to make an informed decision regarding an application.

(b) Costs and fees. An applicant under this subchapter must pay reasonable costs incurred in the investigation including the cost of a required examination, as provided by §3.36(h) of this title (relating to Annual Assessments and Specialty Examination Fees) and §15.2(e) of this title (relating to Filing and Investigation Fees).

(c) Examinations. The banking commissioner may consider these factors in determining whether to require an examination of one or more of the entities to the transaction:

(1) a question exists regarding the solvency or potential solvency of the applicant or one or more of the financial institutions or other entities involved in the proposed transaction;

(2) a financial institution involved in the transaction has not been examined by a state, federal, or foreign regulatory agency within the 18 month period immediately preceding the date of submission of the application;

(3) a financial institution involved in the proposed transaction has numerous substantive violations cited in its last examination report, or has a less than satisfactory regulatory rating;

(4) a question exists regarding the experience, ability, standing, trustworthiness, or integrity of the existing or proposed officers, directors, managers or managing participants of a party involved in the proposed transaction;

(5) a question exists whether a resulting state bank will operate in compliance with the law;

(6) a question exists whether a resulting state bank will be free from improper or unlawful influence or interference from its principal shareholders with respect to operation in compliance with the law;

(7) a question exists whether a resulting state bank will have adequate capitalization;

(8) one or more of the parties to the transaction is under a regulatory restriction; or

(9) other factors as determined in the sole discretion of the banking commissioner.

History

• Source Note: The provisions of this §15.111 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.113 Approval; Conditional Approval; Denial of Application; Hearings

(a) Approval, conditional approval, or denial. Except for expedited filings and applications for change of control governed by Finance Code, §33.003, the banking commissioner will approve or deny an application on or before a date that is 60 days after the date the application is accepted for filing pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings). Provided, however, that the banking commissioner shall have the discretion to extend the timeframe for processing any application, if one of the conditions listed in §15.103(d) of this title (relating to Expedited Filings) exists.

(b) Pre-decision hearing. The banking commissioner may, in the exercise of discretion, before the expiration of the initial period for decision provided by subsection (a) of this section, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application. Notice by the banking commissioner suspends the specified period for approval or denial of an application, and the banking commissioner will approve or deny the application on or before a date that is 30 days after the date the final proposal for decision resulting from the hearing is provided to the banking commissioner and the applicant.

(c) Acceptance of conditional approval. The banking commissioner may give the applicant written notice that the application has been approved subject to certain conditions. The applicant must provide the banking commissioner with written confirmation of acceptance of the conditions on or before a date that is 10 days after the date of notification to the applicant of the conditional approval. An agreement between the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant. In the event an applicant who has received conditional approval does not provide the banking commissioner with written confirmation as required by this subsection, consummation of the transaction constitutes confirmation of acceptance of the conditions imposed by the banking commissioner and is considered for all purposes an agreement enforceable against the applicant.

(d) Requests for hearing. An applicant may request a hearing on or before a date that is 30 days after the effective date of notice of denial or conditional approval of an application under this subchapter by the banking commissioner. The request for hearing must be in writing and state with specificity the reasons the applicant alleges that the decision of the banking commissioner is in error. The applicant has the burden of proof for each issue specified in the request for hearing. The request for hearing and the banking commissioner's decision to deny or condition the application will be made a part of the record.

(e) Hearings on denial of applications. Requests for hearing under this subchapter will be forwarded to the administrative law judge who must enter appropriate orders and conduct the hearing on or before a date that is 60 days after the date the request for hearing was received, or as soon after that as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and the Government Code, Chapter 2001. A proposal for decision, exceptions and replies to the proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title. An applicant may not appeal denial of an application or conditional approval of an application until a final order is issued. After a hearing and final order, the applicant may appeal the final order as provided in the Finance Code, §31.202.

History

• Source Note: The provisions of this §15.113 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

7 Tex. Admin. Code § 15.114 Consummation of a Transaction

A transaction under this subchapter must be consummated as proposed in the application, in the agreement concerning conditional approval, or as provided in a final order. An approved transaction under this subchapter must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. If an interim development warrants it, the banking commissioner may alter, suspend, or withdraw approval until a transaction is consummated.

History

• Source Note: The provisions of this §15.114 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80.

7 Tex. Admin. Code § 15.115 Notification

A notification by the banking commissioner under this subchapter may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, mailed to the address furnished in the application. Notification may also be made in person to the applicant, or to another person, financial institution, foreign corporation or domestic corporation, or other entity subject to this subchapter, by agent-receipted delivery or by courier-receipted delivery to the address furnished in the application, by email to the email address furnished in the application, or by telephonic document transfer to the fax number furnished in the application. Notice by telephonic document transfer served after 6:00 p.m. local time of recipient is considered as notice served on the following day.

History

• Source Note: The provisions of this §15.115 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 2, 2020, 44 TexReg 8232.

7 Tex. Admin. Code § 15.116 Abandoned Filing

The banking commissioner may determine an application under this subchapter to be abandoned pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings).

History

• Source Note: The provisions of this §15.116 adopted to be effective September 15, 1997, 22 TexReg 8948.

7 Tex. Admin. Code § 15.117 Confidentiality

Information obtained by the banking commissioner under this subchapter is presumed to be public information unless such information is confidential under the Finance Code, §31.301 et seq, and §3.111 of this title (relating to Confidential Information), or under exceptions contained in Government Code, Chapter 552. The applicant has the burden to request confidential treatment for specified information, to segregate and mark documents claimed to be confidential, and to specifically reference the provision of law that allows confidential treatment.

History

• Source Note: The provisions of this §15.117 adopted to be effective September 15, 1997, 22 TexReg 8948.

Subchapter G CHARTER AMENDMENTS AND CERTAIN CHANGES IN OUTSTANDING STOCK

7 Tex. Admin. Code § 15.121 Acquisition and Retention of Shares as Treasury Stock

(a) Permitted acquisition of treasury stock. Pursuant to Finance Code, §34.102, a state bank may acquire its own shares to be held as treasury stock if the acquisition is necessary to avoid or minimize a loss on a loan or investment previously made in good faith or is made in compliance with this section. An acquisition under the authority of this section may constitute an isolated transaction or a continuing plan of acquisition and may not be made for speculation or as a means of evading a requirement or obligation under federal or state banking laws.

(b) Application. A state bank that desires to acquire its own shares to be held as treasury stock under the authority of this section must file an application regarding its plan of acquisition with the banking commissioner, setting forth or including as exhibits:

(1) consistent with subsection (f) of this section, the pro forma effects of the plan of acquisition on the bank's liquidity and equity capital, and disclosure of the basis for calculations, including:

(A) the price or price range per share at which the shares will be acquired;

(B) the number of shares sought to be acquired, expressed as a maximum; and

(C) the source of funds for the acquisition;

(2) the date by which the plan of acquisition will be completed;

(3) a certified copy of a resolution duly adopted by the board of directors, approving the plan of acquisition; and

(4) a current draft of the securities offering document or other disclosure materials proposed to be delivered to shareholders considering the sale of bank shares to the bank.

(c) Action on application. The banking commissioner will approve or deny the application not later than the 30th day after the application is complete and accepted for filing pursuant to §15.4(b) of this title (relating to Required Information and Abandoned Filings), and may impose conditions on an approved plan of acquisition, including limitations on the number of shares to be acquired or a condition that the approval expire as of a specified date. The banking commissioner may deny the application if the banking commissioner concludes that the bank's plan of acquisition:

(1) will result in acquisition of treasury stock at an aggregate cost in excess of its undivided profits, or may otherwise threaten the adequacy of the bank's equity capital or its liquidity;

(2) appears to be for speculation or a means of evading a requirement or obligation under federal or state banking laws; or

(3) could otherwise place the bank in an unsafe or unsound condition.

(d) Compliance with securities law.

(1) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations, §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). The transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell.

(2) Approval of an application under this section by the commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) Retention of treasury stock. Notwithstanding Finance Code, §34.102(c), treasury stock acquired by a state bank, whether to avoid or minimize a loss on a loan or investment previously made in good faith or under an approved plan of acquisition, may be held indefinitely as treasury stock; provided that the banking commissioner may require a state bank to cancel and retire all or part of shares held as treasury stock to the status of authorized and unissued shares if the banking commissioner concludes that holding treasury stock in the amount held by the bank creates safety and soundness or other regulatory concerns.

(f) Accounting for treasury stock. A state bank must account for the acquisition and retention of treasury stock in accordance with generally accepted accounting principles as prescribed by Financial Accounting Standard Board Accounting Standard Codification Topic 505-30, Treasury Stock. The method used for accounting for treasury stock must be clearly reflected in the bank's accounting records.

(g) Status of treasury stock. Shares held by a state bank as treasury stock may not be voted, directly or indirectly, at any meeting of shareholders, and may not be counted in determining the total number of outstanding shares at any given time.

History

• Source Note: The provisions of this §15.121 adopted to be effective April 16, 1997, 22 TexReg 3399; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective March 12, 2024, 49 TexReg 1457.

7 Tex. Admin. Code § 15.122 Amendment of Certificate to Effect a Reverse Stock Split

(a) Definitions. When these words and terms are used in this section they will have these meanings, unless the context clearly indicates otherwise.

(1) Affiliate--A person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a state bank seeking to effect a reverse stock split. A person who is not an affiliate of the state bank at the commencement of its reverse stock split will not be considered an affiliate of the bank prior to the completion of the reverse stock split.

(2) Appraisal report--A report, opinion (other than an opinion of counsel), or appraisal from an outside party which is materially related to the reverse stock split, including a report, opinion, or appraisal relating to the consideration or the fairness of the consideration to be offered to shareholders in connection with the reverse stock split or the fairness of the transaction to the state bank or to unaffiliated shareholders.

(3) Reverse stock split--An amendment to the certificate of formation of a state bank that achieves a reduction in the number of issued shares of the bank by requiring exchange of all issued shares in a particular class for a proportionately smaller number of shares, generally with a proportionately increased par or stated value. The equity capital of the state bank remains substantially the same.

(4) Share--A unit representing ownership of at least part of the proprietary interests of a state bank, whether or not divided or subdivided by means of classes, series, relative rights, or preferences; and includes a stock or similar security; or a security convertible, with or without consideration, into such a security, or carrying a warrant or right to subscribe to or purchase such a security; or such warrant or right; or another security determined by the banking commissioner to be an equity security pursuant to the Finance Code, §31.002(a)(9)(B).

(5) Unaffiliated shareholder--A shareholder of a share subject to a reverse stock split who is not an affiliate of the state bank that issued the share.

(b) Procedure. Pursuant to the Finance Code, §32.101, to effectuate a reverse stock split in compliance with this section, a state bank must:

(1) obtain the approval of its shareholders as required by law; and

(2) obtain the approval of the banking commissioner pursuant to subsection (d) of this section, by filing an application setting forth the information and documents required by subsection (c) of this section and the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees).

(c) Application. A state bank proposing a reverse stock split transaction must file with the banking commissioner a written application seeking approval of the proposed amendment to its certificate of formation, stating the results of the vote of shareholders regarding the proposed reverse stock split and stating the percentage of shares of unaffiliated shareholders that were voted in favor of the proposed reverse stock split, or undertaking to supplement the application after conditional approval is obtained to provide shareholder approval information, setting forth or including as exhibits:

(1) the original and one copy of the proposed amendment to the certificate of formation, to be processed in the manner required by the Finance Code, §32.101(c), and a description of the material terms of the proposed reverse stock split, including terms or arrangements relating to any shareholder of the state bank which are not identical to those relating to other shareholders of the same class;

(2) any plan or proposal of the state bank, regarding activities or transactions which are to occur after the reverse stock split which relate to or would result in:

(A) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the state bank or any of its subsidiaries;

(B) a sale or transfer of a material amount of assets of the state bank or any of its subsidiaries;

(C) a change in the present board of directors or management of the state bank, including a plan or proposal to change the number or term of directors, to fill an existing vacancy on the board or to change a material term of the employment contract of an executive officer;

(D) a material change in the present dividend rate or policy or indebtedness or capitalization of the state bank;

(E) any other material change in the state bank's corporate structure or business;

(3) the corporate purpose or purposes of the state bank for the reverse stock split, and alternative means, if any, considered by the state bank to accomplish the purposes and the reasons for their rejection, and the reason for choosing the structure of a reverse stock split and for undertaking the transaction at this time;

(4) a certified resolution of the board of directors of the state bank approving the proposed amendment to the certificate of formation, accompanied by a statement whether or not the board of directors of the state bank reasonably believes that the reverse stock split is fair or unfair to unaffiliated shareholders that:

(A) identifies each director, if any, that dissented to or abstained from voting on the merits of the reverse stock split, and describes, if known to the state bank after making reasonable inquiry, the reasons for each dissent or abstention; and

(B) states the number and percentage of disinterested directors that voted in favor of the proposed reverse stock split;

(5) whether or not the state bank obtained an appraisal report and, if an appraisal report was obtained, a copy of the appraisal report. To the extent not addressed in the appraisal report, the state bank must disclose:

(A) the identity, qualifications, and method of selection of the outside party that prepared the appraisal report, any material relationship between the outside party or its affiliates and the state bank or its affiliates which existed during the past two years or is mutually understood to be contemplated, and any compensation received or to be received as a result of the relationship;

(B) a summary of the performance of the appraisal report, including the procedures followed, the findings and recommendations, the bases for and methods of arriving at the findings and recommendations, instructions received from the state bank, and any limitation imposed by the state bank on the scope of the investigation; and

(C) whether the appraisal report will be made available for inspection and copying at the home office of the state bank during its regular business hours by any shareholder of the state bank or any shareholder's representative who has been so designated in writing;

(6) with respect to the class of shares to which the reverse stock split relates, the aggregate amount and percentage of shares beneficially owned by any pension, profit sharing, or similar plan of the state bank, and by each officer, director, principal shareholder, and subsidiary of the state bank;

(7) with respect to any purchases of the shares made by the state bank since the commencement of the bank's second full fiscal year preceding the date of the application, the amount of the shares purchased, the range of prices paid for the shares, and the average purchase price for each quarterly period of the bank during this period;

(8) to the extent known to the state bank after reasonable inquiry, any transaction in the class of shares subject to the proposed reverse stock split that was effected during the past 60 days by the state bank or by an officer, director, principal shareholder, or subsidiary of the state bank, including the identity of the person who effected the transaction, the date of the transaction, the amount of shares involved, the price per share, and where and how the transaction was effected;

(9) to the extent known to the state bank after reasonable inquiry, a description and/or a copy of any contract, arrangement, understanding, or relationship (whether or not legally enforceable) in connection with the reverse stock split between the state bank (or an officer, director, principal shareholder, or subsidiary of the state bank) and any person with respect to any shares of the state bank (including a contract, arrangement, understanding, or relationship concerning the transfer or the voting of these shares, joint ventures, loan, or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents, or authorizations), naming the persons with whom these contracts, arrangements, understandings, or relationships have been entered into and giving the material provisions thereof, including information for any of these shares that are pledged or otherwise subject to a contingency, the occurrence of which would give another person the power to direct the voting or disposition of these shares, except that disclosure of standard default and similar provisions contained in loan agreements need not be included;

(10) to the extent known to the state bank after reasonable inquiry, whether or not any officer, director, principal shareholder, or subsidiary of the state bank has made a recommendation in support of or opposed to the reverse stock split and, if so, the reasons for the recommendation;

(11) whether or not appraisal rights are being voluntarily accorded by the state bank to shareholders in connection with the reverse stock split and whether or not any provision has been or will be made to allow unaffiliated shareholders to obtain counsel or appraisal services at the voluntary expense of the state bank and, if so, a detailed description of these appraisal rights or counsel or appraisal services;

(12) a reasonably itemized statement of all expenses incurred or estimated to be incurred in connection with the reverse stock split, including filing fees, legal, accounting, and appraisal fees, solicitation expenses, and printing costs, and disclosure of the person who has paid or will be responsible for paying such expenses;

(13) the proxy statement furnished to shareholders of the state bank in connection with obtaining shareholder approval for the reverse stock split, or a draft of the proxy statement to be furnished to shareholders in the event approval of the banking commissioner is sought prior to a shareholder vote; and

(14) such other information that the banking commissioner considers necessary to make an informed decision to approve or reject the proposed amendment effectuating a reverse stock split.

(d) Standards for approval.

(1) The banking commissioner will process the proposed reverse stock split in accordance with the Finance Code, §32.101(c). The banking commissioner will require that the reverse stock split be for valid business purposes of the bank itself, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders' shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to bank shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.

(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the state bank must file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner will file the approved amendment to the certificate of formation in accordance with the Finance Code, §32.101(c).

(3) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a state bank must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to make an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, §240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) Exemptions.

(1) This section does not apply to a reverse stock split that:

(A) will not result in fractional shares;

(B) permits each shareholder to choose to cash in the resulting fractional share by selling it to the state bank or to round up to the next highest whole share by purchasing fractional interests, provided that:

(i) the specified sale and purchase prices are equivalent and reasonable; and

(ii) no fractional share resulting from the reverse stock split is less than 10% of a full share;

(C) is adopted by means of a unanimous written consent of shareholders; or

(D) the banking commissioner expressly exempts after written application as not within the purposes of this section.

(2) An amendment to the certificate of formation that implements a reverse stock split exempt from this section is filed and processed in accordance with the Finance Code, §32.101.

(3) The availability of an exemption from the requirements of this section does not relieve a state bank from its obligation to comply with applicable securities law.

History

• Source Note: The provisions of this §15.122 adopted to be effective April 16, 1997, 22 TexReg 3400; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

Chapter 17 TRUST COMPANY REGULATION

Subchapter A GENERAL

7 Tex. Admin. Code § 17.2 Advertising

(a) An advertisement published by or on behalf of a trust company may not include the following:

(1) a guaranteed rate of return or interest rate on funds deposited in trust;

(2) a statement that tends to deceive or mislead the public; or

(3) a term that may deceive the public into belief that the trust company is engaged in the banking business.

(b) Advertisements published by or on behalf of a trust company must be retained in the trust company's records for examination by department personnel.

(c) A trust company that violates this section is subject to an enforcement action initiated by the banking commissioner under Finance Code, §§185.001, et seq.

History

• Source Note: The provisions of this §17.2 adopted to be effective March 12, 1998, 23 TexReg 2289; amended to be effective July 11, 2002, 27 TexReg 5962.

7 Tex. Admin. Code § 17.3 Sale or Lease Agreements with an Officer, Director, Principal Shareholder, or Affiliate

(a) Agreement in writing. A sale or lease agreement between a trust company and an officer, director, principal shareholder, or affiliate of the trust company must be in writing. Existing verbal agreements must be reduced to writing and approved by the board.

(b) Terms of agreement. A sale or lease agreement between a trust company and an officer, director, principal shareholder, or affiliate must comply with applicable laws and regulations, be subject to the exercise of prudent judgment, and have terms and rates that are substantially equivalent to or more favorable to the trust company than those prevailing at the time for comparable transactions with or involving nonaffiliated parties.

(c) Board action. All proposed transactions subject to Finance Code, §183.109(a), must be considered and voted upon by the board. Under Finance Code, §183.109(a), without the prior approval of a disinterested majority of the board, the transaction at issue must be submitted for prior approval of the banking commissioner. For purposes of this section, approval of a disinterested majority of the board is obtained in the manner specified by the Texas Business Organizations Code, §21.418, with respect to a trust association, or §101.255, with respect to a limited trust association.

(d) Application for approval. If a sale or lease agreement requires the written approval of the banking commissioner prior to consummating, renewing, or extending a sale or lease agreement, a written request for approval must be submitted to the banking commissioner at least 60 days prior to the proposed effective date of the sale or lease agreement and must include the following information:

(1) a copy of the proposed sale or lease agreement;

(2) a complete description of the personal or real property to be sold or leased;

(3) a full disclosure of all existing transactions and/or relationships, whether direct or indirect, between the trust company and the parties involved;

(4) in the case of a lease agreement involving real property, a copy of the minutes of the board meeting reflecting an analysis of the information contained in this subsection;

(5) a certified copy of a board resolution approving the transaction and indicating those directors voting or abstaining, as the case may be, and either:

(A) evidence that the transaction received the approval of a disinterested majority of the board; or

(B) a statement explaining the reasons the approval of a disinterested majority of the board could not be obtained;

(6) copies of appropriate supporting documentation, including analysis of comparable terms and rates for the real or personal property to be sold or leased;

(7) in the case of a lease agreement, evidence demonstrating that the trust company will account for the lease in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases; and

(8) other information which the banking commissioner may request.

(e) Records. A trust company shall maintain the originals of all sale or lease agreements with an officer, director, manager, managing participant, principal shareholder, or principal participant of the trust company, or an affiliate, which documents must be made available at all times to the Texas Department of Banking for examination and review. For purposes of this subsection, required documentation need not be retained beyond three years after the expiration of the sale or lease agreement to which the documentation pertains.

(f) Exemption. Subsection (d) of this section does not apply to a legally binding, written lease entered into by a trust company prior to June 16, 1991, until such lease is renewed or extended beyond its original term.

History

• Source Note: The provisions of this §17.3 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective July 11, 2002, 27 TexReg 5962; amended to be effective November 4, 2010, 35 TexReg 9696; amended to be effective September 8, 2022, 47 TexReg 5332.

7 Tex. Admin. Code § 17.4 Bonding Requirements

(a) Compliance required. Pursuant to Finance Code, §183.112, a trust company is required to maintain a bond for protection and indemnity of clients, in reasonable amounts against dishonesty, fraud, defalcation, forgery, theft, and other insurable losses with a corporate insurance or surety company. Unless the banking commissioner waives the bonding requirement for a particular individual, a bond is required for each director, manager, managing participant, officer, and employee without regard to whether the person receives salary or other compensation. In addition to complying with Finance Code, §183.112, a trust company shall comply with this section.

(b) Types of bonds. Bonds must be obtained from a corporate insurance or surety company authorized to do business in this state, or acceptable to the banking commissioner and otherwise lawfully permitted to issue the coverage against all losses arising from dishonesty, fraud, defalcation, forgery, theft, errors and omission, and other similar insurable losses determined by the banking commissioner to be reasonably appropriate. In lieu of individual bonds, schedule or blanket bonds may be utilized, if in a form acceptable to the banking commissioner, to provide coverage for all directors, managers, managing participants, officers, and employees of a trust company. In addition, a trust company through its board must demonstrate that it has conducted a thorough review of the risks associated with the trust business conducted to determine if additional specialized bond coverages should be obtained. The board's review must be fully documented in its minutes.

(c) Holding company's comprehensive insurance coverage. In lieu of obtaining individual or blanket bond coverage, a trust company which is owned and controlled by a holding company, may utilize a holding company's comprehensive insurance coverage to satisfy the requirements of Finance Code, §183.112, and this section. Utilization by a trust company of its holding company's comprehensive insurance coverage must be lawfully permitted under terms of the comprehensive insurance policy and the insurance laws of this state. Evidence of bond coverage for a trust company's directors, officers, and employees must be provided to the banking commissioner.

(d) Records. A trust company shall retain all original bonds to demonstrate compliance with Finance Code, §183.112, and this section, which documents must be available at all times to the department for examination and review.

History

• Source Note: The provisions of this §17.4 adopted to be effective September 3, 1998, 23 TexReg 8832; amended to be effective July 11, 2002, 27 TexReg 5962.

7 Tex. Admin. Code § 17.5 Notice of Cybersecurity Incident

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) "Cybersecurity incident" means any observed occurrence in an information system, whether maintained by the trust company or by an affiliate or third party service provider at the direction of the trust company, that:

(A) jeopardizes the cybersecurity of the information system or the information the system processes, stores or transmits; or

(B) violates the security policies, security procedures or acceptable use policies of the information system owner to the extent such occurrence results from unauthorized or malicious activity.

(2) "Information system" means a set of applications, services, information technology assets or other information-handling components organized for the collection, processing, maintenance, use, sharing, dissemination or disposition of electronic information, including the operating environment as well as any specialized system such as telephone switching or exchange systems and environmental control systems.

(b) Notice required. A state trust company shall notify the banking commissioner and submit the information required by subsection (c) of this section as soon as practicable but prior to customer notification, and not later than 15 days following the trust company's determination that a cybersecurity incident regarding the trust company's information system will likely:

(1) require submission of a notice or report to another state or federal regulatory agency or to a self-regulatory body other than the notice required by this section;

(2) require sending a data breach notification to trust company clients or beneficiaries of trusts and custodial arrangements handled by the trust company under applicable state or federal law, including Business and Commerce Code, §521.053, or a similar law of another state; or

(3) substantively impact the ability of the state trust company to effect transactions on behalf of its clients or beneficiaries of trusts and custodial arrangements handled by the trust company, accurately report transactions to clients and beneficiaries, or otherwise conduct trust company business.

(c) Content of notice. The confidential notice required by subsection (b) of this section must include, to the extent known at the time of submission:

(1) a brief description of the cybersecurity incident, including the approximate date of the incident, the date the incident was discovered, and the nature of any data that may have been illegally obtained or accessed;

(2) subject to subsection (d) of this section, a list of the state and federal regulatory agencies, self-regulatory bodies, and foreign regulatory agencies to whom notice has been or will be provided; and

(3) the name, address, telephone number, and email address of the employee or agent of the trust company from whom additional information may be obtained regarding the incident.

(d) Omission of certain information. The filing of a suspicious activity report (SAR) related to the cybersecurity incident under applicable federal law constitutes a notice described by subsection (b)(1) of this section. However, the trust company should not reference or mention the filing of a SAR in the notice filed with the commissioner.

(e) Incident response plan. The notice requirement imposed by this section must be incorporated into the trust company's written incident response plan, maintained as part of the trust company's information security program.

(f) Exemptions. This section does not apply to a state trust company that is exempt under Finance Code, §182.011.

History

• Source Note: The provisions of this §17.5 adopted to be effective January 2, 2020, 44 TexReg 8234.

Subchapter B EXAMINATION AND CALL REPORTS

7 Tex. Admin. Code § 17.21 Physical Location of Books and Records

(a) Purpose. The purpose of this section is to provide for the preservation and location of trust company records to enhance the examination process by the department and to provide flexibility to trust companies in conducting their affairs. A trust company that maintains fiduciary records at one or more locations other than its principal place of business should be aware that a separate examination may be required at each such location, the cost of which will be borne by the trust company. This section may not be construed to prevent the maintenance of a duplicate set of records if the trust company considers such to be advisable.

(b) Corporate records. Those books and records of a trust company that are related to corporate governance and operations must be kept and maintained at the trust company's principal place of business in this state. Such books and records include but are not necessarily limited to:

(1) general and subsidiary ledgers;

(2) income and expense ledgers;

(3) supporting documentation for assets and liabilities;

(4) contracts with suppliers and service providers;

(5) corporate state and federal tax information and documentation;

(6) correspondence with the department;

(7) directors minutes;

(8) shareholders minutes;

(9) corporate governance documents such as bylaws, certificate of formation, and stock register; and

(10) reports of condition and income.

(c) Fiduciary records. Those books and records of a trust company that are related to fiduciary accounts and operations may be kept and maintained either at the trust company's principal place of business in this state or at the place where the trust company's fiduciary accounts are administered; provided that such books and records may not be divided and kept partially at different locations without the prior consent of the department. Such books and records include but are not necessarily limited to:

(1) governing documents for each trust, custodial account, agency or other type of account administered;

(2) documentation supporting the purchase or sale of any investments from or to the accounts administered, including broker confirmations and safekeeping receipts;

(3) documentation on any assets accepted in-kind with supporting documentation justifying the amount booked;

(4) account reviews, including administrative and asset reviews;

(5) copies of all correspondence on each account administered, including documents relating to litigation, bankruptcy proceedings or other court action;

(6) copies of income tax returns on any accounts which are required to submit income tax returns;

(7) copies of customer account statements;

(8) trial balance of all accounts administered reflecting all investments, including principal cash and income cash, at market value and cost;

(9) overdraft listing of any overdrawn account administered and reflecting date of overdraft;

(10) large cash balance listing of accounts administered;

(11) safekeeping report from each institution holding items for safekeeping, with reconcilement to the trust company account trial balance;

(12) master asset listing of all investments by type, reflecting account holder, number of units held with cost and market values;

(13) assets by account holder reflecting investments with number of units, cost and market values;

(14) broker commission report reflecting all brokers utilized for purchase or sale of investments, dollar volume, commissions paid and number of transactions;

(15) reconcilement of fiduciary cash accounts including copies of bank account statements;

(16) reconcilement of suspense accounts with listing of items outstanding and origination dates;

(17) complaint file; and

(18) copies of quarterly report of trust assets.

History

• Source Note: The provisions of this §17.21 adopted to be effective March 12, 1998, 23 TexReg 2289; amended to be effective November 7, 2013, 38 TexReg 7689.

7 Tex. Admin. Code § 17.22 Examination and Investigation Fees

(a) Calculation of fees. A trust company shall pay to the department a fee for examination, whether a regular or special examination, or for an investigation in connection with an application, calculated at a rate not to exceed $110 per examiner hour, to recoup the salary expense of examiners plus a proportionate share of the department's overhead allocable to the examination or investigation function. The banking commissioner in the exercise of discretion may lower the rate in connection with a specific examination or investigation for equitable reasons, without the prior approval of the finance commission.

(b) Travel expenses. In connection with an examination or investigation, a trust company shall reimburse the department for actual travel expenses incurred, including mileage, public transportation, food, and lodging, in addition to paying the fees set forth in subsection (a) of this section.

(c) Payment due. Fees and expenses charged under this section are due no later than the 30th day after a bill for fees and expenses is submitted to the trust company. Failure to pay such fees and expenses or file a request for hearing within the time period may subject the trust company to enforcement proceedings.

(d) Dispute of fees and expenses.

(1) A trust company may dispute the amount of a bill for fees and expenses assessed under this section by paying the amount of fees and expenses that are undisputed and filing a written request for hearing with the banking commissioner on or before the 30th day after a bill for fees and expenses is submitted to the trust company. If the trust company does not request a hearing in writing within the time period allowed, the assessed fees and expenses are final and nonappealable.

(2) A requested hearing must be held not later than the 30th day after the date the request was received by the banking commissioner unless the parties agree to a later hearing date. Each party shall be given written notice by personal delivery or by registered or certified mail, return receipt requested, of the date set by the banking commissioner for the hearing not later than the 11th day before that date. The hearing shall be conducted as provided by Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings).

(3) After the hearing, the banking commissioner shall affirm or modify the bill for fees and expenses by written order.

(e) Examination frequency. In general, the frequency of examination by the department of a state trust company under Finance Code, §181.105, will be determined in the manner described by Commissioner Policy Memorandum Number 1004.

History

• Source Note: The provisions of this §17.22 adopted to be effective March 12, 1998, 23 TexReg 2289; amended to be effective September 4, 2003, 28 TexReg 7348; amended to be effective January 2, 2014, 38 TexReg 9483.

7 Tex. Admin. Code § 17.23 Call Reports

(a) Call report. As used in this section, the term "call report" means a statement of condition and income and results of operations of a trust company as mandated by the banking commissioner pursuant to Finance Code, §181.107.

(b) Reporting requirements of trust companies.

(1) Public trust companies. Each trust company that transacts business with the public shall file four call reports annually with the banking commissioner. Such call reports must be filed with the banking commissioner no later than April 30, July 31, and October 31 of each year, and by January 31 of the subsequent year.

(2) Exempt trust companies. Each trust company that is exempt pursuant to Finance Code, §182.011 or §182.019 shall file an annual call report with the banking commissioner no later than April 30 of each year relating to the preceding calendar year, accompanied by its annual certification, required by Finance Code, §182.013(a), that the trust company is maintaining the conditions and limitations of its exemption.

(3) Call report forms. The call report forms, the instructions for completing the reports and the accompanying materials will be furnished by the banking commissioner to all trust companies subject to this subsection, or may be obtained upon request from the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294. The banking commissioner may make such modifications and additions to call report form and contents under this subsection as considered necessary in the discretionary discharge of the banking commissioner's duties. A trust company must submit all information requested on the call report form.

(c) Special call reports. In addition to the requirements of subsections (b) of this section, the banking commissioner may require a trust company to file and submit a special call report, in such form and manner and containing such information as may be requested, on dates fixed, whenever in the banking commissioner's discretion the special call report is necessary in the performance of the banking commissioner's supervisory duties related to the safety and soundness of the trust company. Special call reports must contain only such information as is specifically requested by the banking commissioner.

(d) Call report declarations and attestations. Each call report or special call report required to be filed under subsections (b) and (c) of this section must contain a declaration by an executive officer, or by another officer designated by the board of directors of the trust company to make such declaration, that the report is true and correct to the best of such individual's knowledge and belief. The correctness of the call report or special call report must also be attested by the signatures of at least two of the directors of the trust company other than the officer making the declaration. The declaration of the directors must state that the call report or special call report has been examined by them and is true and correct to the best of their knowledge and belief.

(e) Lobby notice and publication for public trust companies. The latest call report filed with the banking commissioner pursuant to subsection (b) of this subsection or a Notice of Call Report Availability must be posted in the lobby of each trust company that transacts business with the public at a point accessible to the public. A trust company is not required to publish its call report in a newspaper or other media unless specifically directed to do so by the banking commissioner. A trust company required to publish its call report by the banking commissioner shall publish the report in a newspaper or other medium of general circulation as directed by the banking commissioner.

(f) Confidentiality. Call reports filed under subsection (b)(2) of this section are confidential as provided by Finance Code, §181.107(c)(2). Call reports filed under subsection (b)(1) are public information except for those portions designated as confidential by the banking commissioner, and may be published or otherwise disclosed to the public. Special call reports filed pursuant to subsection (c) of this section and non-public portions of call reports filed pursuant to subsection (b) of this section are confidential, subject only to such disclosure as may be permitted by Finance Code, §§181.301, et seq. or by §3.111 of this title (relating to Confidential Information).

(g) Reports containing significant errors and penalties for failure to file or for filing a report with false or misleading information.

(1) Public trust companies. A trust company that transacts business with the public which fails to make, file, or submit a timely call report or a special call report as required by this section is subject to a penalty not exceeding $500 a day to be collected by the attorney general on behalf of the banking commissioner.

(2) Exempt trust companies. Failure of a trust company that is exempt pursuant to Finance Code, §182.011 or §182.019 to make, file, or submit a timely call report or a special call report as required by this section is grounds for revocation of its exempt status.

(3) Corrections. Any trust company which makes, files, submits or publishes a call report or special call report which contains a significant error, shall file a corrected call report within 20 days from the date of request. For purposes of this subsection, a significant error refers to any difference in the report of condition and/or supporting schedules equating to 5.0% or more of total assets, provided the amount is greater than $50,000, or any difference in the report of income and/or supporting schedules equating to 5.0% or more of total operating income, provided the amount is greater than $5,000. Any trust company which makes, files, submits or publishes a false or misleading call report or special call report is subject to an enforcement action pursuant to Finance Code, §§185.001, et seq.

History

• Source Note: The provisions of this §17.23 adopted to be effective May 14, 1998, 23 TexReg 4564; amended to be effective July 11, 2002, 27 TexReg 5962; amended to be effective January 2, 2014, 38 TexReg 9483; amended to be effective January 7, 2016, 41 TexReg 109.

Chapter 19 TRUST COMPANY LOANS AND INVESTMENTS

Subchapter B INVESTMENTS

7 Tex. Admin. Code § 19.22 Investments in Mutual Funds

(a) Subject to Finance Code, §184.101(f), and this section, a trust company may invest for its own account in a mutual fund as defined in Finance Code, §181.002(a)(31), unless the mutual fund portfolio contains an investment that the trust company could not make directly.

(b) Notwithstanding the limits stated in Finance Code, §184.101(c), a trust company may invest in a mutual fund not more than an amount equal to 15% of the trust company's restricted capital unless a larger investment is permitted under subsection (c) of this section. Pursuant to Finance Code, §184.101(c), the banking commissioner may authorize investments in excess of this limitation on written application if the banking commissioner concludes that:

(1) the excess investment is not prohibited by other applicable law; and

(2) the safety and soundness of the requesting trust company is not adversely affected.

(c) Notwithstanding the limits stated in Finance Code, §184.101(c), and subsection (b) of this section, a trust company may invest in a mutual fund without limit if:

(1) the mutual fund's stated investment objective is to invest solely in securities that the trust company could invest in directly for its own account without limit under Finance Code, §184.101(d); and

(2) the mutual fund's portfolio in fact consists wholly of investments in which the trust company could invest directly without limitation under Finance Code, §184.101(d).

(d) A trust company that invests in a mutual fund as permitted by subsection (b) of this section shall periodically determine that its pro rata share of any security in the portfolio of the mutual fund is not in excess of applicable investment and lending limits by reason of being combined with the trust company's pro rata share of that security held by all other mutual funds in which the trust company has invested and with the trust company's own direct investment and loan holdings. Documentation of periodic reviews must be maintained by the trust company for examination purposes.

(e) A trust company's investment in a mutual fund made prior to September 1, 1997, is subject to §19.21 of this title (relating to Grandfathered Investments). Pursuant to §19.21, without the written approval of the banking commissioner, a trust company may not increase its grandfathered investment in a mutual fund on or after September 1, 1997, including by means of an election to reinvest dividends, unless subsection (c) of this section applies.

History

• Source Note: The provisions of this §19.22 adopted to be effective March 12, 1998, 23 TexReg 2289.; amended to be effective July 11, 2002, 27 TexReg 5962.

Subchapter C REAL ESTATE

7 Tex. Admin. Code § 19.51 Other Real Estate Owned

(a) Definitions. Words and terms used in this subchapter that are defined in Finance Code, §181.001 et seq. have the same meanings as defined therein. The following words and terms when used in this subchapter shall have the following meanings, unless the context clearly indicates the contrary.

(1) Appraisal--A written report by a state certified or licensed appraiser containing sufficient information to support the trust company's evaluation of OREO taking into consideration market value, analyzing appropriate deductions or discounts, and conforming to generally accepted appraisal standards, unless principles of safety and soundness applicable to trust companies require stricter standards.

(2) Appraiser--A state certified or licensed staff appraiser or a state certified or licensed third party fee appraiser with relevant and competent experience and background as related to a particular appraisal assignment.

(3) Coterminous sublease--A lease with the same duration as the remainder of the master lease.

(4) Evaluation--A written report prepared by an evaluator describing the OREO and its condition, the source of information used in the analysis, the actual analysis and supporting information, and the estimate of the OREO's market value, with any limiting conditions.

(5) Evaluator--An individual who has related real estate training or experience and knowledge of the market relevant to the OREO but who has no direct or indirect interest in the OREO. An appraiser may be an evaluator.

(6) Generally accepted appraisal standards--The Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board, Appraisal Foundation, Washington, D.C.

(7) Market value--The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(A) buyer and seller are typically motivated;

(B) both parties are well informed or well advised, and acting in what they consider their own best interests;

(C) a reasonable time is allowed for exposure in the open market;

(D) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(8) Non-coterminous sublease--A lease with a duration shorter than the remainder of the master lease.

(9) Other Real Estate Owned (OREO)--Real estate, including improvements, mineral interests, surface, and subsurface rights, owned in whole or in part or leased by a trust company, no matter how acquired, which is not a trust company facility as defined by paragraph (3) of this subsection or leasehold property as permitted under Finance Code, §184.203.

(10) Staff appraiser--An appraiser on the staff of a trust company who has no direct or indirect interest in the OREO.

(11) Third party fee appraiser--An appraiser who has an independent contractor relationship with a trust company and has no direct or indirect interest in the OREO.

(12) Trust company facility--Real property, including improvements, owned or leased, to the extent the lease or the leasehold improvements are capitalized, by a trust company if the real estate is held for the purposes set forth in Finance Code, §184.001, and is not disqualified under Finance Code, §184.002(b). The term also includes capitalized leasehold improvements if held for the same purposes.

(13) Year--For the purposes of this section, a calendar year.

(b) Prohibition on real estate ownership. A trust company may not acquire or hold real estate except as specifically provided under Finance Code, §§184.001-184.003 and 184.203, and this section.

(c) Acquisition of OREO with restricted capital. A trust company may hold OREO purchased with the restricted capital of the trust company only if acquired:

(1) by purchase under judicial or nonjudicial foreclosure, or through a deed in lieu of foreclosure, of real estate that is security for a debt or debts previously contracted in good faith;

(2) by purchase to protect its interest in a debt or debts previously contracted if prudent and necessary to avoid or minimize loss;

(3) with prior written approval of the banking commissioner, by an exchange of OREO or personal property for real estate to avoid or minimize loss on the real estate exchanged or to facilitate the disposition of OREO;

(4) with prior written approval of the banking commissioner, by purchase of additional real estate to avoid or minimize loss on OREO currently held;

(5) by involuntary acquisition of an ownership interest or leasehold interest in real estate as a result of or incidental to a judicial or nonjudicial foreclosure, or by adverse possession, or by operation of law without any action on the part of the trust company to obtain such interest; or

(6) by loss of designation of real estate owned or leased by the trust company as a trust company facility.

(d) Acquisition of OREO with secondary capital. A trust company may hold OREO purchased with the secondary capital of the trust company, subject to the exercise of prudent judgment using the factors set forth in Finance Code, §184.101(f).

(e) Appraisal requirements. Paragraphs (1) - (3) of this subsection apply to OREO acquired with the restricted capital of the trust company.

(1) Subject to paragraph (2) of this subsection, when OREO is acquired, a trust company must substantiate the market value of the OREO by obtaining an appraisal within 90 days of the date of acquisition, unless extended by the banking commissioner. An evaluation may be substituted for an appraisal if the recorded book value of the OREO is $500,000 or less.

(2) An additional appraisal or evaluation is not required when a trust company acquires OREO if a valid appraisal or appropriate evaluation was made in connection with a real estate loan that financed the acquisition of the OREO and the appraisal or evaluation is less than one year old.

(3) An evaluation shall be made on all OREO at least once a year. An appraisal shall be made at least once every three years, unless extended by the banking commissioner, on OREO with a recorded book value in excess of $500,000.

(4) Notwithstanding another provision of this section, the banking commissioner may require an appraisal of OREO if the banking commissioner considers an appraisal necessary to address safety and soundness concerns.

(f) Additional expenditures on OREO. A trust company may re-fit OREO for new tenants or make normal repairs and incur routine maintenance costs to preserve or protect the value of the OREO or to render the OREO in saleable condition without prior notification to or approval by the banking commissioner. Other advances or additional expenditures on OREO acquired with the restricted capital of the trust company must have the prior written approval of the banking commissioner, and must not be:

(1) made for the purpose of speculation in real estate;

(2) made for the purpose of changing or altering the current status or intended use of the OREO; or

(3) inconsistent with principles of safety and soundness applicable to trust companies.

(g) Holding period.

(1) A trust company must dispose of OREO acquired with the restricted capital of the trust company no later than five years after it was acquired or ceases to be used as a trust company facility, unless an extension of time for disposing of the real estate is granted in writing by the banking commissioner pursuant to Finance Code, §184.003(d).

(2) The holding period commences on the date that:

(A) ownership is acquired by the trust company pursuant to subsection (c)(1) - (5) of this section;

(B) OREO is acquired by the trust company through merger/consolidation, conversion, or purchase and assumption;

(C) the trust company first learns of its ownership interest in real estate which has devolved to the trust company by operation of law under subsection (c)(6) of this section;

(D) the trust company ceases to use a former trust company facility or completes its relocation from a former trust company facility to a new trust company facility; or

(E) is three years following the acquisition of real estate as a trust company facility for future expansion or relocation of the trust company if the real estate has not been occupied by the trust company, unless the banking commissioner has granted written approval to a further delay in the improvement and occupation of the real estate.

(3) The banking commissioner may grant one or more additional extensions of time for disposing of OREO acquired with the restricted capital of the trust company if the commissioner finds that the trust company has made a good faith effort to dispose of the OREO or that disposal of the OREO would be detrimental to the safety and soundness of the trust company.

(h) Disposition efforts; documentation. A trust company must make diligent and ongoing efforts to dispose of OREO acquired with the restricted capital of the trust company and must maintain documentation adequate to reflect those efforts. Such documentation must be available for inspection by the commissioner. If secondary capital is adequate to reclassify OREO in a manner that does not impinge on restricted capital, this disposition requirement does not apply.

(i) Disposition of OREO. A trust company may dispose of OREO by:

(1) selling the OREO in a transaction that qualifies as a sale under regulatory accounting principles;

(2) selling the OREO pursuant to a land contract or contract for deed;

(3) retaining the property for its own use as a trust company facility, subject to the approval of the commissioner;

(4) transferring the OREO for market value to an affiliate, subject to Finance Code, §183.109, and applicable federal law, including 12 United States Code, §§371c, 371c-1, and 1828(j);

(5) if the OREO is a master lease, obtaining a coterminous sublease or an assignment of a coterminous sublease, provided that if the trust company acquires or obtains assignment of a non-coterminous sublease, the holding period during which the master lease must be divested is suspended for the duration of the sublease and will commence running again upon termination of the sublease; or

(6) entering into a transaction that does not qualify for disposal under paragraphs (1) - (5) of this subsection; provided that its obligation to dispose of the OREO is not met until the trust company receives or accumulates from the purchaser an amount in cash, principal and interest payments, and private mortgage insurance totaling 10% of the sales price, as measured in accordance with regulatory accounting principles.

(j) Accounting for investments in facilities and OREO. A state trust company shall comply with regulatory accounting principles in accounting for its:

(1) investment in and depreciation of facilities, furniture, fixtures, and equipment; and

(2) investment in OREO and disposition of OREO.

History

• Source Note: The provisions of this §19.51 adopted to be effective December 31, 1998, 23 TexReg 13030; amended to be effective July 11, 2002, 27 TexReg 5962; amended to be effective November 7, 2013, 38 TexReg 7689; amended to be effective December 31, 2020, 45 TexReg 9413.

Chapter 21 TRUST COMPANY CORPORATE ACTIVITIES

Subchapter A FEES AND OTHER PROVISIONS OF GENERAL APPLICABILITY

7 Tex. Admin. Code § 21.1 Definitions

Words and terms used in this chapter that are defined in the Trust Company Act, have the same meanings as defined therein. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Accepted filing--An application, request, notice, or protest filed under the Trust Company Act, this chapter, or another rule adopted pursuant to the Trust Company Act, for which the appropriate fee has been paid pursuant to §21.2 of this title (relating to Filing and Investigative Fees), and regarding which the banking commissioner has notified the person or entity who submitted the filing, in writing, that the submission is complete and has been accepted for filing.

(2) Additional office--A location of a trust company other than the trust company's home office, at which the trust company engages in the trust business.

(3) Day--A calendar day.

(4) Eligible trust company--A Texas chartered trust company that:

(A) possesses capital and surplus that equals or exceeds current minimum statutory or regulatory requirements;

(B) received a satisfactory rating at the most recent examination by the department or federal regulatory agencies;

(C) is not operating in violation of a regulatory condition or commitment letter; and

(D) is not operating under a memorandum of understanding, determination letter or other notice of determination, order to cease and desist, or other state or federal administrative enforcement order.

(5) General interest items--Include, but are not limited to, local and international news, weather, sports, features, comics, entertainment and advertisements directed to the general public.

(6) Newspaper of general circulation--A newspaper that:

(A) devotes not less than 25% of its total column lineage to general interest items, provided that a newspaper of general circulation does not include a specialized newspaper or other periodical directed to a specific interest group or occupation, such as a legal notice or court related newspaper;

(B) is published at least once a week;

(C) is entered as second class postal matter in the county where published; and

(D) has been published regularly and continuously for at least 12 months before the applicant, protesting party or other entity publishes notice, provided that a weekly newspaper is considered to have been published regularly and continuously if the newspaper omits not more than three issues in a 12 month period.

(7) Public notice-A matter, including an application, request, notice, or protest, whether by proclamation or declaration, required or authorized to be published in a newspaper of general circulation by the Trust Company Act, this chapter, or another rule adopted pursuant to the Trust Company Act, or required to be published by the banking commissioner.

(8) Submitted filing--An initial application, request, notice, or protest filed under the Trust Company Act, this chapter, or another rule adopted pursuant to the Trust Company Act, that has not been abandoned and is not an accepted filing.

(9) Trust Company Act--Finance Code, Title 3, Subtitle F (§§181.001 et seq).

History

• Source Note: The provisions of this §21.1 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.2 Filing and Investigation Fees

(a) Types of fees. Subsection (b) of this section contains filing fees for specified applications and notices submitted to the department, and subsection (c) of this section requires a fee for protesting an application. These fees are due at the time the application or protest is submitted. Subsection (d) of this section requires an investigation fee to be paid in certain cases once an application has been accepted by the department for filing, and in other cases may require payment of investigative costs upon written request of the department. Pursuant to subsection (e) of this section, an applicant may seek waiver or reduction of required fees.

(b) Filing fees. Simultaneously with a submitted application or notice, an applicant shall pay to the department:

(1) $10,000 for an application for trust company charter pursuant to Finance Code, §182.003;

(2) $5,000 for an application for conversion of exempt trust company to non-exempt pursuant to Finance Code, §182.011(d);

(3) $7,500 for an application to authorize a merger or share exchange pursuant to Finance Code, §182.302, and §21.64 of this title (relating to Application for Merger or Share Exchange), or $4,000 for an application accepted for expedited treatment pursuant to §21.63 of this title (relating to Expedited Filings);

(4) $2,000 for each request to authorize an additional merger if more than one affiliated merger is to occur simultaneously;

(5) $5,000 for an application to authorize a purchase of assets pursuant to Finance Code, §182.401, if the purchase price exceeds an amount equal to three times the sum of the trust company's equity capital less intangible assets;

(6) $2,500 for an application to authorize the sale of substantially all assets pursuant to Finance Code, §182.405;

(7) $1,000 for a subsidiary notice letter pursuant to Finance Code, §184.103(c), plus an amount up to an additional $3,500 if the banking commissioner notifies the applicant that additional information and analysis is required;

(8) $10,000 for an application regarding acquisition of control pursuant to Finance Code, §183.002, or $5,000 if the applicant has previously been approved to control another trust company and no material changes in the applicant's circumstances have occurred since the prior approval;

(9) $500 for a notice to change home office with no abandonment of existing office pursuant to Finance Code, §182.202(c), and §21.41(a) of this title (relating to Written Notice and Application for Change of Home Office);

(10) $2,000 for an application to relocate the home office with abandonment of existing office pursuant to Finance Code, §182.202(d), and §21.41(b) of this title, or $1,000 for an application accepted for expedited treatment pursuant to §21.3 of this title (relating to Expedited Filings);

(11) $500 for a notice of additional office pursuant to Finance Code, §182.203(a), and §21.42 of this title (relating to Establishment, Relocation and Closing of an Additional Office), plus an additional $1,500 if the banking commissioner notifies the applicant pursuant to Finance Code, §182.203(b), and §21.42(c) of this title that additional information and analysis is required;

(12) $500 for an application for release from a final removal or prohibition order pursuant to Finance Code, §185.0071;

(13) $300 for an application to amend a trust company charter (certificate of formation) pursuant to Finance Code, §182.101;

(14) $2,500 for an application to authorize a reverse stock split subject to the substantive provisions of §21.92 of this title (relating to Amendment of Certificate to Effect a Reverse Stock Split);

(15) $100 for a request for a "no objection" letter to use a name containing a term listed in Finance Code, §181.004, by an entity other than a depository institution or a trust company;

(16) $1,000 for an application to authorize acquisition of treasury stock pursuant to Finance Code, §184.102, and §21.91 of this title (relating to Acquisition and Retention of Shares as Treasury Stock);

(17) $1,000 for an application to authorize an increase or reduction in capital and surplus pursuant to Finance Code, §182.103;

(18) $2,500 for an application by an existing trust company for exemption pursuant to Finance Code, §182.012, and §21.24 of this title (relating to Exemptions for Family Trust Companies);

(19) $2,500 for an application for authority to accept deposits pursuant to Finance Code, §§182.101, 184.301, and 184.302, and §21.31 of this title (relating to Notice to Engage in Trust Deposits);

(20) $100 for the annual certification filing for an exempt trust company pursuant to Finance Code, §182.013;

(21) $10,000 for an application to convert from a trust institution to a state trust company pursuant to Finance Code, §182.502; and

(22) $500 for a request to the banking commissioner to exempt an acquisition of control transaction from the requirements of Finance Code, §183.001, pursuant to Finance Code, §183.001(d)(4), which fee will be applied to a subsequent application for approval of an acquisition of control if the exemption is denied.

(c) Filing fee for protest. A person or entity filing a protest to the application of another person or entity shall pay a fee of $2,500 simultaneously with such protest filing. The purpose of the fee required under this subsection is to partially offset the department's increased cost of processing and reduce the costs incurred by the applicant resulting solely from the protest.

(d) Investigative fees and costs. An applicant for a trust company charter, conversion from an exempt trust company to a non-exempt trust company or limited trust association, or conversion of a trust institution to a state trust company shall pay an investigation fee of $10,000 once the application has been accepted for filing. If required by the banking commissioner, an applicant under another type of application or filing listed in subsection (b) of this section shall pay the reasonable investigative costs of the department incurred in any investigation, review, or examination considered appropriate by the department, calculated as provided by §17.22(a) of this title (relating to Examination and Investigation Fees). Such investigation fee or costs must be paid by the applicant upon written request of the department. Failure to timely pay the investigation fee or a bill for investigative costs constitutes grounds for denial of the submitted or accepted filing.

(e) Reduction or waiver of fees. Fees paid are nonrefundable and the banking commissioner shall charge fees on a consistent and nondiscriminatory basis. However, in the exercise of discretion, the banking commissioner may reduce, waive, or refund all or part of a filing fee, investigation fee, or bill for investigative costs if the banking commissioner concludes that:

(1) the application demonstrates that the fee creates an unreasonable hardship on the applicant; or

(2) the nature of the application will result in substantially reduced processing time compared to normal expectations for an application of that type.

(f) Severability. If any fee or cost recovery set forth in this section is finally determined by a court of competent jurisdiction to be invalid that fee or cost recovery shall be severed from this section and the remainder of this section shall remain fully enforceable.

History

• Source Note: The provisions of this §21.2 adopted to be effective March 12, 1998, 23 TexReg 2290; amended to be effective July 2, 1998, 23 TexReg 6715; amended to be effective December 31, 1998, 23 TexReg 13022; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective January 2, 2014, 38 TexReg 9484; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.3 Expedited Filings

(a) Eligible trust companies may file an expedited filing according to forms and instructions provided by the department solely for home office relocations within the same city pursuant to Finance Code, §182.202(d), and §21.41(b) of this title (relating to Written Notice and Application for Change of Home Office), together with the fee required by §21.2 of this title (relating to Filing and Investigation Fees). Notice must be published as required by §21.41(e) of this title.

(b) Notwithstanding another provision of this section, the banking commissioner may deny expedited filing treatment to an eligible trust company, in the exercise of discretion, if the banking commissioner finds that the filing involves one or more of the following:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction will result in a fixed asset investment in excess of the limitation contained in Finance Code, §184.002(a);

(4) the proposed transaction significantly impacts the strategic plan of the trust company;

(5) the proposed transaction would cause capital and surplus to fall below current minimum statutory or regulatory requirements;

(6) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(7) the application is deficient and specific additional information is required, or the filing fee has not been paid.

(c) The banking commissioner may deny or withdraw expedited filing treatment if a protest is filed. If a protest is filed, the application will be processed under §21.41 of this title.

(d) The department shall notify the applicant on or before the 15th day following the date the application is accepted for filing if expedited filing treatment is not available under this section. Such notification must be in writing and must indicate the reason why expedited treatment is not available. Notification is effective when mailed by the department and is not subject to appeal.

(e) Unless the applicant is otherwise notified by the department, an expedited filing is approved on the 15th day after the date the applicant is notified that expedited filing treatment is available or the expiration of the period for filing a public comment or protest, whichever is the last to occur.

History

• Source Note: The provisions of this §21.3 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.4 Required Information and Abandoned Filings

(a) Required information. The banking commissioner may investigate and evaluate facts related to a submitted filing or accepted filing to the extent necessary to reach an informed decision. The banking commissioner may require any person or entity connected with the matter to which the submitted or accepted filing pertains to submit additional information, including, but not limited to, an opinion of counsel with respect to a matter of law or an opinion, review or compilation prepared by a certified public accountant.

(b) Accepted for filing. On or before the 15th day after initial submission of an application, the banking commissioner shall issue a written notice informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(c) Time limit for providing required information. Unless otherwise provided for in the Trust Company Act, this chapter or rules and regulations adopted pursuant to the Trust Company Act, all required information necessary for the banking commissioner to declare that a submission is an accepted filing shall be provided to the department on or before the 61st day after the date of the initial submission of the filing. Upon a finding of good and sufficient cause, the banking commissioner shall grant an applicant additional time to complete the application. Extensions will be communicated to the applicant before the expiration of the filing period.

(d) Abandoned filing. The banking commissioner may determine any submitted or accepted filing to be abandoned, without prejudice to the right to refile, if the information required by the Trust Company Act, this chapter, or any rule or regulation adopted pursuant to the Trust Company Act, or additional requested information, is not furnished within the time period specified by subsection (c) of this section or as requested by the banking commissioner in writing to the person or entity making the submission. The banking commissioner may determine a submitted or accepted filing for which fees required by the Trust Company Act or by this chapter are not paid within 30 days of receipt of the initial submission to be abandoned.

(e) Notice. The banking commissioner shall give written notice of any submitted or accepted filing considered to be abandoned. Notice of abandonment shall be effective upon mailing by the department. Fees paid related to an abandoned filing are nonrefundable.

History

• Source Note: The provisions of this §21.4 adopted to be effective May 14, 1998, 23 TexReg 4565; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective September 4, 2014, 39 TexReg 6825.

7 Tex. Admin. Code § 21.5 Public Notice

(a) General. A person or entity required or authorized to file public notice in connection with a trust company notice or application, including a person or entity requesting authorization for a merger, purchase of assets, or another application requiring public notice, shall publish notice in a newspaper of general circulation in its specified community and in such other locations as may be required by the banking commissioner.

(b) Contents. The public notice must state that a filing is being made; the date (or expected date) of the filing; sufficient information describing the proposed transaction, and other related information required by the Trust Company Act, this chapter or rules and regulations adopted pursuant to the Trust Company Act, and any other information as may be required by the banking commissioner. In addition, the notice must include substantially the following text as a separately stated paragraph: "Any person wishing to comment on this application, either for or against, may file written comments with the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294 on or before the 14th day after the date of this publication. Such comments will be made a part of the record before and considered by the banking commissioner. Any person wishing to formally protest and oppose (describe type of application in general terms) and participate in the application process may do so by filing a written notice of protest with the Texas Department of Banking on or before the 14th calendar day after the date of this publication accompanied by a protest filing fee of $2,500. The protest fee may be reduced or waived by the banking commissioner upon a showing of substantial hardship."

(c) Publisher's affidavit. A person or entity required to file public notice under this section shall file with the banking commissioner a copy of the notice and a publisher's affidavit attesting to the date of publication.

(d) One publication sufficient. Unless otherwise required by the Trust Company Act or rules and regulations adopted pursuant to the Trust Company Act, one public notice publication per submitted or accepted filing in each community specified by the banking commissioner is sufficient if in substantial compliance with this section and chapter and with the Trust Company Act, as determined by the banking commissioner. The banking commissioner reserves the right to require additional publication based on a determination that a particular publication is insufficient or is otherwise not in compliance.

(e) Other acceptable public notice. The banking commissioner may determine that public notice required by another regulatory agency of a trust company satisfies the public notice requirements of this section. For example, if a trust company converts, merges, or organizes into a financial institution that is no longer regulated by the banking commissioner and the banking commissioner determines that public notice requirements imposed by the successor regulatory authority satisfy the notice requirements of the Trust Company Act and this section, the banking commissioner may permit the notice required by the successor regulatory authority to serve as notice under this section.

History

• Source Note: The provisions of this §21.5 adopted to be effective May 14, 1998, 23 TexReg 4565; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.6 Applications for Trust Charter: Notices to Applicants; Application Processing Times; Appeals

(a) Form of application. An application to engage in a state trust company under Finance Code, §182.003, must be filed on a form prescribed by the banking commissioner.

(b) Notice to applicant. The banking commissioner shall issue a written notice as required by §21.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. If a protest is timely filed, the department will notify the applicant of the protest.

(c) Action on applications. If an application is not protested and if the banking commissioner has not ordered a hearing, the banking commissioner shall approve or deny an application for a trust company charter on or before the 180th day after the date the application is accepted for filing, unless extended by written agreement between the applicant and the banking commissioner. If the application is protested, the application will be acted on in accordance with §21.10 of this title (relating to Protested Applications).

(d) Violation of processing times. If an application is not protested or a hearing is not convened, an applicant may appeal directly to the banking commissioner for a timely resolution of a dispute arising from a violation of a processing period set forth in this section. An applicant may appeal by filing a written request with the banking commissioner on or before the 30th day after the date the decision is made on the application, requesting review by the banking commissioner to determine whether the established period for the granting or denying of the application has been exceeded. The decision on the appeal shall be based on the written appeal filed by the applicant, any response by the department, and any agreements between the parties. The banking commissioner may convene a hearing to take evidence on the matter.

(e) Decision on appeal. The banking commissioner shall decide the appeal in the applicant's favor if the banking commissioner determines that the time periods established in this section have been exceeded and the department has failed to establish good cause for the delay. The banking commissioner shall issue a written decision to the applicant on or before the 60th day after the filing of an appeal. If an appeal is decided in an applicant's favor, the department will reimburse the application fee paid by the applicant. A decision in favor of the applicant under this subsection does not affect a decision to grant or deny the application based on applicable substantive law without regard to whether the application was timely processed.

History

• Source Note: The provisions of this §21.6 adopted to be effective May 14, 1998, 23 TexReg 4565; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective July 10, 2008, 33 TexReg 5277; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.7 Submission of Reproductions

(a) Scope. This section governs submission of specified forms of copies of original documents to the Texas Department of Banking (the department) for processing by the corporate activities division of the department pursuant to this chapter, and does not permit, prohibit, or affect correspondence with or documents submitted to the department for another purpose, including:

(1) applications submitted to the special audits division of the department; and

(2) documents submitted to the department as required or permitted by Government Code, Chapter 2001, and chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemaking).

(b) Reproduction. For purposes of this section, the term reproduction means:

(1) a photographic or photostatic copy or similar reproduction of an original document that is submitted to the department by mail or hand delivery;

(2) a facsimile copy of an original document submitted by telephonic document transmission to the fax number specified by the department; or

(3) if permitted by the department with respect to a specific filing, an electronic copy of an original document submitted to the email address specified by the department.

(c) Filings. Subject to the length limitations of subsection (d) of this section, a document required or authorized to be filed with the department may be a reproduction, including an application or a supplement to or substitution for a portion of a previously filed and accepted application. Receipt of a reproduction by the department is not equivalent to accepted for filing.

(d) Page limitations. A reproduction submitted by telephonic document transmission to the department's fax machine may not exceed 25 pages in total length, including the transmittal document required by subsection (e) of this section, or it will be rejected for filing. The transmission of portions of any particular filing at different times is treated as one reproduction for purposes of this subsection.

(e) Transmittal document. A cover sheet or transmittal document must accompany every reproduction submitted under this section and must:

(1) clearly identify the sender by name, address, and phone number, the documents being delivered or transmitted, and the number of pages in the submission;

(2) contain clear and concise instructions concerning the sender's request with respect to the submission; and

(3) contain complete and accurate information regarding the payment of required filing fees, if any.

(f) Time of receipt. To be considered received by the department, a reproduction must be in clearly legible form. The date the submission is actually received by the department or the date and time imprinted by the department's fax machine on the last page of a reproduction submitted by telephonic document transfer will determine the time of receipt, provided that a reproduction received after 4:30 p.m. is considered received at 8:00 a.m. on the next business day. A reproduction will not be considered received until the department receives the entire document and the required filing fee, if any.

(g) Equivalent of original. For all purposes attendant to filing, a reproduction of a document filed with the department under this section, including reproduction of signatures thereon, is considered an original document.

History

• Source Note: The provisions of this §21.7 adopted to be effective May 14, 1998, 23 TexReg 4565; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.9 Corporate Filings

(a) In accordance with the applicable provisions of the Trust Company Act, the following corporate forms regarding a state trust company, along with the applicable filing fees, must be filed with the banking commissioner:

(1) a certificate of correction as authorized by Texas Business Organizations Code (TBOC), §4.101;

(2) certificate of amendment under the Finance Code, §182.101;

(3) restated, or, amended and restated, certificate of formation under the Finance Code, §182.101, and TBOC §3.059 and §21.052;

(4) certificate of merger under the Finance Code, §182.301 et seq, as supplemented by the TBOC §10.151;

(5) certificate of exchange under TBOC, §10.151;

(6) statement of event or fact pursuant to TBOC §4.055;

(7) establishment of a series of shares by the board of directors under the Finance Code, §182.102, as supplemented by TBOC §21.155 and §21.156;

(8) statement regarding a restriction on the transfer of shares under TBOC, §21.212; and

(9) abandonment of a merger or interest exchange prior to its effective date under TBOC §4.057.

(b) For purposes of corporate filings with the banking commissioner under subsection (a) of this section, state trust companies may utilize a modified version of forms promulgated by the secretary of state if the banking commissioner or the finance commission has not promulgated an appropriate corporate form; however, the banking commissioner may require the submission of additional information. The modified corporate forms must:

(1) specifically reference the applicable provisions of the Finance Code;

(2) change references from "corporation" to "association"; and

(3) change the references to "stated capital" and similar terms defined in the TBOC to an appropriate reference to terms defined in the Finance Code.

(c) In accordance with the applicable provisions of the Finance Code and the TBOC, a state trust company may file the following corporate forms with the secretary of state as instructed in the Finance Code or the TBOC:

(1) name registrations under TBOC §§5.151 - 5.155;

(2) assumed name certificates under TBOC §5.051;

(3) a statement appointing an agent authorized to receive service of process under Finance Code §201.103;

(4) an amendment to a statement appointing an agent to receive service of process under Finance Code §201.103; and

(5) a cancellation of the appointment of an agent to receive service of process under Finance Code §201.103.

(d) The following corporate forms are inapplicable to state trust companies and are not required to be filed by a state trust company with either the secretary of state or the banking commissioner:

(1) changes of registered office or agent under TBOC §5.202 or §5.203;

(2) name reservations under TBOC §5.101;

(3) certificate of termination under TBOC §11.101; and

(4) certificate of reinstatement under TBOC §11.202.

History

• Source Note: The provisions of this §21.9 adopted to be effective July 10, 2008, 33 TexReg 5277; amended to be effective September 9, 2010, 35 TexReg 8102; amended to be effective November 7, 2013, 38 TexReg 7690.

7 Tex. Admin. Code § 21.10 Protested Applications

(a) A protest of a charter application must be received by the department before the 15th day after the date the organizers publish notice and must be accompanied by any fee required by §21.5(b) of this title (relating to Public Notice). If the protest is untimely, the department will return all fees and deposits to the protesting party. If the protest is timely, the department shall notify the applicant of the protest and mail or deliver a complete copy of the nonconfidential sections of the charter application to the protesting party before the 15th day after the later of the date of receipt of the protest or receipt of the charter application.

(b) A protesting party must file a detailed protest responding to each contested statement in the nonconfidential portion of the application not later than the 20th day after the date the protesting party receives the application from the department. The protesting party must relate each statement and response in his protest to the standards for approval set forth in Finance Code §182.003(b).

(c) The applicant must file a written reply to the protesting party's detailed response on or before the 10th day after the date the response is filed.

(d) The protesting party's response and the applicant's reply must be in the form and must be served as required by Finance Code §182.005(b). Any comment received by the department and any reply of the applicant to the comment shall be made available to the protesting party.

History

• Source Note: The provisions of this §21.10 adopted to be effective July 10, 2008, 33 TexReg 5277.

7 Tex. Admin. Code § 21.11 Hearings on Applications

(a) The banking commissioner may not be compelled to hold a hearing before granting or denying the charter application. He may grant a hearing at the request of an applicant or a protesting party. He may order a hearing without any party having requested one.

(b) A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record complied under §21.10(b) - (d) of this title (relating to Protested Applications) and why the issues cannot be determined.

(c) If the banking commissioner sets a hearing, he shall conduct a public hearing and one or more prehearing conferences as he considers advisable and consistent with applicable law. He shall also allow the parties to undertake such discovery as he considers advisable and consistent with applicable law, except that he may not permit discovery of confidential information in the charter application or the investigation report.

History

• Source Note: The provisions of this §21.11 adopted to be effective July 10, 2008, 33 TexReg 5277.

7 Tex. Admin. Code § 21.12 Waiver of Requirements

The banking commissioner in the exercise of discretion may waive or modify any requirement imposed by this chapter.

History

• Source Note: The provisions of this §21.12 adopted to be effective July 10, 2008, 33 TexReg 5277.

Subchapter B TRUST COMPANY CHARTERING AND POWERS

7 Tex. Admin. Code § 21.23 Option To Withhold Identity of Officers

An applicant for a trust company charter may, at its option, withhold the identity of prospective officers until such time as the banking commissioner issues a final order on the application. Approval of the application will be conditional upon the applicant's submitting resumes of qualified proposed officers to the banking commissioner. Upon receipt of the resumes, the banking commissioner shall review and investigate the qualification of the proposed officers and deliver the certificate of authority pursuant to Finance Code, §182.006, if the banking commissioner finds that the proposed officers meet the requirements of Finance Code, §182.003(b)(3).

History

• Source Note: The provisions of this §21.23 adopted to be effective May 14, 1998, 23 TexReg 4565; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.24 Exemptions for Family Trust Companies

(a) Definitions. Definitions in Finance Code, §182.011(a - 1), are incorporated herein by reference except for the term "family member." As used in this section and in Finance Code, Title 3, Subtitle F (the Trust Company Act), the following words and terms shall have the following meanings, unless the context clearly indicates otherwise:

(1) "Family" means individuals who are related within the seventh degree of affinity or consanguinity to a shared common ancestor.

(2) "Family member" means each individual included in the definition of "family," provided that a foster child is considered the child of the foster parent and a person for whom a guardian was appointed before the person's 18th birthday is considered the child of the guardian. The term "family member" also includes the shared common ancestor.

(3) "Key employee" means the president of the trust company, any of its officers in charge of a principal business unit, division or function (such as administration or finance), an officer who performs a policymaking function for the trust company, or another person who performs similar policymaking functions for the trust company.

(b) Application for exemption.

(1) Pursuant to Finance Code, §182.011 and §182.012, a trust company may request in writing that it be exempted from specified provisions of the Trust Company Act, if it has only family clients, transacts business solely on behalf of family clients and their related interests, is wholly owned, directly or indirectly, legally or beneficially, by one or more family members, and does not hold itself out to the general public as a corporate fiduciary for hire.

(2) The application must:

(A) be accompanied by the appropriate filing fee required by §21.2 of this title (relating to Filing and Investigation Fees);

(B) specify the specific exemptions requested and the reasons or justification for requesting the exemptions; and

(C) include a copy of the trust company's certificate of formation containing, or a proposed amendment to the certificate of formation that would cause it to contain, the following statement in its purposes clause: "The sole purpose for which the trust company is organized is to act as a corporate fiduciary for accounts in which all beneficiaries are descendants of and related within the seventh degree of affinity or consanguinity to _____________ (name of common ancestor), and their related interests to the extent permitted by the Texas Finance Code or applicable rules and regulations."

(c) Exemption. Subject to conditions or limitations being imposed by the banking commissioner, a family trust company may request exemption from the following provisions of the Trust Company Act:

(1) the requirement of Finance Code, §183.103(a), that five is the minimum number of directors, managers, or managing participants that can be specified in the certificate of formation, provided that the certificate of formation must specify the number of directors, managers, or managing participants, consistent with paragraph (2) of this subsection;

(2) the requirement of Finance Code, §183.103(a), that the number of directors, managers, or managing participants of a trust company cannot be less than five or more than 25, the majority of whom must be residents of this state, provided that the board of a trust company seeking exemption under this section must consist of not fewer than three or more than 25 directors, managers, or managing participants, at least one of whom must be a resident of this state;

(3) the restrictions of Finance Code, §183.109(a) - (c), regarding transactions with management and affiliates;

(4) the limitations of Finance Code, §184.002, on investment in trust company facilities;

(5) the limitations of Finance Code, §184.101, on securities investments, provided that the exemption request must address each limitation and the reasons for exemption separately;

(6) the restrictions of Finance Code, §184.102, regarding transactions in state trust company shares or participation shares;

(7) the limitations of Finance Code, §184.003, on other real estate investments; and

(8) the limitations of Finance Code, §§184.201 - 184.203, regarding lending limit and lease financing transaction restrictions, provided that no loans may be made from a trust company's minimum restricted capital amount.

(d) Notice to applicant. The banking commissioner shall issue a written notice as required by §21.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(e) Notice to clients. A family trust company which has been granted an exemption under subsection (c) of this section must provide each family client with a copy of the exemption granted by the banking commissioner. The trust company must maintain an acknowledged receipt of such notice in its files.

(f) Transition period for certain former family clients. Pursuant to Finance Code, §182.011(a - 1)(1)(C) and (I), a family trust company may continue providing services to a former key employee or a formerly revocable trust that is no longer an eligible family client for a period of one year after the date of the disqualifying event. The banking commissioner may grant an extension of up to one year in response to a written request if the commissioner determines that:

(1) the trust company has acted diligently and in good faith in its efforts to terminate the disqualified relationship in a manner consistent with its fiduciary duties; and

(2) additional time is needed to avoid harm to the affected beneficiaries and appropriately discharge the trust company's fiduciary duties with respect to the disqualified relationship.

(g) Effect on existing family trust company. A family trust company with exemptions granted prior to September 1, 2015, under Finance Code, §182.011 and §182.012, is not required to take any action to preserve its exemption as a result of changes in law made by Acts 2015, 84th Leg., R.S., Ch. 250, §5. However, unless and until any such family trust company amends its certificate of formation to name a new shared common ancestor, the control person named in its certificate of formation is considered to be the shared common ancestor for purposes of determining eligibility of family members under Finance Code, §182.011, and this section.

History

• Source Note: The provisions of this §21.24 adopted to be effective September 3, 1998, 23 TexReg 8832; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective May 10, 2007, 32 TexReg 2463; amended to be effective November 7, 2013, 38 TexReg 7690; amended to be effective January 7, 2016, 41 TexReg 110; amended to be effective May 5, 2016, 41 TexReg 3100.

Subchapter C TRUST DEPOSITS

7 Tex. Admin. Code § 21.31 Notice To Engage in Trust Deposits

(a) Compliance required. A trust company may not deposit trust funds with itself as an investment pursuant to Finance Code, §184.301, unless it first complies with this section and §21.32 of this title (relating to Acceptance of Trust Deposits).

(b) Notice of activity. At least 30 days before accepting trust deposits, a trust company shall file a notice with the banking commissioner containing the following information, together with the filing fee required by §21.2 of this title (relating to Filing and Investigation Fees):

(1) an estimate of the anticipated dollar volume of trust deposits, an estimate of the maximum trust deposit for any one account, and an estimate of the total number of accounts that will invest in trust deposits;

(2) a copy of the added or revised portion of the trust company's strategic plan that addresses the acceptance of trust deposits, in compliance with Texas Department of Banking Policy Memorandum Number 1009, regarding strategic plans;

(3) if trust deposits are to be insured by the Federal Deposit Insurance Corporation (FDIC), or its successor, evidence of such insurance;

(4) if trust deposits are to be secured by a pledged fund of securities:

(A) a description of the initial fund of securities securing the anticipated trust deposits, including disclosure of current market value and an evaluation of the securities under the standards of Finance Code, §184.101(e); and

(B) identification of the federal reserve bank, state or nationally chartered depository institution, or clearing corporation, that controls the securities pledged against the trust deposits and a copy of the executed pledge agreement with such institution;

(5) if trust deposits are to be secured by a pledged certificate of deposit:

(A) evidence of the certificate of deposit that discloses its value and associated costs, including penalties, for early redemption or withdrawal; and

(B) identification of the FDIC-insured depository institution that issued the certificate of deposit, a copy of the executed pledge agreement with such institution, and an acknowledgment of the pledge from the issuing institution;

(6) a certified copy of a board resolution directing management of the trust company to:

(A) maintain adequate security and/or FDIC insurance to fully secure and/or insure the trust deposits; and

(B) maintain adequate policies, procedures, and records regarding trust deposits; and

(7) such other information that the banking commissioner may reasonably request.

(c) Action by banking commissioner.

(1) The trust company may begin accepting trust deposits on the 31st day after the date the banking commissioner receives the trust company's completed notice letter unless the banking commissioner specifies an earlier or later date, requests additional information, or prohibits the activity as provided in this subsection. The banking commissioner may prohibit the trust company from accepting trust deposits only if the banking commissioner concludes that:

(A) the trust deposits would not be fully insured or secured as required by Finance Code, §184.301, and this section;

(B) the activity would adversely affect the safety and soundness of the trust company;

(C) the trust company has a less than satisfactory rating as of the trust company's most recent examination; or

(D) the trust company is subject to an enforcement order issued pursuant to Finance Code, Chapter 185, or is not otherwise operating in substantial compliance with all applicable state and federal laws and regulations.

(2) The banking commissioner may extend the 30-day period under paragraph (1) of this subsection if the banking commissioner determines that the trust company's notice raises issues requiring additional information or additional time for analysis. If the 30-day period is extended, the trust company may accept trust deposits only on prior written approval by the banking commissioner, except that the banking commissioner must approve or prohibit the proposed activity or convene a hearing under Finance Code, §181.201, not later than the 60th day after the date the banking commissioner receives the trust company's notice. If a hearing is convened, the banking commissioner must approve or prohibit the proposed activity not later than the 30th day after the date the hearing is completed.

(3) A trust company that is denied the right to accept trust deposits by the banking commissioner under this section may appeal as provided by Finance Code, §§181.202-181.204, or may file a new notice under this section with additional information relevant to the banking commissioner's determination, with applicable filing fee.

(d) Authority to accept trust deposits. Only a trust company which transacts business with the public may deposit trust funds with itself as an investment pursuant to Finance Code, §184.301. An exempt trust company under Finance Code, §§182.011-182.019, may not accept trust deposits.

(e) Records. A trust company shall maintain written documentation adequate to demonstrate compliance with this section, which documents must be available at all times to the department for examination and review. For purposes of this subsection, required documentation need not be retained beyond three years.

History

• Source Note: The provisions of this §21.31 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.32 Acceptance of Trust Deposits

(a) Compliance required. A trust company may not deposit trust funds with itself as an investment pursuant to Finance Code, §184.301, unless it first complies with this section and §21.31 of this title (relating to Notice to Engage in Trust Deposits). Trust deposits must be fully insured by deposit insurance issued by the Federal Deposit Insurance Corporation (FDIC), or its successor, or fully secured by a separate fund of pledged securities, by pledged certificates of deposit, or a combination of the foregoing.

(b) Pledged collateral. A separate fund of securities or certificates of deposit that are pledged to secure trust deposits must be maintained in a federal reserve bank, a state or nationally chartered depository institution, or a clearing corporation, as defined by Business & Commerce Code, §8.102, either in this state or elsewhere, and must:

(1) for a fund of securities, contain only bonds, notes, or other evidences of indebtedness which are investment grade, convertible to cash within three business days, at least 80% of which have a maturity date of not later than the 91st day after the date of purchase. For purposes of this subsection, investment grade refers to a security that is rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's rating services in accordance with the terms of the Uniform Agreement on Classification Of Assets And Appraisal Of Securities by the Federal Financial Institutions Examination Council;

(2) for a fund of securities, the value of the securities must at all times equal or exceed 110% of the deposits held plus accrued and unpaid interest; provided, however, that if the value of the securities is evaluated daily and reduced to writing, the value of the securities must at all times equal or exceed 100% of the deposits held plus accrued and unpaid interest. In any event, the value of the securities must be evaluated at least monthly to ensure that the deposits are fully secured; and

(3) for a certificate of deposit, be fully insured by the FDIC.

(c) Noninsurability by FDIC. If a trust company's trust deposits are not insured by the FDIC, a trust company must provide each client related to an account from which deposits may be accepted with a written notice conspicuously stating that: "Your deposit with this trust company is not insured by the FDIC." This notice must be provided to the client prior to any deposit activity regarding the related account and must be signed by both the client and the trust company. The notice must be in type that is boldfaced, capitalized, underlined or otherwise set out from surrounding written material so as to be conspicuous. Furthermore, all documents issued by a trust company evidencing a deposit transaction, must contain a notice complying with the requirements of this subsection.

(d) Records. A trust company shall maintain all written documentation adequate to demonstrate compliance with this section, which documents must be available at all times to the department for examination and review. For purposes of this subsection, required documentation need not be retained beyond three years.

History

• Source Note: The provisions of this §21.32 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203.

Subchapter D TRUST COMPANY OFFICES

7 Tex. Admin. Code § 21.41 Written Notice and Application for Change of Home Office

(a) Relocation by notice. If the location that is the home office of a trust company prior to a proposed relocation of the home office is to remain an additional office of the trust company after the relocation, the trust company may relocate its home office by filing a written notice pursuant to Finance Code, §182.202(c). The filed notice must contain all information required by subsection (c) of this section, accompanied by the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees), and notice of the submission must be published as required by subsection (e) of this section. A trust company filing notice of a home office relocation under this subsection may relocate its home office on the 31st day after the required notice and fee have been received by the banking commissioner, unless the banking commissioner gives notice in writing, prior to the expiration of that time period, that an earlier or later date is authorized or that additional information and additional time for analysis is required. Upon issuance of a notice requiring additional information and additional time for analysis, the trust company may relocate its home office only on written approval of the banking commissioner. Except as otherwise provided in this section, the banking commissioner shall evaluate the notice under the criteria of §21.42(e) of this title (relating to Establishment, Relocation and Closing of an Additional Office).

(b) Relocation by application. If Finance Code, §182.202(c), and subsection (a) of this section do not apply, a trust company desiring to change its home office location must file an application with the banking commissioner pursuant to Finance Code, §182.202(d), setting forth all information required by subsection (d) of this section, accompanied by the required filing fee pursuant to §21.2 of this title, and notice of the submission must be published as required by subsection (e) of this section. The banking commissioner shall issue a written notice no later than 15 days after the date the initial filing is received, as required by §21.4 of this title (relating to Required Information and Abandoned Filings), informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. Except as otherwise provided in this section, the banking commissioner shall evaluate the application under the criteria of §21.42(e) of this title. An applicant under this subsection may not relocate its home office without the prior written approval of the banking commissioner.

(c) Contents of notice. The notice filed under subsection (a) of this section must disclose:

(1) the name of the trust company requesting the home office relocation;

(2) the street address of the trust company's home office before the requested home office relocation;

(3) the street address of the trust company's proposed home office;

(4) the desired effective date of the home office relocation under subsection (a) of this section;

(5) a copy of the resolution adopted by the trust company's board of directors authorizing the proposed home office relocation;

(6) the cost to be incurred in connection with the relocation and a statement of the impact of such cost on the trust company's ability to meet liquidity requirements;

(7) evidence that the trust company has considered applicable federal law, if any;

(8) a description of any actual, proposed, or contemplated financial involvement by an officer, director, manager, managing participant, or principal shareholder or participant of the trust company with respect to its home office relocation; and

(9) such other information as the banking commissioner may require.

(d) Contents of application. The application submitted under subsection (b) of this section must disclose:

(1) the name of the trust company requesting the home office relocation;

(2) the street address of the trust company's home office before the requested home office relocation;

(3) the street address of the trust company's proposed home office;

(4) the desired effective date for the home office relocation;

(5) a copy of the resolution adopted by the trust company's board of directors authorizing the home office relocation;

(6) the cost to be incurred in connection with the relocation and a statement of the impact of such cost on the trust company's ability to meet liquidity requirements;

(7) a written statement signed by the principal executive officer of the trust company or a majority of the trust company's board of directors stating whether the home office relocation will result in an abandonment of all or a part of the community served by the trust company present home office location and, if so, an explanation of how the abandonment is consistent with the original determination of public convenience and advantage for the establishment of the trust company at its existing home office location;

(8) a written statement signed by the principal executive officer of the trust company or a majority of the trust company's board of directors stating whether the home office relocation is anticipated to result in a reduction of trust services presently offered by the trust company at its present location within the 18-month period after the proposed effective date of the relocation and, if so, an explanation of the anticipated reduction in trust and fiduciary services and how the diminution in services is consistent with the original determination of public convenience and advantage for the establishment of the trust company at its existing home office location;

(9) a description of any actual, proposed, or contemplated financial involvement by an officer, director, manager, managing participant, or principal shareholder or participant of the trust company with respect to the home office relocation;

(10) evidence that the trust company has considered applicable federal law, if any; and

(11) such other information as the banking commissioner may require.

(e) Public notice and participation.

(1) Within 14 days of the initial submission of a notice or application under subsection (a) or (b) of this section, the trust company shall publish notice of the submission as required by §21.5 of this title (relating to Public Notice). Notice must be published in the community where the current home office of the trust company is located and in the community where the proposed home office will be located, and must disclose the locations of the existing and proposed home offices.

(2) For a period of 14 days after publication of notice or such longer period as the banking commissioner may allow for good cause shown, the public may submit written comments or protests. Persons submitting comments are not entitled to further notice of or participation in the proceedings. In the event of a properly filed protest, each protesting party has the rights and responsibilities of a protesting party to a notice of additional office under §21.42 of this title.

(f) Certificate of formation. An amendment to the certificate of formation of the trust company is not required to effect a change in the location of its home office under this section. However, if the certificate of formation is subsequently restated for any reason, the trust company must include the address of its then current home office in the restated certificate of formation.

History

• Source Note: The provisions of this §21.41 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective November 7, 2013, 38 TexReg 7690.

7 Tex. Admin. Code § 21.42 Establishment, Relocation and Closing of an Additional Office

(a) Establishment or relocation by notice. A trust company may establish or relocate an additional office pursuant to Finance Code, §182.203, by filing a written notice with the banking commissioner containing all information required by subsection (b) of this section, accompanied by the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees), and notice of the submission must be published as required by subsection (d) of this section. A trust company filing notice of an additional office under this subsection may establish the additional office on the 31st day after the date the required notice and fee are received by the banking commissioner unless the banking commissioner gives notice in writing, prior to the expiration of that time period, that an earlier or later date is authorized or that additional information is required pursuant to subsection (c) of this section.

(b) Contents of notice. The notice filed under subsection (a) of this section must disclose:

(1) the name and home office location of the trust company requesting the additional office;

(2) the street address of the trust company's proposed additional office;

(3) a description of the activities proposed to be conducted at the proposed additional office;

(4) the desired effective date for establishment of the additional office;

(5) a certified copy of the resolution adopted by the trust company's board of directors authorizing the proposed additional office;

(6) the cost to be incurred in connection with the establishment of the additional office and a statement of the impact of such cost on the trust company's ability to meet liquidity requirements;

(7) a description of any actual proposed, or contemplated financial involvement by any officer, director, manager, managing participant, or principal shareholder or participant of the trust company with respect to establishing the additional office;

(8) evidence that the trust company has considered applicable federal law, if any; and

(9) such other information as the banking commissioner may require.

(c) Request for additional information. At any time before the 31st day after the date the notice required by subsection (a) of this section is filed, the banking commissioner may issue written notice to the trust company specifying a later date for establishing or relocating an additional office and requiring the submission of additional information and additional time for analysis. Upon issuance of a notice requiring the submission of additional information and additional time for analysis, the trust company may establish or relocate the additional office only on written approval of the banking commissioner.

(d) Public notice and participation.

(1) Within 14 days of the initial submission of the notice required under subsection (a) of this section, the trust company shall publish notice of the submission as required by §21.5 of this title (relating to Public Notice). Notice must be published in the community where the proposed additional office will be located and must specifically disclose the location of the proposed additional office.

(2) For a period of 14 days after publication of notice or such longer period as the banking commissioner may allow for good cause shown, the public may submit written comments or protests. Persons submitting comments will not be charged fees or costs, but are not entitled to further notice of or participation in the proceedings. Each protesting party has the rights and responsibilities set forth in subsections (f) and (g) of this section.

(e) Criteria for determining significant supervisory or regulatory concern. The banking commissioner may deny permission to establish or relocate an additional office of a trust company if the commissioner has significant supervisory or regulatory concern about the proposed transaction.

(1) In evaluating whether significant supervisory concerns exist regarding a proposed additional office, the banking commissioner shall consider the financial condition of the trust company, the financial effect of the additional office on the trust company, the management abilities of the trust company, and the history and prospects of the trust company and its affiliates regarding fulfillment of responsibilities to regulatory agencies and to the public. A request will ordinarily be denied if the trust company is in less than satisfactory financial condition as of its most recent examination.

(2) In evaluating whether significant regulatory concerns exist regarding a proposed additional office, the banking commissioner will consider the relevant marketplace and the convenience of the public in accessing desired trust services and preferred trustees. The banking commissioner will follow the principles that the marketplace normally is the best regulator of economic activity, and that healthy competition promotes a sound and more efficient trust company system that serves customers well. Accordingly, absent significant supervisory concerns, the general policy of the banking commissioner is to approve applications, requests and notices to establish and relocate additional offices, provided that approval would not otherwise violate applicable provisions of federal or state law (including any requirements for federal banking agency approval).

(3) In evaluating whether the banking commissioner should have significant supervisory or regulatory concerns as set forth in paragraphs (1) and (2) of this subsection, the banking commissioner will consider written material in the record, including the contents of the application, notice or request, comments on file, the department's files as they relate to the current financial condition of the trust company, and other data that the banking commissioner may properly officially notice. Specifically, the banking commissioner shall approve the establishment or relocation of an additional office if the following considerations are met:

(A) the department's files do not indicate significant supervisory concerns as they relate to the current financial condition of the trust company, including but not limited to its capital, asset quality, management, earnings and liquidity;

(B) the costs of establishing or relocating the office, including costs of purchasing or leasing the office site, necessary furnishings, staffing and equipment, do not significantly affect the operations of the trust company as a whole;

(C) the projected earnings appear reasonable and sufficient to support expenses attributable to the establishment and relocation of the office without jeopardizing the safety and soundness of the trust company;

(D) the depth and quality of management of the trust company and of the proposed additional office are sufficient to justify a belief that the trust company will operate in compliance with law;

(E) the trust company has demonstrated a responsiveness to recommendations made in past state and federal regulatory examinations or other regulatory findings and the trust company has generally been operated in substantial compliance with all applicable state and federal laws; and

(F) no areas of general supervisory concern exist as determined by the banking commissioner in the exercise of discretion.

(4) The banking commissioner shall direct the department to assemble, evaluate, and make a recommendation regarding all relevant documentation and data as set forth in this subsection on or before the 30th day after the date the application is accepted for filing.

(5) The banking commissioner shall either approve, conditionally approve, or deny the application, notice, or request on or before the 30th day after the date of the department's recommendation.

(f) Protest.

(1) A protest may be initiated by notifying the department in writing of the intent to protest the establishment of an additional office at the specified location within the time period allowed by subsection (d) of this section, accompanied by the filing fee as set forth in §21.2(c) of this title (relating to Filing and Investigation Fees). If the protest is untimely, the filing fee will be returned to the protesting party. If the protest is timely, the department will notify the applicant of the protest and mail or deliver a complete copy of the non-confidential sections of the application to the protesting party on or before the 14th day after receipt of the protest or the application, whichever occurs later.

(2) The protesting party shall file a detailed protest responding to each substantive statement contained in the notice on or before the 20th day after the date of receipt of the application. The protesting party's response must indicate with regard to each such statement whether it is admitted or denied. The applicant shall file a written reply to the detailed response on or before the 10th day after the date the response is filed. Both the detailed response and the reply thereto must be verified by affidavit and must contain a certificate of service on the opposing party. When applicable, statements in the response and in the reply may be supported by references to data available in sources of which official notice may properly be taken. Comments received by the department and any replies of the applicant to such comments will also be made available to the protesting party.

(3) The banking commissioner may extend any time period set forth in this subsection for good cause shown. Good cause includes, but is not limited to, failure of the department to furnish required documentation, forms, or information within a reasonable time to permit its effective use by the recipient, or failure of a party to timely serve a filed document on an opposing party. The filing date is the date the document is actually received by the department and not the date of mailing. Failure to timely file a required document is considered an abandonment of the application or protest, as applicable. Rule 21a, Texas Rules of Civil Procedure, governs the methods and manner of authorized service and the computation of time periods under this subsection.

(g) Hearing.

(1) The banking commissioner may not be compelled to hold a hearing prior to allowing or not allowing an additional office to be established. In the exercise of discretion, the banking commissioner may consider granting a hearing on a notice of additional office at the request of either the filing trust company or a protesting party. The banking commissioner may order a hearing even if no hearing has been requested.

(2) A party requesting a hearing must indicate with specificity what issues are involved that cannot be determined on the basis of the record compiled pursuant to subsection (e) of this section and why the issues cannot be so determined. The request for hearing and the banking commissioner's decision with regard to granting a hearing will be made a part of the record. If a hearing is not requested or if a request for hearing is denied, the banking commissioner will consider the notice in the manner set forth in and solely on the basis of the written record established pursuant to subsection (e) of this section.

(3) If a hearing is granted, the administrative law judge shall enter appropriate order(s) and conduct the hearing within 30 days after the date the hearing was granted, or as soon thereafter as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and the Administrative Procedure Act (Texas Government Code, Chapter 2001). Issues will be limited to those on which testimony is absolutely necessary, and the administrative law judge may require testimony to be submitted in written form and prefiled. No evidence will be received on matters that are not in dispute. No issues or evidence will be considered that are not relevant to the standards set forth in subsection (e) of this section or that are not supported by the notice, response, or reply. A proposal for decision, exceptions and replies to such proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title.

(h) Closing an additional office.

(1) Subject to paragraph (2) of this subsection, at least 30 days prior to the date a trust company proposes to close an additional office, the trust company shall file written notice with the banking commissioner disclosing:

(A) the name and home office location of the trust company seeking to close the additional office location;

(B) the street address of the additional office location to be closed;

(C) the effective date of the proposed closing;

(D) evidence of distribution of written notice of closing to all customers and account holders at least 45 days prior to the proposed closing date;

(E) the place and street address of location where records from the closed office will be transferred;

(F) a copy of the resolution adopted by the trust company's board of directors authorizing the proposed closing of the additional location; and

(G) such other information as the banking commissioner may require.

(2) If the trust company must comply with notice requirements of federal banking law applicable to closing a branch office, in lieu of compliance with paragraph (1) of this subsection, the trust company may provide the banking commissioner with a copy of the closing notice filed with the appropriate federal banking regulator simultaneously with its filing.

(3) Once the additional office has been closed, the trust company may not reopen the additional office except upon notice or application for a new additional office in compliance with this section.

History

• Source Note: The provisions of this §21.42 adopted to be effective July 2, 1998, 23 TexReg 6715; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.43 Representative Trust Offices of Federally Chartered or Federally Insured Out-of-State Banks

(a) A bank authorized by its charter to conduct a trust business that maintains its principal office or a branch in this state in accordance with governing law may freely establish one or more representative trust offices in this state to the extent authorized by its primary regulator and governing law, except that a foreign bank must comply with Finance Code, §204.106 in lieu of this section.

(b) An out-of-state bank authorized by its charter to conduct a trust business that has not established or acquired a branch in this state may establish a representative trust office in this state:

(1) if not chartered by a federal banking regulatory agency and not insured by the Federal Deposit Insurance Corporation, only after complying with §21.44 of this title (relating to Representative Trust Offices of Out-of-State Trust Companies and Uninsured State Banks); or

(2) if chartered by a federal banking regulatory agency or insured by the Federal Deposit Insurance Corporation, after filing a written notice with the banking commissioner disclosing:

(A) the name of the institution and the address of its principal office;

(B) the physical address and the proposed opening date of the proposed office;

(C) a description of proposed activities at the office consistent with the limitations of Finance Code, §187.201;

(D) copies of any regulatory notices, filings, or publications required by the trust institution's home state regulator and/or its primary federal regulator regarding the establishment of the office; and

(E) a copy of the institution's registration filed with the secretary of state pursuant to Finance Code, §201.102.

(c) An out-of-state bank that has established and is maintaining a representative trust office in this state pursuant to subsection (b) of this section may establish additional representative trust offices in this state without providing notice to the banking commissioner.

History

• Source Note: The provisions of this §21.43 adopted to be effective May 5, 2016, 41 TexReg 3101; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.44 Representative Trust Offices of Out-of-State Trust Companies and Uninsured State Banks

(a) Required notice. An out-of-state trust company or a state-chartered bank, the deposits of which are not insured by the Federal Deposit Insurance Corporation, may establish an initial representative trust office in this state after registration with the banking commissioner in accordance and in compliance with Finance Code §187.202 and this section, provided that the relevant home state regulator is a current party to regulatory information sharing and cooperation agreements with the banking commissioner that satisfy the requirements of Finance Code §181.303 and §187.301. At least 30 days before the proposed opening date of the proposed office, the institution must submit a written notice to the banking commissioner containing:

(1) the name of the institution and the address of its principal office;

(2) the physical address and the proposed opening date of the proposed office;

(3) a description of the proposed activities at the office consistent with the limitations of Finance Code §187.201;

(4) a copy of the institution's chartering document and evidence that the institution is active and in good standing;

(5) a copy of the resolution adopted by the board of the institution authorizing establishment of the proposed office;

(6) a copy of the institution's registration filed with the secretary of state pursuant to Finance Code §201.102;

(7) copies of any home state regulatory notices or filings required in connection with establishing the proposed office in this state;

(8) contact information for the institution's home state regulator;

(9) current financial statements evidencing tangible equity capital, defined as the total of owner's equity, surplus, and undivided profits reduced by the total of intangible assets, in an amount that equals or exceeds the minimum amount of restricted capital required for a state trust company pursuant to Finance Code §182.008; and

(10) the executed agreement required by subsection (b) of this section.

(b) Required agreement. The institution must submit its enforceable written agreement in the form provided by the banking commissioner, duly executed by an authorized officer of the institution, in which the institution agrees to:

(1) maintain tangible equity capital in an amount that equals or exceeds the minimum amount of restricted capital required for a state trust company pursuant to Finance Code §182.008, at all times during the period an office of the institution is maintained in this state;

(2) cooperate with and participate in examination at least once every 12 months at the discretion of the banking commissioner, and to pay the costs of each such examination as provided by §17.22 of this title (relating to Examination and Investigation Fees); and

(3) provide prompt written notice to the banking commissioner:

(A) pursuant to Finance Code §187.306, at least 30 days before the effective date of the event, or, in the case of an emergency transaction, a shorter period before the effective date consistent with applicable state or federal law, of:

(i) a merger or other transaction that would cause a change of control with respect to the institution and require an application to be filed with the home state regulator;

(ii) a transfer of all or substantially all of the trust accounts or trust assets of the institution to another person; or

(iii) the relocation, closing, or other disposition of an office of the institution in this state.

(B) not later than 30 days after the institution receives notice of the imposition of or a proposed enforcement action or condition by the institution's home state regulator.

(c) When the office may open. The institution may commence business at the representative trust office on the 31st day after the date the banking commissioner receives the notice unless the banking commissioner specifies an earlier or later date.

(1) The 30-day period of review may be extended by the banking commissioner on a determination that the written notice raises issues that require additional information or additional time for analysis. If the period of review is extended, the institution may establish the representative trust office only on prior written approval by the banking commissioner.

(2) The banking commissioner may deny approval of the representative trust office if the banking commissioner finds that the institution lacks sufficient financial resources to undertake the proposed expansion without adversely affecting its safety or soundness or that the proposed office would be contrary to the public interests.

(d) Additional offices. An out-of-state trust company or uninsured state-chartered bank that has established and is maintaining a representative trust office in this state pursuant to this section may establish additional representative trust offices in this state without providing notice to the banking commissioner.

History

• Source Note: The provisions of this §21.44 adopted to be effective May 5, 2016, 41 TexReg 3101.

Subchapter E CHANGE OF CONTROL

7 Tex. Admin. Code § 21.51 Application for Acquisition or Change of Control of Trust Company

(a) General. Without the prior written consent of the banking commissioner, or as otherwise provided by this section, a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a trust company or a corporation or other entity owning voting securities of a trust company if, after the acquisition, the person or entity would control the trust company. Except as otherwise provided in this section, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

(b) Form of application. The applicant shall submit a fully completed, verified application on a form prepared and prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent expressly waived in writing by the banking commissioner, disclose the following information:

(1) the identity, biographical data, business background, and experience relating to trust industry matters, and a current statement of financial condition, a statement of changes in net worth and a statement of cash flows of each person by whom, or on whose behalf, the acquisition is to be made and by each person acting in concert with others seeking to acquire voting securities subject to Finance Code, §183.001, and to this section. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(2) a completed authorization to release employment, financial, credit, fingerprint information, and criminal history records to the department;

(3) a completed confirmation inquiry form;

(4) the identity of each entity other than a natural person seeking to acquire control or working in concert with others to acquire control of a trust company and a copy of the entity's most recent audited financial statement. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(5) a description of all material, pending or adjudicated legal or administrative proceedings in which each acquiring person or entity is or was a party. A material legal proceeding includes a proceeding in which the person or entity has been charged with, cited for, or convicted under a state or federal law relating to trust or other financial institutions, securities or financial instrument reporting, or a felony or crime that directly relates to the duties and responsibilities involved in the operation of a trust company or financial institution under the laws of a state, the United States, or another country. A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or may result in a judgment, against the acquiring person or entity and such loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material. A material administrative proceeding includes a proceeding in which the person or entity is or has been subject to a cease and desist, removal, enforcement, or other order, including an order of supervision or conservatorship issued by a state, federal, or foreign regulatory agency;

(6) the terms and conditions of the proposed acquisition or change of control and the manner in which the acquisition or change of control is to be made;

(7) the identity, source, and amount of the funds or other consideration used or to be used in making the acquisition or change of control;

(8) if a portion of the funds or other consideration to be used in making the acquisition has been borrowed or is to be borrowed or otherwise obtained for the purpose of making the acquisition, a complete description of the transaction, the names of the parties to the transaction, and a summary of all arrangements, agreements, or understandings with such parties including terms of repayment;

(9) the applicant's current or proposed business or strategic plan including amendments to a current plan;

(10) plans or proposals to liquidate the trust company, to sell its assets or merge it with another trust company or other entity, or to make other major changes in its business, corporate structure, or management;

(11) plans or proposals to change officers and directors of the trust company and the related trust or financial institution management experience of proposed or current officers and directors;

(12) the terms and conditions of an offer, invitation, agreement, or arrangement under which a voting security will be acquired and any contract affecting such security or its financing after it is acquired;

(13) pro forma financial statements with projections indicating whether the acquired or controlled trust company will be adequately capitalized for a period of not less than two years from the date of acquisition; and

(14) such other information that the banking commissioner requires to be included in the particular application as considered necessary to an informed decision to approve or reject the proposed acquisition. The applicant bears the burden to supply all material information necessary to enable the banking commissioner to make a fully informed decision regarding the application.

(c) Public notice. Not earlier than the 14th day before or later than the 14th day after the date of initial submission of an application filed pursuant to §21.4 of this title (relating to Required Information and Abandoned Filings), the applicant shall publish notice as required by Finance Code, §183.002(d), and §21.5 of this title (relating to Public Notice) in the county where the trust company's home office is located. One publication under this subsection is adequate unless the banking commissioner expressly requires additional notice.

(d) Confidentiality. Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or an officer or employee of the department, subject only to such disclosure as may be permitted by Finance Code, §183.002(c), or by §3.111 of this title (relating to Confidential Information).

(e) Grandfather clause. A principal shareholder or participant that is considered to control a trust company, under Finance Code, §183.001(b), is exempt from filing an application under this section until the principal shareholder acquires one or more additional shares or participation shares of the trust company.

(f) Capital requirements. A person or entity seeking to acquire control of a trust company subject to this section must bring the trust company into compliance with the minimum capital requirements of Finance Code, §182.008, or such amount as required by the banking commissioner at the time the transaction is consummated.

(g) Exemptions. In addition to the acquisitions specifically exempted pursuant to Finance Code, §183.001(d), the following types of involuntary acquisitions of control do not require prior written approval of the banking commissioner:

(1) the inadvertent acquisition of control of a trust company by a shareholder as a result of a stock redemption or repurchase by the issuer if the potential controlling shareholder or participant of a trust company did not vote or have any direct or indirect input into the issuer's decision to repurchase or redeem the voting securities;

(2) the acquisition and control by a qualified employee stock ownership plan (ESOP) of less than 25% of voting securities of a trust company unless an officer, director, or principal shareholder or participant directly or indirectly controls the voting securities held by the ESOP, in which event an application for acquisition of control must be filed by the officer, director or principal shareholder or participant, if as a result that person would control over 25% of the voting securities;

(3) the acquisition of control of a trust company as a result of a shareholder receiving proportionate voting securities in a trust company arising from the liquidation of a holding company;

(4) the acquisition of additional shares of voting securities of a trust company by virtue of a pro-rata stock dividend or stock split not resulting in increased ownership percentage;

(5) the acquisition of control of a trust company as a result of a gift made in good faith, provided:

(A) the donee is related to the donor within the second degree of consanguinity or affinity;

(B) neither the donor nor donee is under an enforcement order; and

(C) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section;

(6) the acquisition of control of a trust company as a result of the transfer of voting securities by gift to a limited partnership or other estate planning vehicle, if determined by the banking commissioner to have an equivalent effect, if:

(A) the limited partnership owns no other voting securities other than the securities transferred;

(B) the donor is the sole general partner of the limited partnership who retains sole voting authority over the voting securities;

(C) neither the donor nor donee is under an enforcement order; and

(D) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section; and

(7) the acquisition of control of a trust company by another entity if:

(A) the transaction is subject to an application to be reviewed by a federal or state regulatory authority that will be the primary regulator of the trust company after the transaction is consummated; and

(B) that regulatory authority has entered into an information sharing agreement with the banking commissioner.

(h) Notices in lieu of filing. In the event that an application is not required because of exemption under Finance Code, §183.001(d), or subsection (g) of this section, but an application is required to be filed with a federal regulatory authority or a regulatory authority of another state, a copy of the application as filed with another agency must be filed with the banking commissioner within seven days of the date of such other filing or filings. A notice in lieu of filing is also required of a person claiming an exemption under Finance Code, §183.001(d), or paragraph (5) or (6) of subsection (g) of this section. This notice must be filed before the securities acquired are voted and must be accompanied by a completed authorization pursuant to subsection (b)(2) of this section. No filing fees are required for notices filed under this section; however, should the banking commissioner determine that an application is required, the appropriate filing fee pursuant to §21.2 of this title is required.

(i) Approval. Automatic approval; conditional approval. If an application filed under this section is not approved by the banking commissioner or is not set for hearing on or before the 60th day after notice is published pursuant to subsection (c) of this section, the transaction may be consummated. The banking commissioner may, before the expiration of the initial 60-day period, give the applicant written notice that the application has been approved, in which case the transaction may be immediately consummated on receipt of the notice. The banking commissioner may also, before the expiration of the initial 60-day period, give an applicant written notice that the application has been approved subject to certain conditions. The applicant shall enter into a written agreement with the banking commissioner concerning the conditions on or before the 30th day after the date of notification of conditional approval. An agreement entered into by the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant and the trust company and is considered for all purposes an agreement under the provisions of Finance Code, §185.002(a). In the event that an applicant who has received conditional approval does not enter into an agreement with the banking commissioner as required by this subsection, the banking commissioner shall set the matter for hearing.

(j) Consummation of an acquisition or change of control transaction. The acquisition or change of control of the voting securities must be consummated as proposed in the application, in the agreement concerning conditional approval as provided in subsection (i) of this section, or as provided in a final order pursuant to subsection (m) of this section. A transaction approved or conditionally approved under this section must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner reserves the right to alter, suspend or withdraw approval should an interim development warrant such action.

(k) Notification by banking commissioner. A notification by the banking commissioner under this section may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, addressed to the address furnished in the application.

(l) Abandoned filing. The banking commissioner may determine an application to be abandoned pursuant to §21.4 of this title.

(m) Hearing on application. The banking commissioner shall set an application for hearing on or before the 60th day after notice is published as required by Finance Code, §183.003, and subsection (i) of this section. The notice of hearing must comply with Government Code, §2001.051, and shall state that the purpose of the hearing is to give the applicant an opportunity to show all required qualifications for the banking commissioner's approval of the acquisition or change of control application have been met. The applicant has the burden of showing all such required qualifications by a preponderance of evidence. After the hearing, the banking commissioner shall grant or deny the application based solely upon the evidence presented at the hearing. An applicant may not appeal denial of an application or conditional approval of an application until a final order is issued. If after a hearing has been held, the banking commissioner has entered an order denying the application, and the order has become final, the applicant may appeal the final order as provided by Finance Code, §183.004, and Government Code, Chapter 2001.

History

• Source Note: The provisions of this §21.51 adopted to be effective September 3, 1998, 23 TexReg 8832; amended to be effective September 5, 2002, 27 TexReg 8203.

Subchapter F APPLICATION FOR MERGER, CONVERSION, OR SALE OF ASSETS

7 Tex. Admin. Code § 21.61 Definitions

(a) Words and terms used in this subchapter that are defined in the Trust Company Act or in §21.1 of this title (relating to Definitions), have the same meanings as defined therein.

(b) The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates the contrary.

(1) Annual report--Formal financial statements and accompanying narrative of management issued yearly for the benefit of shareholders and other interested parties.

(2) Chartering agency--A government authority that has chartering jurisdiction over an entity involved in a transaction under this subchapter.

(3) Corporation or domestic corporation--A corporation for profit subject to the provisions of the Texas Business Organizations Code, except a foreign corporation.

(4) Current financial statements--Audited financial statements dated as of a date not more than 180 days prior to the date of submission of an application, or unaudited financial statements dated as of a date not more than 90 days prior to the date of submission of an application.

(5) Fiduciary institution--A bank, savings association, savings bank, credit union, or other financial institution with the power to act as a fiduciary under applicable law.

(6) Low-quality asset--An asset as defined in 12 United States Code, §371c(b)(10), currently an asset that falls in any one or more of the following categories:

(A) an asset classified as "substandard," "doubtful," or "loss," or treated as "other loans especially mentioned" in the most recent report of examination or inspection of an affiliate prepared by either a federal or state supervisory agency;

(B) an asset in a nonaccrual status;

(C) an asset on which principal or interest payments are more than 30 days past due; or

(D) an asset whose terms has been renegotiated or compromised due to the deteriorating financial condition of the obligor.

(7) Material administrative proceeding--A past or pending proceeding by a state, federal, or foreign regulatory agency against the applicant or other person involved in a transaction under this subchapter that resulted in or could result in the issuance of a cease and desist, removal, enforcement action, determination letter or other order, including an order of supervision or conservatorship; excluding, however, a past proceeding that resulted in an order, other than a removal order, that has been satisfied or otherwise terminated more than five years prior to the date the application or notice requesting such information is submitted.

(8) Material legal proceeding--

(A) a past or pending criminal proceeding against the applicant or other person involved in a transaction under this subchapter that resulted or may result in conviction of the applicant or other person of a crime under a state or federal law or the law of a foreign country relating to fiduciaries, banks or other financial institutions, securities, financial instrument reporting, or another crime involving moral turpitude; or

(B) a past or pending proceeding that has or may result in a judgment against the applicant or other person or entity involved in a transaction under this subchapter and the loss contingency must be disclosed in the financial statements of the entity under generally accepted accounting principles, or is otherwise material.

(9) Merger--A transaction that is:

(A) the division of a trust company into two or more new trust companies, fiduciary institutions, or other entities, or into a surviving trust company and one or more new trust companies, fiduciary institutions, or other entities; or

(B) the combination of one or more trust companies with one or more fiduciary institutions or other entities, resulting in:

(i) one or more surviving trust companies, fiduciary institutions, or other entities;

(ii) the creation of one or more new trust companies, fiduciary institutions, or other entities; or

(iii) one or more surviving trust companies, fiduciary institutions, or other entities and the creation of one or more new trust companies, fiduciary institutions, or other entities.

(10) Other entity--An entity, whether or not organized for profit, including a corporation, limited or general partnership, joint venture, joint stock company, cooperative, association, or another legal entity organized pursuant to the laws of this state or another state or country to the extent such laws or the constituent documents of that entity, consistent with such laws, permit that entity to enter into a merger or share exchange subject to this subchapter.

(11) Principal executive officer--An officer primarily responsible for the execution of board policies and operation of a trust company or other entity.

(12) Purchase of assets--The purchase other than in the ordinary course of business of all, substantially all, or a part of the assets of a trust company, fiduciary institution, or other entity, including but not limited to fiduciary rights pertaining to client accounts.

(13) Regulatory restriction--A memorandum of understanding, determination letter, notice of determination, order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency, or another limitation imposed on a fiduciary institution or other entity by a state or federal banking regulatory agency that restricts its ability to act without authorization from the regulatory agency imposing the condition.

(14) Resulting trust company--A trust company that is a surviving or newly created entity in a merger.

(15) Sale of assets--The sale, lease, exchange, or other disposition of substantially all of the assets of a trust company, including but not limited to fiduciary rights pertaining to client accounts, other than in the ordinary course of business.

(16) Share exchange--A transaction by which one or more trust companies, fiduciary institutions, or other entities acquire all of the outstanding shares of one or more classes or series of one or more trust companies under the authority of Finance Code, §182.301, and the Texas Business Organizations Code.

(17) Trust company--A state trust company as defined by Finance Code, §181.002(a).

(18) Verified--Documents submitted by the applicant that have been attested to as true and correct, but not necessarily notarized.

History

• Source Note: The provisions of this §21.61 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective November 7, 2013, 38 TexReg 7690; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.62 General

Without the prior written consent of the banking commissioner, a trust company may not consummate a merger, conversion, sale of assets, purchase of assets, or share exchange. Except as otherwise provided by Finance Code, Chapter 182, Subchapters D-F, or this subchapter, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

History

• Source Note: The provisions of this §21.62 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.63 Expedited Filings

(a) An eligible trust company as defined in §21.1(4) of this title (relating to Definitions) may file an expedited filing in lieu of an application required under §21.64 of this title (relating to Application for Merger or Share Exchange) and simultaneously tender the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees).

(b) An expedited filing consists of a letter application including, except to the extent waived by the banking commissioner, the following items:

(1) a summary of the transaction;

(2) a current pro forma balance sheet and income statement for all parties to the transaction, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application, demonstrating that each resulting trust company meets the statutory capital requirement or capital requirement imposed by order or condition of the banking commissioner. The pro forma must include a statement of fiduciary assets as well as corporate assets;

(3) an executed opinion of counsel conforming to the requirements of §21.64(b)(12) of this title;

(4) copies of all other required regulatory notices or filings submitted to other state or federal regulatory agencies concerning the transaction; and

(5) a copy of the public notice published in conformity with §21.64(d) of this title.

(c) The banking commissioner shall notify the applicant on or before a date that is 15 days after receipt of the application if expedited filing treatment is not available under this section for any reason. Such notification must be in writing and must indicate the reason expedited treatment is not available. Notification is effective when mailed by the banking commissioner and is not subject to appeal.

(d) The banking commissioner may deny expedited filing treatment to an eligible trust company if, in the exercise of discretion, the banking commissioner finds that the application involves one or more of the following:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction contemplates a resulting entity that is not an authorized fiduciary institution;

(4) the proposed transaction involves a fiduciary institution or other entity that is not domiciled in Texas;

(5) the proposed transaction would cause the corporate or fiduciary assets of a resulting trust company to increase by more than 100%;

(6) the proposed transaction involves a trust company that has experienced, since the last commercial examination by a state or federal regulatory agency, corporate or fiduciary asset growth, through acquisition or otherwise, greater than 100%; or

(7) a resulting fiduciary institution that is not "well capitalized" as defined in 12 Code of Federal Regulations, §325.103, or that will not meet capital requirements imposed by its principal regulator.

(e) The banking commissioner shall approve or deny an expedited filing on or before a date that is 30 days after the date the expedited filing is accepted for filing pursuant to §21.4 of this title (relating to Required Information and Abandoned Filings). The banking commissioner may, in the exercise of discretion, before the expiration of the period for decision, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application, and the decision will thereafter be made in accordance with §21.72 of this title (relating to Approval; Conditional Approval; Denial of Application; Hearings).

(f) The applicant bears the burden to supply all material information necessary to enable the banking commissioner to make a fully informed decision regarding the expedited filing.

History

• Source Note: The provisions of this §21.63 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective July 10, 2008, 33 TexReg 5277.

7 Tex. Admin. Code § 21.64 Application for Merger or Share Exchange

(a) Scope. This section governs an application for merger or share exchange pursuant to Finance Code, §§182.301 et seq. This section does not apply to a merger that results in a trust company becoming another fiduciary institution under another regulatory system pursuant to Finance Code, §182.501, or other applicable law, and such transactions are governed by §21.67 of this title (relating to Notice of Merger, Reorganization, or Conversion of a Trust Company Into Another Fiduciary Institution).

(b) Form of application. The applicant shall submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include the following information:

(1) a summary of the proposed transaction;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the merger or share exchange;

(3) certificate and plan of merger or share exchange in accordance with the Texas Business Organizations Code, which must include the following:

(A) a current draft of the certificate of merger or share exchange, and such number of additional copies equal to the number of surviving, new, or acquired entities, executed and acknowledged by an authorized officer for each party to the merger or share exchange;

(B) the plan of merger or share exchange;

(C) the certificate or restated certificate of formation of each resulting trust company;

(D) the certificate or restated certificate of formation, or other constitutive documents, of each newly created or surviving entity other than a resulting trust company; and

(E) if a party to a merger is an entity required to file documents with the Texas secretary of state before the transaction can be legally consummated, a provision in the certificate of merger conditioning the merger upon the approval of the banking commissioner, containing wording substantially as follows, as applicable: This merger shall become effective upon the final approval and filing of the certificate of merger by the Secretary of State of Texas and with the Banking Commissioner of Texas which shall be on or before _________ (date), which is the 90th day after the date of filing of such certificate of merger with the Secretary of State;

(4) for each party to the merger or share exchange, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings (or their equivalent) at which action was taken regarding approval of the merger or share exchange, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger or share exchange, or an explanation of the basis for concluding such action was not required;

(5) for each resulting trust company, an assessment of its future prospects, proposed officers and directors, and proposed offices and other locations;

(6) an assessment of the current regulatory and financial condition of each party to the transaction;

(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(8) a copy of the latest annual report for each fiduciary institution and holding company involved in the proposed transaction;

(9) a copy of that portion of the most recent watch list for each fiduciary institution involved in the proposed transaction that identifies low-quality assets;

(10) a description of the due diligence review conducted by or for each trust company that is a party to the transaction and a summary of findings;

(11) a description of all material legal or administrative proceedings involving any party to the merger or share exchange;

(12) an opinion of legal counsel that conforms with §21.68 of this title (relating to Opinion of Legal Counsel), concluding the following:

(A) each resulting trust company will be solvent and will have adequate capitalization for its business and location;

(B) the merger or share exchange has been duly authorized by the board and shareholders or participants of each participating trust company, fiduciary institution, or other entity, including trust companies in accordance with applicable law;

(C) the merger or share exchange will not cause or result in a material violation of the laws of this state relative to the organization and operation of trust companies;

(D) all liabilities of each trust company that is a party to the merger or share exchange will be discharged or otherwise assumed or retained by a trust company or other fiduciary;

(E) each surviving, new, or acquiring entity that is not authorized to engage in the trust business will not engage in the trust business and has in all respects complied with the laws of this state;

(F) all conditions with respect to the merger or share exchange that have been imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no such conditions have been imposed;

(13) a copy of each filing or application regarding the proposed merger or share exchange that is required to be made with another state or federal regulatory agency, complete with all related attachments, exhibits, and correspondence;

(14) a current pro forma balance sheet and income statement for each party to the transaction, with adjustments, reflecting the proposed merger or share exchange as of the most recent quarter ended immediately prior to the filing of the application. The pro forma must include a statement of fiduciary assets as well as corporate assets;

(15) for each resulting trust company, a copy of the strategic plan that complies with the banking commissioner's Memorandum 1009, including projections of the balance sheet and income statement of each resulting trust company as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (14) of this subsection;

(16) an explanation of compliance with or nonapplicability of provisions of governing law relating to rights of dissenting shareholders or participants to the merger or share exchange;

(17) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders or participants of a party concerning the merger or share exchange;

(18) an explanation of the manner and basis of converting or exchanging any of the shares or other evidences of ownership of an entity that is a party to the merger or share exchange into shares, obligations, evidences of ownership, rights to purchase securities, or other securities of one or more of the surviving, acquiring, or new entities, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities, or other securities of another person or entity, or into a combination of the foregoing;

(19) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or if applicable, a copy of the analysis of competitive effects of the proposed transaction addressed in a companion federal regulatory agency application; and

(20) such other information that the banking commissioner, in the exercise of discretion, requires to be included in the particular application as considered necessary to an informed decision to approve or deny the proposed merger or share exchange.

(c) Applicant's duty to disclose. The applicant bears the burden to supply all material information necessary to enable the banking commissioner to make a fully informed decision regarding the application.

(d) Public notice. Not earlier than the 14th day before or later than the 14th day after the date of the initial submission of the application, the applicant shall publish notice in accordance with the requirements of §21.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant, the target entity, and the resulting trust company are located.

(e) Approval by the banking commissioner and filings with a chartering agency.

(1) The banking commissioner shall approve a merger or share exchange only if the application indicates substantial compliance with all conditions of Finance Code, §182.302(c).

(2) If any party is required to file with its chartering agency after acceptance for filing pursuant to §21.4(b) of this title (relating to Required Information and Abandoned Filings), an applicant for merger or share exchange shall file the original certificate of merger or share exchange as certified by the chartering agency with the banking commissioner.

(3) After approval of an application under this section by the banking commissioner, the certificate of merger or share exchange previously filed with the chartering agency, if applicable, will be accepted and a certificate of merger or share exchange will be issued by the banking commissioner who shall perform the duties required by Finance Code, §182.303(a). With respect to a transaction that requires filing with the Texas secretary of state, if the banking commissioner does not approve the certificate of merger or share exchange on or before the 90th day after the filing of the certificate of merger with the Texas secretary of state, the applicant must refile the certificate of merger or share exchange with both the Texas secretary of state and with the banking commissioner.

(4) After issuance of the certificate of merger or share exchange by the banking commissioner, the applicant shall file a statement with the chartering authority, if applicable, certifying that any future event upon which the effectiveness of the merger or share exchange was conditioned, has been satisfied and the date upon which the condition was satisfied.

(5) The date of issuance of the certificate of merger or share exchange by the banking commissioner constitutes the date of approval pursuant to Finance Code, §182.303(b), unless the merger or exchange agreement provides for a later effective date which has been approved by the banking commissioner.

History

• Source Note: The provisions of this §21.64 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective November 7, 2013, 38 TexReg 7690.

7 Tex. Admin. Code § 21.67 Notice of Merger, Reorganization, or Conversion of a Trust Company Into Another Fiduciary Institution

(a) Scope. This section governs notice of the merger, reorganization, or conversion of a trust company into another form of fiduciary institution in a manner that results in extinguishment of the trust company charter, pursuant to Finance Code, §182.501, or other applicable law.

(b) Form of notice. A trust company does not cease to be subject to the jurisdiction of the banking commissioner until the banking commissioner is given written notice of intent to merge, reorganize, or convert into another form of fiduciary institution before the 31st day preceding the date of the proposed transaction and the merger, reorganization, or conversion has otherwise become effective. The notice must, except to the extent waived by the banking commissioner, include the following information:

(1) a summary of the proposed transaction;

(2) a copy of all agreements or other documentation related to the proposed transaction executed by an authorized representative of the applicant and other parties, if any;

(3) a copy of each filing regarding the proposed transaction that is required to be filed with other state or federal regulatory agencies, complete with all related attachments, exhibits, and correspondence;

(4) a certified copy of the relevant portions of the minutes of board meetings and shareholder or participant meetings (or their equivalent) at which action was taken regarding approval of the transaction, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger, reorganization, or conversion;

(5) Opinion of legal counsel. An opinion of legal counsel that conforms with the requirements of §21.68 of this title (relating to Opinion of Legal Counsel), concluding the following:

(A) the merger, reorganization, or conversion of the trust company has been duly authorized by its board and shareholders or participants in accordance with the Texas Business Corporation Act;

(B) all liabilities of the trust company will be discharged or otherwise retained by the successor fiduciary institution; and

(C) all conditions with respect to the merger, reorganization, or conversion imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no such conditions have been imposed;

(6) a publisher's certificate showing publication of notice as required by subsection (c) of this section; and

(7) an explanation of compliance with the provisions of the Texas Business Corporation Act relating to rights of dissenting shareholders or participants.

(c) Notices, publication, and certificate of authority.

(1) The applicant shall submit a copy of the published notice of the proposed transaction required by the successor regulatory authority or shall publish notice as required by §21.5 of this title (relating to Public Notice). Submission of such notice, with the publisher's certificate required by subsection (b)(6) of this section, is considered notice of the transaction in accordance with Finance Code, §182.501(c)(2). The banking commissioner may require, upon written notice to the applicant, such other publication requirements at such times and places and in such manner as considered appropriate.

(2) Within 14 days after receipt of the certificate of authority to do business, or such other document issued by the successor regulatory authority that authorizes the consummation of the merger, reorganization, or conversion, the successor fiduciary institution shall provide written notice to the banking commissioner of the effective date and a copy of the certificate of authority or other document.

(d) Filing fees. A filing fee is not required in connection with notice under this section.

History

• Source Note: The provisions of this §21.67 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.68 Opinion of Legal Counsel

(a) An opinion of legal counsel required by this subchapter must be addressed to the banking commissioner and state the opinions expressed, the specific documents reviewed and the matters considered of both law and fact, as legal counsel has considered necessary or appropriate in the exercise of professional judgment for the opinions expressed, and the assumptions, qualifications, limitations, and exceptions made or taken with respect to the opinions expressed. A draft opinion may be submitted with an application under this chapter provided a final, signed opinion is delivered to the banking commissioner prior to final action on the application. Any variation in the final opinion from the draft version must be specifically called to the attention of the banking commissioner.

(b) An opinion letter required under this subchapter will be governed by and interpreted in accordance with the Third Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law (American Bar Association, 1991), available in pamphlet form as reprinted from the November 1991 issue of The Business Lawyer (Volume 47, Number 1, Page 167), (the Accord), or a successor document officially promulgated by an appropriate authority.

(c) Unless specifically noted in the opinion, the banking commissioner will assume that the opinions expressed are based upon and subject to the assumptions, qualifications, limitations and exceptions set forth in the Accord, provided the Accord is incorporated by reference. In addition, whether or not stated in the Accord, if specifically noted in the opinion, counsel:

(1) need not express an opinion as to the laws of the United States or a foreign jurisdiction unless such an opinion is specifically requested by the banking commissioner;

(2) may assume that the parties to the transaction have engaged only in activities provided in their respective constitutive documents, and that all surviving parties to the transaction will engage only in activities provided in their respective constitutive documents;

(3) may assume that the transaction will be consummated in accordance with its terms as disclosed in the application; and

(4) may qualify the opinions given as opinions solely for the benefit of the banking commissioner that may not be quoted in whole or in part or otherwise referred to in another document or report, and that may not be furnished to a person or entity other than the banking commissioner and the department without the written consent of counsel, except as may be permitted or required by law, including Finance Code, §§181.301 et seq, and Government Code, Chapter 552.

(d) Legal counsel shall specifically notify the banking commissioner of any substantive deviation from the assumptions, qualifications, limitations and exceptions allowed in this section and the Accord, and any substantive deviation from the opinion requirements of the section of this subchapter that governs a particular application. Deviations may result in a processing delay of the application to the extent additional analysis is required to understand the purpose of the deviation. A substantive deviation from the requirements of this subchapter applicable to legal opinions that is not brought to the attention of the banking commissioner will be considered a material misrepresentation in the application.

(e) Legal counsel rendering an opinion under this subchapter shall be an attorney in good standing admitted to practice before the highest court of a state, territory or district of the United States. However, legal counsel shall be well versed and professionally competent in applicable Texas law, or should seek the advice and opinion of an attorney in good standing admitted to practice before the highest courts in this state if legal counsel may not properly and ethically render opinions regarding applicable Texas law. An opinion of local legal counsel must be disclosed if relied on by legal counsel.

(f) Legal counsel rendering an opinion under this subchapter shall be independent of the applicant, the notice provider, or another person or entity required to submit an opinion of counsel pursuant to this section. Legal counsel is considered independent if able to exercise independent professional judgment and render candid advice, whether in private practice or employed by an applicant.

History

• Source Note: The provisions of this §21.68 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.69 Rights of Dissenting Shareholders

The rights of dissenting shareholders or participants to a transaction under this subchapter may be governed by the Texas Business Organizations Code or other applicable law relating to the rights of dissenters, and applicants shall provide evidence of compliance with or inapplicability of such provisions of law.

History

• Source Note: The provisions of this §21.69 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective November 7, 2013, 38 TexReg 7690.

7 Tex. Admin. Code § 21.70 Investigation of Application

(a) Authority. An application under this subchapter is subject to such investigation as considered necessary, in the banking commissioner's sole discretion, in order to make an informed decision regarding an application.

(b) Costs and fees. An applicant under this subchapter shall pay reasonable costs incurred in the investigation including the cost of a required examination, as provided by §21.2 of this title (relating to Filing and Investigation Fees).

(c) Examinations. The banking commissioner may consider the following factors in determining whether to require an examination of one or more of the entities to the transaction:

(1) a question exists regarding the solvency or potential solvency of the applicant or one or more of the fiduciary institutions or other entities involved in the proposed transaction;

(2) a trust company or other fiduciary institution involved in the transaction has not been examined by a state, federal, or foreign regulatory agency within the 18-month period immediately preceding the date of submission of the application;

(3) a trust company or other fiduciary institution involved in the proposed transaction has numerous substantive violations cited in its last examination report, or has a less than satisfactory corporate or trust regulatory rating;

(4) a question exists regarding the experience, ability, standing, trustworthiness, or integrity of the existing or proposed officers, directors, managers or managing participants of a party involved in the proposed transaction;

(5) a question exists whether a resulting trust company will operate in compliance with the law;

(6) a question exists whether a resulting trust company will be free from improper or unlawful influence or interference from its principal shareholders with respect to operation in compliance with the law;

(7) a question exists whether a resulting trust company will have adequate capitalization;

(8) one or more of the parties to the transaction are under a regulatory restriction; or

(9) such other factors as determined in the sole discretion of the banking commissioner.

History

• Source Note: The provisions of this §21.70 adopted to be effective December 31, 1998, 23 TexReg 13033.

7 Tex. Admin. Code § 21.72 Approval; Conditional Approval; Denial of Application; Hearings

(a) Approval, conditional approval, or denial. Except as otherwise provided by §21.63 of this title (relating to Expedited Filings), the banking commissioner shall approve or deny an application filed under this subchapter on or before a date that is 60 days after the date the application is accepted for filing pursuant to §21.4 of this title (relating to Required Information and Abandoned Filings).

(b) Pre-decision hearing. The banking commissioner may, in the exercise of discretion, before the expiration of the initial period for decision provided by subsection (a) of this section, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application. Such notice by the banking commissioner suspends the specified period for approval or denial of an application, and the banking commissioner shall approve or deny the application on or before a date that is 30 days after the date the final proposal for decision resulting from the hearing is provided to the banking commissioner and the applicant.

(c) Acceptance of conditional approval. The banking commissioner may give the applicant written notice that the application has been approved subject to certain conditions. The applicant shall provide the banking commissioner with written confirmation of acceptance of the conditions on or before a date that is 10 days after the date of notification to the applicant of the conditional approval. An agreement between the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant. In the event an applicant who has received conditional approval does not provide the banking commissioner with written confirmation as required by this subsection, consummation of the transaction constitutes confirmation of acceptance of the conditions imposed by the banking commissioner and is considered for all purposes an agreement enforceable against the applicant.

(d) Requests for hearing. An applicant may request a hearing on or before a date that is 30 days after the effective date of notice of denial or conditional approval of an application under this subchapter by the banking commissioner. The request for hearing must be in writing and state with specificity the reasons the applicant alleges that the decision of the banking commissioner is in error. The applicant has the burden of proof for each issue specified in the request for hearing. The request for hearing and the banking commissioner's decision to deny or condition the application will be made a part of the record.

(e) Hearings on denial of applications. Requests for hearing under this subchapter will be forwarded to the administrative law judge who shall enter appropriate orders and conduct the hearing on or before a date that is 60 days after the date the request for hearing was received, or as soon after that as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemaking) and Government Code, Chapter 2001. A proposal for decision, exceptions and replies to such proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title. An applicant may not appeal denial of an application or conditional approval of an application until a final order is issued. After a hearing and final order, the applicant may appeal the final order as provided in Finance Code, §§181.202-181.204.

History

• Source Note: The provisions of this §21.72 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203.

7 Tex. Admin. Code § 21.73 Consummation of a Transaction

A transaction under this subchapter must be consummated as proposed in the application, in the agreement concerning conditional approval, or as provided in a final order. An approved transaction under this subchapter must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner may alter, suspend, or withdraw approval should an interim development warrant such action.

History

• Source Note: The provisions of this §21.73 adopted to be effective December 31, 1998, 23 TexReg 13033.

7 Tex. Admin. Code § 21.74 Notification

A notification by the banking commissioner under this subchapter may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, mailed to the address furnished in the application. Notification may also be made in person to the applicant, or to the trust company or another person, fiduciary institution, foreign corporation or domestic corporation, or other entity subject to this subchapter, by agent-receipted delivery or by courier-receipted delivery to the address furnished in the application, by email to the email address furnished in the application, or by telephonic document transfer to the fax number furnished in the application. Notice by telephonic document transfer served after 6:00 p.m. local time of recipient is considered as notice served on the following day.

History

• Source Note: The provisions of this §21.74 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective January 2, 2020, 44 TexReg 8236.

7 Tex. Admin. Code § 21.75 Abandoned Filing

The banking commissioner may determine an application under this subchapter to be abandoned pursuant to §21.4 of this title (relating to Required Information and Abandoned Filings).

History

• Source Note: The provisions of this §21.75 adopted to be effective December 31, 1998, 23 TexReg 13033.

7 Tex. Admin. Code § 21.76 Confidentiality

Information obtained by the banking commissioner under this subchapter is presumed to be public information unless such information is confidential under Finance Code, §§181.301 et seq, or under exceptions contained in Government Code, Chapter 552. The applicant has the burden to request confidential treatment for specified information, to segregate and mark documents claimed to be confidential, and to specifically reference the provision of law that allows confidential treatment.

History

• Source Note: The provisions of this §21.76 adopted to be effective December 31, 1998, 23 TexReg 13033; amended to be effective September 5, 2002, 27 TexReg 8203.

Subchapter G CHARTER AMENDMENTS AND CERTAIN CHANGES IN OUTSTANDING STOCK

7 Tex. Admin. Code § 21.91 Acquisition and Retention of Shares as Treasury Stock

(a) Permitted acquisition of treasury stock. Pursuant to Finance Code, §§182.103, 184.101, and 184.102, a trust company may acquire its own shares to be held as treasury stock, if prior notice of the proposed transaction is filed with the banking commissioner pursuant to subsection (b) of this section and the plan of acquisition has not been disapproved by the banking commissioner pursuant to subsection (d) of this section.

(b) Notice filing. A trust company that desires to effect a treasury stock transaction shall file notice of its intention to enter into a plan of acquisition with the banking commissioner, setting forth or including as exhibits the following:

(1) consistent with subsection (g) of this section, the pro forma effects of the plan of acquisition on the trust company's liquidity and restricted and secondary capital, and disclosure of the basis for the calculations, including:

(A) the price or price range per share at which the shares will be acquired;

(B) the number of shares sought to be acquired, expressed as a maximum; and

(C) the source of funds for the acquisition;

(2) the date by which the plan of acquisition will be completed;

(3) a certified copy of a resolution duly adopted by the board of directors, approving the plan of acquisition; and

(4) a current draft of the securities offering document or other disclosure materials proposed to be delivered to shareholders considering the sale of the trust company's shares to the trust company.

(c) Consummation of plan of acquisition. If a notice of intention to acquire treasury stock filed under this section is not disapproved by the banking commissioner on or before the 30th day after the notice is complete and accepted for filing, the transaction may be consummated in the manner and in accordance with the terms set forth in the plan of acquisition. The banking commissioner may, before the expiration of the 30-day period, impose conditions on the plan of acquisition, including limitations on the number of shares to be acquired, the source of funds for the acquisition, or a condition that the transaction be consummated as of a specified date. A notification by the banking commissioner under this section may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, addressed to the address furnished in the notice.

(d) Disapproval. The banking commissioner may disapprove the proposed plan of acquisition if the banking commissioner concludes that the trust company's plan of acquisition:

(1) will result in an acquisition of treasury stock at an aggregate cost in excess of its undivided profits,

(2) may threaten the adequacy of the trust company's liquidity and the requirements of Finance Code, §184.101(b);

(3) may threaten the adequacy of the trust company's equity capital or its restricted capital, or could result in a trust company failing to maintain the minimum required level in restricted capital set forth in Finance Code, §182.103; or

(4) could otherwise place the trust company in an unsafe or unsound condition.

(e) Compliance with securities law.

(1) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations, §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Civil Statutes, Article 581-33(B). Potential liability of the trust company to the selling shareholder can therefore arise if the trust company withholds or misrepresents material facts that the seller would have considered important in making the decision to sell.

(2) Any transaction consummated under subsection (c) of this section does not constitute a determination by the banking commissioner that the trust company has complied with applicable securities law.

(f) Retention of treasury stock. The banking commissioner may require a trust company to cancel and retire all or part of shares held as treasury stock to the status of authorized and unissued shares if the banking commissioner concludes that holding treasury stock in the amount held by the trust company creates safety and soundness or other regulatory concerns.

(g) Accounting for treasury stock. A trust company shall account for the acquisition and retention of treasury stock in accordance with generally accepted accounting principles under either the cost method or the par value method (see Accounting Research Bulletin Number 43), although use of the cost method may avoid the reduction in restricted capital that would be required under the par value method. The method used for accounting for treasury stock must be clearly reflected in the trust company's accounting records.

(h) Status of treasury stock. Shares held by a trust company as treasury stock may not be voted, directly or indirectly, at any meeting of shareholders, and may not be counted in determining the total number of outstanding shares at any given time.

History

• Source Note: The provisions of this §21.91 adopted to be effective December 31, 1998, 23 TexReg 13039; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective July 10, 2008, 33 TexReg 5277.

7 Tex. Admin. Code § 21.92 Amendment of Certificate to Effect a Reverse Stock Split

(a) Definitions. The following words and terms when used in this section shall have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--For purposes of this section only, a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a trust company seeking to effect a reverse stock split. A person who is not an affiliate of the trust company at the commencement of its reverse stock split will not be considered an affiliate of the trust company prior to the completion of the reverse stock split.

(2) Appraisal report--A report, opinion (other than an opinion of counsel), or appraisal, prepared by an outside party, that is materially related to the reverse stock split, including a report, opinion, or appraisal relating to the consideration or the fairness of the consideration to be offered to shareholders in connection with the reverse stock split or the fairness of such transaction to the trust company or to unaffiliated shareholders.

(3) Reverse stock split--An amendment to the certificate of formation of a trust company that achieves a reduction in the number of issued shares of such trust company by requiring exchange of all issued shares in a particular class for a proportionately smaller number of shares, generally with a proportionately increased par or stated value. The equity capital of the trust company remains substantially the same.

(4) Share--A unit representing ownership of at least part of the proprietary interests of a trust company, whether or not divided or subdivided by means of classes, series, relative rights, or preferences; and includes a stock or similar security; or a security convertible, with or without consideration, into such a security, or carrying a warrant or right to subscribe to or purchase such a security; or such warrant or right; or another security determined by the banking commissioner to be an equity security as defined by Finance Code, §181.002(a).

(5) Unaffiliated shareholder--A shareholder of a share subject to a reverse stock split who is not an affiliate of the trust company that issued the share.

(b) Procedure. Pursuant to Finance Code, §182.101, to effectuate a reverse stock split in compliance with this section, a trust company shall:

(1) obtain the approval of its shareholders as required by law; and

(2) obtain the approval of the banking commissioner pursuant to subsection (d) of this section, by filing an application setting forth the information and documents required by subsection (c) of this section and the filing fee required by §21.2 of this title (relating to Filing and Investigation Fees).

(c) Application. A trust company proposing a reverse stock split transaction shall file with the banking commissioner a written application seeking approval of the proposed amendment to its certificate of formation, stating the results of the vote of shareholders regarding the proposed reverse stock split and stating the percentage of shares of unaffiliated shareholders that were voted in favor of the proposed reverse stock split, or undertaking to supplement the application after conditional approval is obtained to provide shareholder approval information, setting forth or including as exhibits the following:

(1) the original and one copy of the proposed amendment to the certificate of formation, to be processed in the manner required by Finance Code, §182.101, and a description of the material terms of the proposed reverse stock split, including terms or arrangements relating to any shareholder of the trust company which are not identical to those relating to other shareholders of the same class;

(2) any plan or proposal of the trust company, regarding activities or transactions which are to occur after the reverse stock split which relate to or would result in:

(A) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the trust company or any of its subsidiaries;

(B) a sale or transfer of a material amount of assets of the trust company or any of its subsidiaries;

(C) a change in the present board of directors or management of the trust company, including a plan or proposal to change the number or term of directors, to fill an existing vacancy on the board or to change a material term of the employment contract of an executive officer;

(D) a material change in the present dividend rate or policy or indebtedness or capitalization of the trust company;

(E) any other material change in the trust company's corporate structure or business;

(3) the corporate purpose or purposes of the trust company for the reverse stock split, and alternative means, if any, considered by the trust company to accomplish such purposes and the reasons for their rejection, and the reason for choosing the structure of a reverse stock split and for undertaking such transaction at this time;

(4) a certified resolution of the board of directors of the trust company approving the proposed amendment to the certificate of formation, accompanied by a statement whether or not the board of directors of the trust company reasonably believes that the reverse stock split is fair or unfair to unaffiliated shareholders that:

(A) identifies each director, if any, that dissented to or abstained from voting on the merits of the reverse stock split, and describes, if known to the trust company after making reasonable inquiry, the reasons for each dissent or abstention; and

(B) states the number and percentage of disinterested directors that voted in favor of the proposed reverse stock split;

(5) whether or not the trust company obtained an appraisal report and, if an appraisal report was obtained, a copy of the appraisal report. To the extent not addressed in the appraisal report, the trust company shall disclose:

(A) the identity, qualifications, and method of selection of the outside party that prepared the appraisal report, any material relationship between the outside party or its affiliates and the trust company or its affiliates which existed during the past two years or is mutually understood to be contemplated, and any compensation received or to be received as a result of such relationship;

(B) a summary of the performance of such appraisal report, including the procedures followed, the findings and recommendations, the bases for and methods of arriving at such findings and recommendations, instructions received from the trust company, and any limitation imposed by the trust company on the scope of the investigation; and

(C) whether such appraisal report will be made available for inspection and copying at the home office of the trust company during its regular business hours by any shareholder of the trust company or such shareholder's representative who has been so designated in writing;

(6) with respect to the class of shares to which the reverse stock split relates, the aggregate amount and percentage of shares beneficially owned by any pension, profit sharing, or similar plan of the trust company, and by each officer, director, principal shareholder, and subsidiary of the trust company;

(7) with respect to any purchases of such shares made by the trust company since the commencement of the trust company's second full fiscal year preceding the date of the application, the amount of such shares purchased, the range of prices paid for such shares, and the average purchase price for each quarterly period of the trust company during such period;

(8) to the extent known to the trust company after reasonable inquiry, any transaction in the class of shares subject to the proposed reverse stock split that was effected during the past 60 days by the trust company or by an officer, director, principal shareholder, or subsidiary of the trust company, including the identity of the person who effected the transaction, the date of the transaction, the amount of shares involved, the price per share, and where and how the transaction was effected;

(9) to the extent known to the trust company after reasonable inquiry, a description and/or a copy of any contract, arrangement, understanding, or relationship (whether or not legally enforceable) in connection with the reverse stock split between the trust company (or an officer, director, principal shareholder, or subsidiary of the trust company) and any person with respect to any shares of the trust company (including a contract, arrangement, understanding, or relationship concerning the transfer or the voting of any such shares, joint ventures, loan, or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents, or authorizations), naming the persons with whom such contracts, arrangements, understandings, or relationships have been entered into and giving the material provisions thereof, including such information for any of such shares that are pledged or otherwise subject to a contingency, the occurrence of which would give another person the power to direct the voting or disposition of such shares, except that disclosure of standard default and similar provisions contained in loan agreements need not be included;

(10) to the extent known to the trust company after reasonable inquiry, whether or not any officer, director, principal shareholder, or subsidiary of the trust company has made a recommendation in support of or opposed to the reverse stock split and, if so, the reasons for such recommendation;

(11) whether or not appraisal rights are being voluntarily accorded by the trust company to shareholders in connection with the reverse stock split and whether or not any provision has been or will be made to allow unaffiliated shareholders to obtain counsel or appraisal services at the voluntary expense of the trust company and, if so, a detailed description of such appraisal rights or counsel or appraisal services;

(12) a reasonably itemized statement of all expenses incurred or estimated to be incurred in connection with the reverse stock split, including filing fees, legal, accounting, and appraisal fees, solicitation expenses, and printing costs, and disclosure of the person who has paid or will be responsible for paying such expenses;

(13) the proxy statement furnished to shareholders of the trust company in connection with obtaining shareholder approval for the reverse stock split, or a draft of the proxy statement to be furnished to shareholders in the event approval of the banking commissioner is sought prior to a shareholder vote; and

(14) such other information that the banking commissioner requires to be included in the particular application as considered necessary to an informed decision to approve or reject the proposed amendment effectuating a reverse stock split.

(d) Standards for approval.

(1) The banking commissioner shall process the proposed reverse stock split in accordance with Finance Code, §182.101(d). The banking commissioner shall require that the reverse stock split be for a valid business purpose of the trust company, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders' shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to trust company shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.

(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the trust company shall file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner shall file the approved amendment to the certificate of formation in accordance with Finance Code, §182.101(e).

(3) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Civil Statutes, Article 581-33(B). Potential liability of the trust company to the selling shareholder can therefore arise if the trust company withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a trust company must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, §240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the trust company has complied with applicable securities law.

(e) Exemptions.

(1) This section does not apply to a reverse stock split that:

(A) will not result in fractional shares;

(B) permits each shareholder to choose to cash in the resulting fractional share by selling it to the trust company or to round up to the next highest whole share by purchasing fractional interests, provided that:

(i) the specified sale and purchase prices are equivalent and reasonable; and

(ii) no fractional share resulting from the reverse stock split is less than 10% of a full share;

(C) is adopted by means of a unanimous written consent of shareholders; or

(D) the banking commissioner expressly exempts after written application as not within the purposes of this section.

(2) An amendment to the certificate of formation that implements a reverse stock split exempt from this section is filed and processed in accordance with Finance Code, §182.101.

(3) The availability of an exemption from the requirements of this section does not relieve a trust company from its obligation to comply with applicable securities law.

History

• Source Note: The provisions of this §21.92 adopted to be effective December 31, 1998, 23 TexReg 13039; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective November 7, 2013, 38 TexReg 7690.

Chapter 25 PREPAID FUNERAL CONTRACTS

Subchapter A CONTRACT FORMS

7 Tex. Admin. Code § 25.1 Definitions

(a) A word or term that is defined in Finance Code, Chapter 154, retains the same meaning when used in this subchapter unless the word or term is defined otherwise in subsection (b) of this section.

(b) The following words and terms have the following meanings when used in this subchapter, unless the context in which a word or term is used clearly indicates a different meaning that is consistent with the purpose of Finance Code, Chapter 154:

(1) "Contract beneficiary" means the person named in a prepaid funeral benefits contract as the intended recipient of contracted funeral merchandise and services.

(2) "Funeral goods and services" means funeral merchandise and services that are regulated as prepaid funeral benefits, as that term is defined by Finance Code, §154.002(9), except to the extent provided otherwise in §25.3(b) of this title (relating to What Requirements Apply to a Non-Model Contract or Waiver) and related provisions.

(3) "Funeral Provider" or "Provider" has the meaning assigned by Finance Code, §154.002(6), specifically a person that agrees in a prepaid funeral benefits contract to provide specified prepaid funeral benefits.

(4) "Insurance-funded contract" means a prepaid funeral benefits contract funded by an insurance policy.

(5) "Insurance policy" has the meaning assigned by Finance Code, §154.002(7), specifically a life insurance policy or an annuity contract. The term does not include a policy for any other form of insurance.

(6) "Model contract" means a prepaid funeral benefits contract form developed and published by the department for your use.

(7) "Model waiver" means the waiver form developed and published by the department for your use, to govern the voluntary waiver of a purchaser's right to cancel a prepaid funeral benefits contract as permitted by Finance Code, §154.156(a).

(8) "Non-guaranteed cash advance items" are items for which a purchaser of prepaid funeral benefits may agree to advance funds for all or any portion of the reasonable estimated cost of the items included in the prepaid funeral benefits contract, the actual cost of which are to be determined by existing prices at the time the items are delivered or provided by a Third Party Provider in connection with at-need performance of the contracted funeral.

(9) "Non-model contract" means a prepaid funeral benefits contract form that differs from the model contract with respect to the requirements and standards of §25.3 of this title and §25.4 of this title (relating to What Are the Plain Language Requirements for a Non-Model Contract or Waiver). A model contract does not become a non-model contract because you add your name, trademark, or other information about you, or information about the provider. A contract in electronic form is a non-model contract.

(10) "Non-model waiver" means a form of waiver that has the same purpose as but differs from the model waiver with respect to the requirements and standards of §25.2(c) of this title (relating to Am I Required to Use the Model Contract and Model Waiver) and §25.4 of this title. For example, a model waiver does not become a non-model waiver because you add your name, trademark, or other information about you, or information about the provider. A waiver in electronic form is a non-model waiver.

(11) "Prepaid funeral benefits contract" or "contract" means a contract or agreement for prepaid funeral benefits, whether trust-funded or insurance-funded.

(12) "Purchaser" means the person who contracts to buy prepaid funeral benefits. The purchaser may also be the contract beneficiary. If permitted by the context, the term includes the purchaser's authorized agent.

(13) "Responsible person" means the person charged with the disposition of the contract beneficiary's remains by Health and Safety Code, §711.002(a).

(14) "Seller" has the meaning assigned by Finance Code, §154.002(10), specifically a person selling, accepting money or premiums for, or soliciting contracts for prepaid funeral benefits or contracts or insurance policies to fund prepaid funeral benefits in this state.

(15) "Third Party Provider" means a legal entity that is separate from the Funeral Provider and which will provide non-guaranteed cash advance items under a prepaid funeral benefits contract. Separate legal entities have different federal tax identification numbers but may be related by common ownership or be subsidiaries or affiliates of one another.

(16) "Trust-funded contract" means a prepaid funeral benefits contract funded by trust deposits made on behalf of the purchaser.

(17) "You" (or "I" in a section title) means a seller that is licensed under Finance Code, Chapter 154, and is subject to this chapter.

History

• Source Note: The provisions of this §25.1 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective January 7, 2010 35 TexReg 204; amended to be effective July 10, 2014, 39 TexReg 5141; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.2 Am I Required to Use the Model Contract and Model Waiver?

(a) Use of model contract and waiver. You may use the appropriate model contract or the model waiver described in this subsection except as provided in paragraph (2) of this subsection, but you are not required to do so if you obtain approval to use a non-model contract or waiver. PDF forms of model contracts or waivers and PDF forms of approved non-model contracts or waivers do not need to be approved by the department as provided in §25.5.

(1) The Department has adopted two model contracts, one for sale of trust-funded prepaid funeral benefits and one for sale of insurance-funded prepaid funeral benefits where the purchaser is also the policy owner, and a model waiver, in English and in Spanish, for your use. Each model contract or waiver meets all statutory requirements and the requirements of this subchapter with respect to the type of transaction it is designed to govern. You may acquire copies of model contracts and the model waiver by downloading them from the Department's web site or requesting them by mail. The Department's web site address is http://www.dob.texas.gov.

(2) If you sell insurance-funded contracts, the insurance-funded model contract is suitable only if the person named in the contract as the purchaser is also the insurance policy owner. If the contract purchaser and the insurance policy owner are not to be the same person, you must use an approved non-model contract that correctly addresses this arrangement.

(3) You may use a current model contract or model waiver after the department verifies that your proposed form document is a current model document that has been customized by inserting your name and permit number. Your submitted form document may also exclude the disclosure shown in Figure 7 TAC §25.3(i)(4)(E), if it is not applicable; and contain other information about you or a provider as long as you do not otherwise alter the model document. The department shall approve or disapprove a customized model document on or before the 10th business day following the day the document is filed with the department.

(b) Non-model contracts. Before you use a non-model contract, it must:

(1) satisfy the substantive content requirements of §25.3 of this title (relating to What Requirements Apply to a Non-Model Contract or Waiver);

(2) qualify under the plain language principles stated in §25.4 of this title (relating to What Are the Plain Language Requirements for a Non-Model Contract or Waiver); and

(3) be approved by the department as provided in §25.5 of this title (relating to How Do I Obtain Approval of a Non-Model Contract or Waiver).

(c) Non-model waivers. You may use a non-model waiver if it addresses substantially the same matters in substantially the same order as the model waiver, to promote comparability and consumer understanding. Your proposed non-model waiver form may contain additional provisions that are fair to consumers in light of the purpose of Finance Code, Chapter 154. You must submit a non-model waiver to the Department for approval in the manner required by §25.5 of this title. The model waiver in English appears as:

Attached Graphic

(d) Transactions conducted in Spanish. If you intend to conduct any prepaid funeral benefits transaction predominately in Spanish, you may use a current model contract or model waiver in Spanish as provided by subsection (a) of this section. If the department has approved your non-model document in English under §25.5 of this title, you may use a Spanish version of the document after you file a copy of your Spanish document and a certification from a translation service acceptable to the department that the Spanish version is a true and correct translation of the submitted English document. If the English version of your Spanish non-model document has not previously been approved, you may not use your Spanish non-model document until you comply with subsection (b) of this section.

(e) Interpretation of required content and form. The department considers the model contracts and model waiver to satisfy the substantive content requirements of §25.3 of this title and qualify under the plain language principles stated in §25.4 of this title. If you have questions regarding the intent and meaning of a requirement in this subchapter, locate and review the related clause in the model contracts or model waiver. You are not required to include a broader or more comprehensive provision than is contained in the relevant model document unless additional explanation or disclosure is necessary to clarify or prevent misleading provisions in your non-model document.

(f) Sale of Prepaid Funeral Benefits Electronically.

(1) You may sell prepaid funeral benefits and deliver contracts and waivers by electronic means if the purchaser has consented to transacting electronically.

(2) A purchaser must consent to the use of electronic documents before you present the document to the purchaser, consistent with Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §7001.

(3) A contract or waiver is not considered as entered into or delivered electronically if a completed paper copy in the approved form is given to the purchaser at the time of sale.

History

• Source Note: The provisions of this §25.2 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective January 7, 2010 35 TexReg 204; amended to be effective November 4, 2010, 35 TexReg 9696; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.3 What Requirements Apply to a Non-Model Contract or Waiver?

(a) Contract requirements. The department must approve a non-model contract before you can use it. Your proposed non-model contract must:

(1) contain a disclosure informing the purchaser of the funeral goods and services that will be provided under the contract, as described by subsections (b) and (c) of this section;

(2) define terms used in the contract as described by subsection (d) of this section;

(3) state and explain the purchaser's obligations, your obligations, and the name and obligations of the provider if you are not performing all funeral services under the contract;

(4) if the provider is not the licensed seller, a statement that the provider agrees to discharge the responsibilities imposed on a funeral provider by Finance Code §154.161;

(5) the impact of terms in the insurance policy on the contract if the contract is insurance-funded, as described by subsection (e) of this section;

(6) disclose and explain the purchaser's cancellation rights under the contract and, if the contract is insurance-funded, the effect of insurance policy cancellation or assignment on the contract, as described by subsection (f) of this section;

(7) state events of default under the contract for all parties and explain the consequences of default, as described by subsection (g) of this section;

(8) state and explain the circumstances under which the responsible person may modify or change the contract at the death of the contract beneficiary, as described by subsection (h) of this section;

(9) disclose and explain all payment terms under the contract and related provisions as described by subsection (i) of this section;

(10) contain a section for required signatures and related notices as described by subsection (j) of this section;

(11) contain a standard disclosure explaining how a purchaser can make inquiries or file complaints with specified regulatory agencies, as described by subsection (k) of this section;

(12) comply with subsections (l) and (m) of this section;

(13) comply with §25.4 of this title (relating to What Are the Plain Language Requirements for a Non-Model Contract or Waiver); and

(14) be approved by the department as provided by §25.5 of this title (relating to How Do I Obtain Approval of a Non-Model Contract or Waiver).

(b) Statement of guaranteed funeral goods and services selected. The first section of a proposed prepaid funeral benefits contract must inform the purchaser of the guaranteed funeral goods and services that you will provide under the contract, as required by Finance Code, §154.151(e). This section must appear entirely on page one of the contract exactly as set out in the model contract and in the following figure, including substantially the same formatting and spacing, except:

Attached Graphic

(1) you may move specific goods and services between general description categories;

(2) you may move specific goods and services from figure 7 TAC §25.3(c)(1) to figure 7 TAC §25.3(b), if you guarantee the price of the good or service and include any required Federal Trade Commission disclosures regarding cash advance items;

(3) you may change the description of specific goods or services if the alteration does not change the intent of the description in the standard disclosure;

(4) you may add other, specific funeral goods and services to the list of funeral goods and services to be provided;

(5) you may delete check boxes and related text for sealing features in casket and outer burial container descriptions, for example, "gasketed", "non-gasketed", "seal", and "non-seal", if these features are not included in the funeral home's price list; and

(6) if the goods and services you sell are specifically limited and constitute significantly less than those goods and services normally required for a funeral, you may substitute a simplified disclosure that the contract is for your specific goods and services only and that you do not offer any other funeral goods and services. For example, you may substitute this limited disclosure if you sell only services relating to opening and closing of the grave or unique memorials that utilize a token portion of cremains, or if you only sell limited funeral goods such as outer burial containers or caskets without furnishing funeral services.

(7) The Explanation of Certain Charges language may be moved from figure 7 TAC §25.3(c)(1) to figure 7 TAC §25.3(b).

(8) If your contract is in electronic form, the statement of guaranteed funeral goods and services selected must appear on a single screen or consecutive screens, near the beginning or top of the contract, immediately following consumer disclosures and consent required by 7 TAC §25.2(f).

(c) Statement of non-guaranteed cash advance items selected.

(1) The second section of a proposed prepaid funeral benefits contract must inform the purchaser of the non-guaranteed cash advance items that you will provide under the contract, as required by Finance Code, §154.1511(b). The section must appear entirely on either page one or two of the contract exactly as set out in the model contract and in the following figure, including substantially the same formatting and spacing, except;

Attached Graphic

(A) you may delete the non-guaranteed cash advance items section if you do not sell cash advance items;

(B) you may move the Explanation of Certain Charges language to figure 7 TAC §25.3(b);

(C) you may change the subtotal pages references if figures 7 TAC §25.3(b) and 7 TAC §25.3(c)(1) are to be placed on the same page of the contract;

(D) you may move specific goods and services from figure 7 TAC §25.3(c)(1) to figure 7 TAC §25.3(b) if you guarantee the price of the good or service;

(E) you may change the description of specific goods or services if the alteration does not change the intent of the description in the standard disclosure;

(F) you may add other specific funeral goods and services to the list of non-guaranteed funeral goods and services to be provided only through a non-model filing; and

(G) if your contract is in electronic form, this section must appear on a single screen immediately following the statement of guaranteed funeral goods and services selected.

(2) If you delete the statement of non-guaranteed cash advance items:

(A) for a paper contract, you must include figure 7 TAC §25.3(c)(2)(B) on the bottom of page one of the contract, including substantially the same formatting and spacing; and

(B) for a contract in electronic form, you must include the following figure immediately following the statement of guaranteed funeral goods and services selected:

Attached Graphic

(d) Definitions. Your proposed prepaid funeral benefits contract must list, define, and use the terms "contract beneficiary", "responsible person", "provider", "purchaser", and "seller", or terms commonly understood by consumers to be equivalent, substantially as defined in a model contract. For example, you may use a combined term such as "seller/provider" if you believe the alternate term is more descriptive of your services. If your proposed contract is insurance-funded, you must also list, define, and use the terms "insurance company", "insurance policy", and "premiums" in the contract, or terms commonly understood by consumers to be equivalent, substantially as defined in the department's insurance-funded model contract. You may list, define and use additional terms if they are consistent with the requirements of §25.4 of this title.

(e) General provisions. Your proposed prepaid funeral benefits contract must recognize and explain the purchaser's obligations, your obligations, and the obligations of the provider if you are not performing all funeral services under the contract, and the impact of terms in the insurance policy on the contract if the contract is insurance-funded, with respect to:

(1) your obligation (and that of the provider) to furnish the guaranteed funeral goods and services selected in the contract for a cost not to exceed the total contract price applicable to the guaranteed charges at the death of the contract beneficiary, if the purchaser has fully complied with the contract and with each insurance policy, if the contract is insurance-funded;

(2) your obligation (and that of the provider) to furnish the non-guaranteed cash advance items selected in the contract, if current costs are paid at the time of death or how any unallocated and remaining non-guaranteed funds will be refunded;

(3) the purchaser's inability to change the selected funeral goods and services during the life of the contract unless the contract is voided and replaced with a new contract;

(4) the extent to and conditions under which the purchaser may change the provider specified in the contract or, with respect to a trust-funded contract, the contract beneficiary;

(5) whether the purchaser may incur tax liability for earnings under a trust-funded contract or for growth under an insurance policy if the contract is insurance-funded;

(6) the extent to which you offer any warranties or guarantees or assert any specific disclaimers of warranty;

(7) the prohibition on partial cancellation of or loans against the contract;

(8) if the transaction may result in available funds in excess of the contract price at the time the funeral is performed, identification of who is entitled to such excess funds;

(9) each party's general contractual duties under the contract and the extent to which the contract is binding on a person who assumes the rights or obligations of a party to the contract;

(10) the manner in which a party must notify other parties of a change of address; and

(11) if the contract is insurance-funded, the requirement that terms of the insurance policy must be consulted for information concerning the obligations of the insurance company and those of the policy owner.

(f) Cancellation or assignment. Your proposed prepaid funeral benefits contract must recognize and explain:

(1) with respect to a trust-funded contract:

(A) the manner in and conditions under which the purchaser may cancel the contract, including the procedural requirements applicable to a cancellation, including the purchaser's obligation to request cancellation in writing on department-approved forms and your obligation to pay a refund not later than the 30th day after receipt of the purchaser's written cancellation notice;

(B) the amount of the refund or other payment that you will owe the purchaser if the contract is canceled and the conditions or circumstances that may alter the refund amount; and

(C) the refund or other benefits you will owe the purchaser if the contract is canceled at your request; or

(2) subject to modifications or clarifications required by §25.2(a)(2) of this title (Relating to Am I Required to Use the Model Contract and Model Waiver), with respect to an insurance-funded contract:

(A) the purchaser's right to assign the purchaser's interest in an insurance policy by signing a separate document;

(B) the qualification that canceling the contract does not automatically cancel the insurance policy but canceling the insurance policy does cancel the contract;

(C) the procedural requirements applicable to a cancellation of the contract, including the purchaser's obligation to request cancellation in writing on department-approved forms and the statutory obligation, if applicable, to pay a refund not later than the 30th day after receipt of the purchaser's written cancellation notice;

(D) the purchaser's obligation to read the insurance policy to determine the conditions imposed upon cancellation and the potential amount of refund that would be due if the policy is canceled during or after the "free look" period;

(E) notice and acknowledgement by the purchaser that if the insurance policy is cancelled at the purchaser's request, the surrender value may be significantly less than the premiums the purchaser paid. The disclosure must appear in the cancellation section exactly as set out in the model contract and in the following figure, without modification, including substantially the same formatting and spacing:

Attached Graphic

(F) the consequences the purchaser may expect, whether refund of premium, receipt of cash surrender value, or other benefits from you or another person, if the contract is canceled at your request; and

(G) the effect that loans against or withdrawal of proceeds accrued under an insurance policy will have on the contract and on price guaranties in the contract.

(g) Default. Your proposed prepaid funeral benefits contract must explain events and consequences of default under the contract and under each insurance policy if the contract is insurance-funded, including:

(1) the potential effect on the contract if the purchaser fails to make a payment or makes a late payment under the contract or under an insurance policy if the contract is insurance-funded;

(2) the effect on the contract and on payments due if the contract beneficiary dies:

(A) before the purchaser's payment obligations have been fulfilled under a trust-funded contract; or

(B) if the contract is insurance-funded:

(i) during a period when an insurance policy pays reduced benefits, if applicable; or

(ii) before the premium obligations have been fulfilled on an insurance policy, if applicable;

(3) the conditions under which you may owe a full or partial refund to the purchaser of funds received under a contract, or a full or partial abandonment of your rights to anticipated proceeds of an insurance policy if the contract is insurance-funded and proceeds are not yet received, as a consequence of your inability (or the provider's inability, if you are relying on another to perform portions of the contract) to furnish the selected funeral goods and services; and

(4) a statement that the Prepaid Funeral Guaranty Fund guarantees performance of the prepaid funeral seller and the designated funeral provider, as well as associated administrative functions required by law.

(h) Changes to disposition or funeral goods and services at the death of contract beneficiary. Your proposed prepaid funeral benefits contract must disclose the circumstances under which the contract may be modified by the responsible person at the death of the contract beneficiary, as required by Finance Code, §154.151(e). The disclosure must appear exactly as set out in the model contract and in the following figure, without modification, except that the phrase "fully funded" may be substituted for the phrase "fully paid" wherever it appears in this disclosure when used in an insurance-funded contract. In addition, you may use a larger type size if feasible.

Attached Graphic

(i) Payment terms. Your proposed prepaid funeral benefits contract must clearly state and explain payment terms and related provisions, including:

(1) how and when you will deposit a payment received under a trust-funded contract, or forward any premiums received to the insurance company for application to an insurance policy if the contract is insurance-funded;

(2) with respect to a trust-funded contract, whether and the extent to which you will retain a portion of the purchaser's payments for reimbursement of your operating and selling expenses;

(3) with respect to a trust-funded contract, the finance charges you will impose, if applicable, provided that the description must also comply with Finance Code, Chapter 345, and other state and federal law governing such charges;

(4) subject to modifications or clarifications required by §25.2(a)(2) of this title, with respect to an insurance-funded contract:

(A) the effect on the contract if insurance coverage is denied and that all premiums will be returned to the policy owner;

(B) if payment terms under the insurance policy are not disclosed in the contract, a space for the purchaser to initial or sign to acknowledge that the purchaser has received written information regarding the terms governing premium payments in another document that the purchaser received at the time of sale, such as the application for insurance or the insurance policy;

(C) if the information the purchaser receives regarding payment terms under an insurance policy is based on an estimate of premiums, that must be noted;

(D) notice and acknowledgement by the purchaser that insurance premiums paid on the insurance policy or policies may be more or less than the total contract price, and an estimate for total premiums to be paid. The disclosure must appear in the payment terms section exactly as set out in the model contract and in the following figure, without modification, including substantially the same formatting and spacing:

Attached Graphic

(E) notice and acknowledgement by the purchaser if you initially issue insurance policy(s) with an aggregate initial face value that exceed(s) the total contract price by more than 5%. The disclosure must include the total amount of the policy(s) in excess of 100% of the contract price. The disclosure must appear in the payment terms section exactly as set out in the following figure, without modification, including substantially the same formatting and spacing; and,

Attached Graphic

(5) other contract provisions that materially relate to payment terms under a contract or under an insurance policy.

(j) Required signatures and notices. Your proposed prepaid funeral benefits contract must contain a section for required signatures and related notices that appears in its entirety on the last page of the contract, or near the bottom of the contract if in electronic form. This section must include:

(1) a list of all items that must be received or offered before the contract can be signed;

(2) if required by state or federal law, cooling-off period language that includes spaces to note when and where the contract was signed;

(3) notice that the purchaser will receive a copy of the contract;

(4) notice that the purchaser is required to be provided an informational brochure for contracts sold after June 1, 2010;

(5) the Department's prepaid funeral contract informational website address;

(6) if the contract is insurance-funded:

(A) notice that the policy owner will receive a copy of the insurance policy from the insurance company; or

(B) if the insurance company is not legally required to deliver a copy of the insurance policy to the policy owner, notice that the policy owner may request a copy of the insurance policy from the insurance company;

(7) spaces for:

(A) the purchaser's printed name, mailing address, telephone number, social security number (if required), and signature line;

(B) if you are not directly providing the funeral goods and services, the printed name, mailing address, and telephone number of the provider, and spaces for the printed name and signature of the authorized officer or agent signing on behalf of the provider;

(C) your printed name, mailing address, and telephone number, and spaces for the printed name and signature of the authorized officer or agent signing on your behalf; and

(D) the printed name, mailing address, and date of birth of the sole individual designated as contract beneficiary; and

(8) other provisions, party identifications, or certifications legally required for valid execution of the contract.

(k) Inquiries and complaints notice. Your proposed prepaid funeral benefits contract must disclose how a purchaser, potential purchaser or consumer can make consumer inquiries and complaints to the department as required by Finance Code, §11.307(a), and §25.41 of this title (relating to How Do I Provide Information to Consumers on How to File a Complaint and What Action Must I Take When I Receive a Complaint?), and to other specified state regulatory agencies with appropriate jurisdiction.

(1) This disclosure must appear exactly as set out in the relevant model contract, including the names and contact information for each regulatory agency, without modification, and will vary in context depending on whether the proposed contract is trust-funded or insurance-funded. The model disclosures for both trust-funded and insurance-funded contracts appear in:

Attached Graphic

(2) If the disclosure does not appear at the bottom of the last page of the contract following the signatures of the parties, it must be placed at the top or bottom of a preceding page and be separated from other contract text by at least 1/2 inches of white space. If the contract is in electronic form, the disclosure must appear immediately preceding the area a purchaser can sign the contract. The disclosure may not be placed on a page by itself.

(l) Additional requirements. A proposed prepaid funeral benefits contract must also contain:

(1) page numbers, unless in an electronic form that does not contain pages;

(2) a document title that discloses the contract is for the purpose of prearranging a funeral, such as "Prepaid Funeral Benefits Contract";

(3) a distinguishing form number or name;

(4) your permit number; and

(5) a space for the contract number on at least one of the contract pages.

(m) Your proposed non-model contract or waiver form may contain:

(1) additional contract clauses that are fair to consumers in light of the purpose of Finance Code, Chapter 154; and

(2) additional consumer disclosures that you determine:

(A) will assist the purchaser in understanding the transaction; or

(B) are required by other state or federal law for the type of transaction the contract represents.

(n) Electronic contract requirements. A proposed non-model contract in electronic form must contain all consumer disclosures required under Electronic Signatures in Global and National Commerce Act, 15 U.S.C., §7001, before any other provision and may be on a separate screen.

History

• Source Note: The provisions of this §25.3 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective January 7, 2010, 35 TexReg 204; amended to be effective July 8, 2010, 35 TexReg 5803; amended to be effective November 4, 2010, 35 TexReg 9696; amended to be effective September 8, 2011, 36 TexReg 5668; amended to be effective January 5, 2012, 36 TexReg 9284; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.4 What Are the Plain Language Requirements for a Non-Model Contract or Waiver?

(a) Overview. If you elect to not use a model contract or waiver, you must prepare a non-model prepaid funeral benefits contract or a waiver of cancellation rights, whether in English or Spanish, in plain language designed to be easily understood by the average consumer. Your proposed non-model document must also be printed or displayed in an easily readable font and type size. The department is charged with enforcing these requirements by Finance Code, §154.151(d).

(b) Plain language principles for English documents. The department will consider the extent to which you have incorporated plain language principles into the organization, language, and design of a non-model document that you submit for approval. At a minimum, your proposed non-model document, including an electronic non-model document, should substantially comply with each of the plain language writing principles identified in this subsection.

(1) You must present information in clear, concise sections, paragraphs, and sentences. Whenever possible, you should use the active voice with strong verbs in short, explanatory sentences and bullet lists. Passive voice is not banned but should be used sparingly.

(2) You should use everyday words whenever possible and avoid the use of legal and highly technical business terminology. In those instances where no plain language alternative is apparent, you should explain what the term means when the term is first used. Use of a defined term may improve readability in such instances.

(3) You should group related information together whenever possible to help identify and eliminate repetitious information.

(4) You should use first-person plural (we, us, our/ours) and second-person singular (you, your/yours) pronouns.

(5) You should make complex information more understandable by using an example scenario or a "question and answer" format.

(c) Attributes to avoid. The department will consider the extent to which you avoid the detrimental attributes identified in this subsection. In preparing your proposed non-model document, you should not:

(1) include a term in definitions unless the meaning of the term is unclear from the context and cannot be easily explained in context, or rely on artificially defined terms as the primary means of explaining information;

(2) use superfluous words (words that can be replaced with fewer words that mean the same thing) that detract from understanding;

(3) rely on legalistic or overly complex presentations;

(4) copy complex information directly from legal documents, statutes, or rules without a clear and concise explanation of the material;

(5) unnecessarily repeat information in different sections of the non-model document; or

(6) use multiple negatives.

(d) Typeface (font). Typefaces come in two varieties: serif and sans serif. All serif typefaces have small lines at the beginning or ending strokes of each letter. Sans serif typefaces lack those small connective lines.

(1) The text of your proposed non-model document must be set in a serif typeface. Popular serif typefaces include Times, Scala, Caslon, Century Schoolbook, and Garamond.

(2) A sans serif typeface may be used for titles, headings, subheadings, captions, and illustrative or explanatory tables or sidebars to distinguish between different levels of information or provide emphasis. Popular sans serif typefaces include Scala Sans, Franklin Gothic, Frutiger, Helvetica, Ariel, and Univers,

(e) Type size and line spacing. You must select a type size for your proposed non-model document that is clearly legible. Minimum type size and line spacing are specified in this subsection. If other state or federal law requires a different type size for a specific disclosure or contractual provision, you should set the specific disclosure or contractual provision in the type size specified by other law.

(1) Typeface size is referred to in points (pt). Because different typefaces in the same point size are not of equal size, type size is not strictly defined in this subsection but is expressed as a minimum size in the Times typeface for visual comparative purposes. Use of a larger size typeface is encouraged. Generally, the type size must be at least as large as 10pt in the Times typeface, except the type size must be at least as large as 9pt in the Times typeface for:

(A) the statement of funeral goods and services selected, as described in §25.3(b) and (c) of this title (relating to What Requirements Apply to a Non-Model Contract); and

(B) the consumer inquiries and complaints disclosure, described in §25.3(k) of this title.

(2) You must use line spacing that is at least 120% of the type size. For example, a 10pt type should be set with 12pt leading (two points of additional leading between the lines).

(3) The department may approve a smaller type size or denser line spacing than specified in this subsection in limited circumstances, such as keeping related disclosures grouped together or satisfying a requirement to keep specified text on a single page. However, you must offset smaller type size or denser line spacing by use of other readability enhancements such as a more readable typeface or greater use of white space through wider margins or divisions between sections of the document.

(f) Formatting and design. The department will consider the extent to which your non-model document uses the plain language formatting and design concepts described in this subsection.

(1) You should use left-justified text (text aligned flush on the left, with a loose, or ragged, right edge) in any paragraph or section of your document that has text lines exceeding 70 characters in length. If you seek approval of a document containing any full-justified paragraph or section with text lines exceeding 70 characters in length (text aligned flush on both left and right sides), the full-justified portions of your proposed document should at a minimum use a larger type size than specified in subsection (e) of this section. You should also add other readability enhancements, such as a more readable typeface or greater use of white space, including wider margins and additional leading between lines.

(2) The minimum recommended page size of a proposed non-model contract is 8-1/2 inches by 11 or 14 inches and 8-1/2 inches by 11 inches for a proposed non-model waiver. However, the page size should ordinarily not be larger than 8-1/2 inches by 17 inches. This paragraph does not apply to a contract in electronic form.

(3) You must use descriptive headings and subheadings that are conceptually similar to or match the headings in the department's model contract.

(4) You may use tabular presentations or bullet lists to simplify disclosure of complex material. You may also use pictures, logos, charts, graphs, or other design elements so long as the design is not misleading and the required information is clear.

(g) Readability statistics. The department will consider the readability statistics generated by your non-model document in the tests described in this subsection.

(1) The department's evaluation of your proposed non-model document will include results of automated readability tests applied to the complete document, without omission of titles or other attributes of the document. These tests are commonly available in word processing software, including Microsoft Word and Corel WordPerfect. Because mechanical readability formulas do not evaluate the substantive content of a document, the department will exercise judgment when considering the readability statistics generated by these tests. However, absent explanatory circumstances or additional justification persuasive to the commissioner, your proposed non-model document will ordinarily not be approved if:

(A) over 21% of the sentences are passive in structure;

(B) the average sentence length exceeds 19 words;

(C) the Flesch reading ease score is less than 47.0; and

(D) the Flesch-Kincaid grade level score is higher than 11.0.

(2) As part of your application for department approval, you must disclose the readability statistics you generated in evaluating the final draft of your proposed document and explain the circumstances and justifications for any scores outside the parameters expressed in this subsection.

History

• Source Note: The provisions of this §25.4 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective January 7, 2010 35 TexReg 204; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.5 How Do I Obtain Approval of a Non-Model Contract or Waiver?

(a) Authority. Finance Code, §154.151(a), requires the department to approve a prepaid funeral benefits contract form before you use the form. Finance Code, §154.156(a), requires the department to approve a waiver of cancellation rights form in the same manner. You may use the department's model contracts or model waiver as provided in §25.2(a) of this title (relating to Am I Required to Use the Model Contract and Model Waiver). This section describes:

(1) how to apply to the department for approval of your proposed non-model contract, what information, documents, and fees you must file as part of your application before the department will accept it for filing, and what fees the department may impose, in subsection (b) of this section;

(2) what procedures the department will follow to approve or deny approval of your proposed non-model document and when you may reasonably expect the department to decide, in subsection (c) of this section;

(3) what actions you must take to obtain a second review by the department or a hearing before the commissioner if the department denies approval of your proposed non-model document, in subsection (d) of this section;

(4) how you may request a hearing before the commissioner, how the hearing will be conducted, and what the staff of the department must prove to uphold the disapproval, in subsection (e) of this section; and

(5) when you may no longer use an approved contract form, in subsection (f) of this section.

(b) Application for approval. Your application for approval of your proposed non-model document must be in writing and include all additional information, documents, and fees required by this subsection. You should file your application as far in advance of the date you intend to use your proposed document as possible.

(1) The additional information, documents, and fees that you must file as part of your application include:

(A) both a printed copy of your proposed non-model document and an electronic version of the document, prepared using Microsoft Word or Corel WordPerfect software, including computer screenshots of any portion to be used in electronic form;

(B) except as provided in §25.2(d) of this title, an English translation if the proposed non-model document is in Spanish and a certification from a translation service acceptable to the department that the filed English version is a true and correct translation of the proposed Spanish non-model document filed for approval;

(C) if your application is for approval of amendments to a previously approved non-model document:

(i) a printed copy of the proposed non-model document that is specifically marked to show all text proposed to be added and all text proposed to be deleted; and

(ii) a written summary of the amendments, both additions and deletions, explaining their purpose;

(D) a certification on a form supplied by the department, signed and acknowledged by you or your authorized agent, that you have reviewed the proposed non-model document that you filed for approval and to the best of your knowledge:

(i) your proposed non-model document complies with all applicable state and federal law, including Finance Code, Chapter 154, and this chapter;

(ii) if in electronic form, your proposed non-model document also complies with Business and Commerce Code, Chapter 322, and Electronic Signatures in Global and National Commerce Act, 15 U.S.C., §7001 et seq; and

(iii) if your application is for approval of amendments to a previously approved non-model document, the proposed non-model document is identical to the previously approved document except for text specifically marked as additions and deletions;

(E) unless you notify the department that it already has a copy on file:

(i) a copy of all related contracts and agreements that are part of your prepaid funeral arrangement, such as a separate finance charge agreement; and

(ii) if the proposed non-model document is an insurance-funded contract, a copy of the insurance policy form you intend to use and written evidence from the Texas Department of Insurance that the insurance policy has been approved for use in conjunction with the sale of prepaid funeral benefits; and

(F) payment of a $250 filing fee, except that upon request the department may waive or reduce the fee for review of minor amendments to a previously approved non-model document that are submitted under subparagraph (C) of this paragraph.

(2) Your application is considered accepted for filing and eligible for consideration if the application is substantially complete with all information, documents, and fees required by paragraph (1) of this subsection. At your request, the department will inform you in writing of the date it considers your application accepted for filing.

(3) If the department's review of a non-model document takes longer than four employee hours, you must pay a review fee of $60 per employee hour in excess of four hours. If you fail to pay review fees on or before the 10th day after you receive a written statement of charges due from the department, the department may exercise its discretion to conclude that you have withdrawn your application.

(c) Review process. This subsection describes when you may reasonably expect the department to approve or deny approval of your proposed non-model document and the procedure the department will follow in making its initial decision.

(1) The time the department's decision is due regarding your proposed non-model document will vary depending upon the date your application is accepted for filing under subsection (b)(2) of this section and on the nature of the document you seek to have approved.

(A) If your proposed non-model contract filing is the result of legislative amendments to Finance Code Chapter 154 effective on or after September 1, 2009, your non-model contract filing will be considered a new contract filing and the department will approve or deny approval on or before the 45th day after the date your application is accepted for filing.

(B) If your proposed non-model document is a non-model waiver or an amended version of a non-model contract previously approved by the department under this section, the department will approve or deny approval on or before the 30th day after the date your application is accepted for filing, except the department will either approve or deny approval on or before the 10th day after the date your application is accepted for filing if the proposed amendments are limited to changed or added information about you or a funeral home.

(2) The department may extend the date its decision is due under this subsection by up to an additional 30 days if it determines that your application raises issues requiring additional information or additional time for analysis. The department may request additional information from you in writing if the information is reasonably necessary for an informed decision to approve or deny approval of your proposed non-model document. If you receive a written request for additional information, you must file the information or a satisfactory written explanation of when the information can be filed with the department on or before the 30th day after the date you receive the request. If you fail to reply within this time period the department may exercise its discretion to conclude that you have withdrawn your application.

(3) The department will approve your proposed non-model document unless a specific basis exists to deny approval. The department will deny approval if your proposed non-model document fails to comply with the standards of this subchapter that apply. If the department discovers and confirms that use of the proposed non-model document will clearly violate a mandatory requirement of an applicable state or federal law other than Finance Code, Chapter 154, and this chapter, the department will deny approval. However, the department will ordinarily not review a proposed non-model document for compliance with other law, and approval of a non-model document under this section does not mean the department has determined that the non-model document complies with any state and federal law other than Finance Code, Chapter 154, and this chapter.

(4) If the department denies approval of your proposed non-model document, the department will send you a written notice of denial that:

(A) states the specific basis for the denial in writing and cites the specific provisions of law that the document does not satisfy;

(B) informs you that, on or before the 30th day after the date you receive the notice of denial, you must exercise your rights under subsection (d) of this section, to file either a written request for hearing or a revised non-model document for second review, or the denial will become final.

(d) Your rights after initial denial. This subsection describes the further actions you may take to obtain approval of your non-model document if the department initially denies approval under subsection (c) of this section.

(1) If the department denies approval of your proposed non-model document under subsection (c) of this section, you may file a written request for hearing before the commissioner under subsection (e) of this section or seek the department's second review by filing a new version of your proposed non-model document that you have specifically revised to address the reasons for denial.

(2) If you elect to file a new version of your proposed non-model document for second review, the department will consider the revised document to be part of your original application and will not require a new filing fee but may charge additional review fees under subsection (b)(3) of this section. The department will approve or deny approval of your revised non-model document on or before the 10th day following the date of its filing.

(3) If the department denies approval of your revised non-model document, the department will send you a second written notice of denial that:

(A) states the specific basis for the denial in writing and cites the specific provisions of law that the revised non-model document does not satisfy;

(B) if minor changes to the proposed document would result in approval and you have not previously been given the opportunity to make these changes, informs you of the opportunity to obtain approval by submitting your document with the specified changes on or before the 10th day after the date you receive the department's second written notice of denial; and

(C) informs you that you must file a written request for hearing with the department under subsection (e) of this section on or before the 30th day after the date you receive the department's second written notice of denial or the denial will become final.

(e) Commissioner hearing. This subsection describes how you may obtain a hearing before the commissioner and how the hearing will be conducted.

(1) To obtain a hearing before the commissioner, you must file a written request for hearing with the department on or before the 30th day after the date you receive the department's written notice of denial. Your written request for hearing must state with specificity the reasons you allege the department's denial of approval is in error.

(2) The department will forward your request for hearing to the administrative law judge, who shall enter appropriate orders and conduct the hearing on or before the 60th day after the date your request for hearing was received, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemaking) and Government Code, Chapter 2001. Your complete application, the department's notice or notices of denial, and your request for hearing will be made a part of the record.

(3) At the hearing, the staff of the department bears the burden of proof that approval of your proposed non-model document should be denied.

(4) The proposal for decision, exceptions and replies to the proposal for decision, the order of the commissioner, and motions for rehearing are governed by Chapter 9 of this title and Government Code, Chapter 2001.

(f) Withdrawn approval. The department may withdraw its approval of a model or previously approved non-model document for future use if governing law is changed or clarified by statute, rule, or judicial opinion. The department will notify you in writing if you are affected by a withdrawn approval.

History

• Source Note: The provisions of this §25.5 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective March 11, 2004, 29 TexReg 2301; amended to be effective January 7, 2010 35 TexReg 204; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.6 How and When are Contract Copies Distributed Between the Parties?

(a) At the conclusion of a discussion about funeral arrangements, if someone purchases prepaid funeral goods or services, whether trust-funded or insurance-funded, you must give the purchaser a copy of the contract and all related agreements.

(b) On or before the 30th day after the contract is executed by all parties, you must give a copy of the fully-executed contract to the purchaser, to any third-party provider or administrator that has responsibility for any portion of the contract, and, with respect to an insurance-funded contract, to the insurance company issuing the insurance policy, if the insurance company is a party to the contract.

(c) If a purchaser signs a written waiver of cancellation rights, you must give the purchaser a copy of the executed waiver at the time of execution.

(d) To give a purchaser a copy of the contract, you must give the purchaser a paper copy unless an electronic contract was used.

(e) If an electronic contract was used, you may deliver an electronic record of the contract and all related agreements by email or other electronic means to the purchaser if the purchaser has consented to receiving an electronic record as specified in §25.2(f)(1) - (2). If the purchaser requests a paper copy or is unable to retrieve the electronic record, you must give the purchaser a paper copy. You may not charge a fee for providing a paper copy.

History

• Source Note: The provisions of this §25.6 adopted to be effective March 14, 2002, 27 TexReg 1706; amended to be effective November 10, 2016, 41 TexReg 8814.

7 Tex. Admin. Code § 25.7 Casket and Outer-Burial Containers

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Casket--A rigid container, including but not limited to casket inserts and rest beds, which is designed for the encasement of human remains and which is usually constructed of wood, metal, fiberglass, plastic, or like material, and ornamented and lined with fabric.

(2) Contract--The prepaid funeral benefits contract.

(3) Outer-burial container--Any container which is designed for placement in the grave around the casket including, but not limited to, containers commonly known as burial vaults, grave boxes, and grave liners. The term "outer-burial container" does not include lawn crypts regulated under the Texas Health and Safety Code, Chapters 711 and 712.

(4) Urn--A temporary or permanent receptacle used for the containment of cremated remains.

(b) Descriptions.

(1) Conformity of descriptions. The prepaid funeral benefits contract must fully describe all services and merchandise purchased, including the casket or urn and any outer-burial container, as required by this section.

(2) Description content.

(A) Caskets. The description of a casket under this section must, at a minimum, include the following specifications:

(i) The type of material that is predominately used in the construction of the merchandise, i.e.:

(I) steel, identified as stainless or by gauge, e.g., 18 gauge;

(II) wood, identified by type, e.g., pecan or cherry;

(III) bronze, described by weight, e.g., 32 oz.;

(IV) copper, described by weight, e.g., 32 oz.; or

(V) other specifically named material, e.g., as cardboard or corrugated wood;

(ii) The type of sealing feature, e.g., sealer, non-sealer, gasketed, or non-gasketed, if specified on the permit holder's price list; and

(iii) The material lining the interior of the casket, e.g., crepe, velvet, satin, twill, or silk.

(B) Urns. The description of an urn under this section must, at a minimum, include the type of material predominately used in its construction. Bronze urns must be described as sheet bronze or cast bronze, whichever is applicable.

(C) Outer-burial container. The description of an outer-burial container under this section must, at a minimum, include the following specifications:

(i) The type of material that is predominately used in the construction of the merchandise, i.e.:

(I) concrete, specifying type of construction, e.g., liner, box, or vault;

(II) steel, identified as stainless or by gauge, e.g., 12 gauge (or described as galvanized of a particular gauge);

(III) wood;

(IV) bronze or copper, described by weight or gauge, e.g., 32 oz. or 18 gauge;

(V) other specifically named material; and

(ii) The type of sealing feature, e.g., sealer, non-sealer, if specified on the permit holder's price list.

(D) Caskets, urns, and outer-burial containers. Merchandise that is marketed as being of a particular content or fabrication, e.g., a fiberglass liner, must be described under this section according to the particular content or fabrication referenced in marketing the product.

(E) Optional disclosures. Except for information required under this section, no additional description of caskets, urns, or outer-burial containers is required; however, relevant information, e.g., a model number or color, may be added to a description at the election of the permit holder.

(c) Rule application. With respect to contracts entered prior to the effective date of this section or the effective date of any amendment to this section, a permit holder will not violate this section or such amendment if it fails to comply with one or more requirements of this section or an amendment that were not previously required by statute or rule.

History

• Source Note: The provisions of this §25.7 adopted to be effective March 25, 1997, 22 TexReg 2870; amended to be effective January 7, 2010 35 TexReg 204; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.8 Exemption for Sale of Funeral Goods

(a) For purposes of this section, the term "funeral goods" means tangible and nonperishable items of personalty, designed for use in connection with a funeral service, that are sold or offered for sale directly to the public, including an alternative container, casket, or outer burial container, but not including a marker, monument, or tombstone.

(b) A person who sells or offers to sell funeral goods prior to the death of the person for whom the goods are to be used is considered to be selling or offering to sell funeral merchandise on a preneed basis, and must be licensed under Finance Code, Chapter 154, unless, with respect to each and every offer or sale of funeral goods:

(1) the offer to sell funeral goods contemplates only a contemporaneous exchange of consideration and either delivery of actual physical possession and control of the funeral goods to the purchaser, or shipment of the goods directly to the purchaser;

(2) within 72 hours of the time of sale, the seller delivers actual physical possession and control of the funeral goods or orders a third party to immediately ship the goods directly to the purchaser;

(3) within 72 hours of the time of sale, the purchaser removes the funeral goods from the premises of the seller from whom and where the goods are purchased, or receives confirmation of shipping instructions consistent with paragraph (2) of this subsection;

(4) neither the seller nor another person that receives consideration for the sale of the funeral goods or, within the actual knowledge of the seller, for a prepaid funeral service in which the goods are intended for use directly or indirectly offers to store or stores the goods for the purchaser; and

(5) the goods are not sold in connection with, or in contemplation of trade or barter for, prepaid funeral benefits to be delivered by the seller or an affiliate of the seller.

(c) A seller of funeral goods is not considered to be selling funeral merchandise on a preneed basis solely because the seller takes a promissory note as consideration for the sale and retains a nonpossessory security interest in the funeral goods sold, provided the conditions of subsection (b) of this section are otherwise met.

(d) A seller of funeral goods must maintain written records of each sale adequate to demonstrate compliance with this section. Such records are subject to subpoena by the department pursuant to Finance Code, §35.203. Failure to comply with the conditions for exemption with respect to each and every sale of funeral goods may subject to seller to criminal and civil remedies set forth in Finance Code, §35.201 et seq and §154.401 et seq.

History

• Source Note: The provisions of this §25.8 adopted to be effective October 5, 1998, 23 TexReg 9973.

7 Tex. Admin. Code § 25.9 Package Sales

(a) For purposes of this section, the term "package sale" means a grouping of multiple funeral goods and services which is offered to the purchaser at a single price.

(b) Each good or service included in a package sale may have its individual value listed on the prepaid contract.

(1) If individual values are listed, and the package price is different than the sum of the listed values of each good or service included in the package sale, the contract must represent the package sale by listing a discount, credit, or price adjustment representing the difference.

(2) If individual values are listed, the value assigned to any funeral good or service included in a package sale, minus a proportional fraction of the package discount or credit, must be used:

(A) for purposes of compliance with Finance Code §154.1551 in the event of modification after the death of the beneficiary; and

(B) as the "agreed price" for purposes of preparing a written pre-need to at-need reconciliation under Finance Code §154.161(a)(2)(B).

(c) If individual values are not listed for each good or service included in a package sale, the word "included" must be listed for each item, provided that the following disclosure statement be made: "No refund or credit will be issued for package sale goods or services which remain unused by the customer at the time of need."

(1) Such disclosure statement may be included in the contract form, the provider's price list, or provided as an addendum. If included in the contract form, the disclosure statement must be included on page one or two of the contract. If included on the price list, the disclosure statement must be on each package price page. If provided as an addendum to the contract, it must be signed by both parties.

(2) In the event of modification after the death of the beneficiary, prices of funeral goods and services at the time of death must be used for purposes of compliance with Finance Code §154.1551.

(d) This section is effective for contracts executed after January 31, 2012.

History

• Source Note: The provisions of this §25.9 adopted to be effective January 5, 2012, 36 TexReg 9284.

Subchapter B REGULATION OF LICENSES

7 Tex. Admin. Code § 25.10 Recordkeeping Requirements for Insurance-Funded Contracts

(a) Application and general requirements. This section applies to a permit holder that sells or maintains insurance-funded prepaid funeral benefit contracts (prepaid contracts). Unless the commissioner grants an exception as provided for in subsections (f)(3) and (g) of this section, a permit holder must maintain and produce for examination the records as specified in this section. The permit holder:

(1) must make the records available to the department for examination at the physical location in Texas or if approved by the commissioner, in another state that the permit holder has designated in written notice to the department on file at the time of the examination;

(2) is required to make all the records specified in the department's pre-examination records request available to the department at the beginning of an examination and must produce such other records that provide additional clarification of required documents as may be requested during the examination in a manner that does not impede the efficient completion of the examination; and

(3) must maintain the records either in hard-copy form, in an electronic database, or on another form of media from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient completion of the examination.

(b) Corporate records. Corporate records of a permit holder subject to this section and all corporate minutes must be maintained and made available to the department at each examination.

(c) General files. A permit holder subject to this section must maintain and produce for department examination general files regarding its prepaid funeral benefits operations. The files must contain the original or a copy of the following:

(1) financial statements of the permit holder or the permit holder's parent or holding company including a balance sheet and income statement dated not later than the last day of the permit holder's preceding fiscal year, or the permit holder's most recent income tax return, or if the permit holder is an insurance company, the most recent statement filed with the insurance regulatory agency of the insurance company's state of domicile;

(2) if the permit holder received a uniform risk rating of 3, 4, or 5 at the last examination or if the last examination was a limited scope examination, the examination report acknowledgments, signed by the permit holder's board of directors, for the last examination report;

(3) the Texas Department of Insurance (TDI) approval letter and sample copy of policy form for each policy currently being issued to fund prepaid funeral contracts in the Texas preneed market;

(4) all written complaints received related to insurance-funded prepaid funeral contracts, documents related to any regulatory action, and documents evidencing litigation activity since the last examination;

(5) all recordkeeping exceptions and other department or commissioner approvals or directions upon which the permit holder relies in connection with its current operations;

(6) if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, a copy of the examination reports of the insurance regulatory agency of the insurance company's state of domicile for the period since the last examination, and the responses to the regulatory agency regarding examination report findings that are pertinent to the prepaid funeral benefits business, unless the law of the state of domicile prohibits disclosure of the examination reports and related correspondence to the department;

(7) for any outstanding prepaid contract with a funeral provider that has an issue date since the last examination, either:

(A) general, casket, outer burial container, and urn price lists for the corresponding or contracted funeral provider; or

(B) alternative documentation that demonstrates compliance with required casket, outer-burial container and urn merchandise descriptions;

(8) a list of funeral home providers for all outstanding contracts;

(9) a list of TDI licensed insurance agents currently selling for the permit holder; and

(10) a list of funeral home providers that are known to the permit holder to have ceased business since the last examination.

(d) Individual files.

(1) A permit holder subject to this section must maintain a file for each prepaid funeral contract. The file must either be maintained separately or be capable of retrieval separately for outstanding contracts and may be maintained either chronologically, alphabetically or serially by policy number. Each file must contain all correspondence pertaining to the contract, including documentation to evidence that the executed prepaid funeral contract has been issued to the contract purchaser and the funding policy has been issued to the policy owner within 30 days of the receipt of the initial down payment and insurance application.

(2) Each file pertaining to an outstanding prepaid funeral contract must contain a copy of the executed policy application, executed prepaid funeral contract, any irrevocable assignments, and the data face sheet of the insurance policy or annuity contract funding the prepaid funeral contract.

(3) Each file pertaining to a matured prepaid funeral contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid funeral contract. In addition:

(A) a matured-contract file for which services were provided by the contracted funeral provider or were provided under an assignment, by an agreed to Texas successor provider must contain:

(i) the original or a final copy of the completed at-need contract or funeral purchase agreement, itemization of services performed and merchandise delivered, or the interment order if the prepaid contract relates only to a grave opening and closing fee, outer burial container or other related merchandise and services. The document must be signed by the decedent's personal representative and indicate the prepaid credits and discounts applied and the balance due, if any, from the family at the time of death;

(ii) documentation to substantiate any upgrades or downgrades or discounts or credits given and to explain any differences between the prepaid and the at-need contracts;

(iii) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred;

(iv) evidence of payment of the policy(s) death benefits to the servicing funeral provider;

(v) documentation that reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim;

(vi) if applicable, evidence of payment to the decedent's personal representative of any refund of contract overcharges by the provider; and

(vii) pre-need to at-need reconciliation, which must be signed by the funeral provider, if the provider is not also the seller.

(B) a matured contract file for which services were provided by a person other than a person listed in subparagraph (A) of this paragraph must contain:

(i) a signed assignment of benefits statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;

(ii) evidence of payment to the servicing funeral provider;

(iii) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred; and

(iv) documentation to support the death benefits available at the time of claim.

(4) Each file pertaining to a canceled prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding contract, a completed departmental withdrawal form or evidence of departmental withdrawal approval, documentation to support the available cash surrender value of the funding policy, and evidence of payment of cancellation benefit.

(5) Each file pertaining to a prepaid contract whose funding insurance policy has changed status since the last examination, for example, to a reduced paid-up, lapsed, or extended term insurance policy, must be retained for the period since the last examination. The file must contain:

(A) copies of all documents required for an outstanding contract;

(B) a copy of the permit holder's letter to the purchaser which:

(i) informs the purchaser of contract status;

(ii) states the date of the status change and, if applicable, the reduced death benefit coverage amount;

(iii) states the termination date of such coverage; and

(iv) informs the purchaser that the prepaid benefits may not be honored by the funeral provider due to the non-forfeiture or delinquent status of the funding policy; and

(C) for a reduced paid-up or extended term policy, copies of an election form indicating the purchaser has chosen reduced paid-up or extended term status, unless the policy has automatic non-forfeiture provisions.

(e) Reports. A permit holder subject to this section must maintain the following records regarding its prepaid funeral benefits operations for both new and conversion sales:

(1) a report detailing new business issued within the reporting period sorted by policy type and maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The new issue report must balance to the reconciliation report required under paragraph (4) of this subsection. Information required to be in separate columns includes:

(A) the insured's name;

(B) the policy number or numbers;

(C) the prepaid contract total;

(D) the date of policy issuance; and

(E) the death benefit, or insurance in force, whichever is applicable.

(2) reports detailing out-of-force and non-forfeiture policies, sorted by policy type, and subtotaled in count and reduced coverage amount by status codes for death maturity, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, not taken, or such other codes which may be used to designate policies no longer in force, maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. If the reports cannot be sub-totaled, a separate report must be generated for each type of termination status or non-forfeiture change. The reports must balance to the reconciliation report required under paragraph (4) of this subsection. Information required to be in separate columns includes:

(A) the insured's name;

(B) the date of policy issuance;

(C) the policy number or numbers;

(D) the date the policy matured, lapsed, or was surrendered or canceled; and

(E) the death benefit amount that has been paid, reduced, deleted, or transferred.

(3) an in-force policy report, sorted by policy type and maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The in-force report must balance to the reconciliation report required under paragraph (4) of this subsection. The report must provide the grand total number of policies or prepaid funeral contracts in force and the grand total of death benefit or insurance in force. Information required to be included in separate columns includes:

(A) the insured's name;

(B) the policy number or numbers;

(C) the prepaid contract total;

(D) the date of policy issuance;

(E) the death benefit, or insurance in force, whichever is applicable; and

(F) growth, e.g., dividends and interest, attributable to outstanding policies for the reporting period unless maintained on a separate report.

(4) a reconciliation report that shows the activity related to each policy that was identified in the new issue report required under paragraph (1) of this subsection and the out-of-force and non-forfeiture policy reports required under paragraph (2) of this subsection. In addition to the required reports detailed above, the permit holder must provide documentation to support any other changes to contract/policy count and/or death benefit reported. The ending totals of the respective reconciliation period for contract/policy count and death benefit reported, must balance to the totals on the corresponding in-force policy report required under paragraph (3) of this subsection. The permit holder may use the department's Annual Report Recapitulation of Policy Activity format to complete this report. The report must at a minimum be balanced as of June 30 and December 31 of each year; and

(5) a suspense report of all premiums being held on paid-up policies and premium paying policies where the premiums in suspense are equal to or greater than the modal premium amount.

(f) Exceptions.

(1) A permit holder that sells only insurance-funded contracts is not required to maintain records that are applicable only to trust-funded contracts.

(2) With respect to contracts sold prior to the effective date of this section, a permit holder will not violate this section if it cannot produce records required under this section which were not previously required by statute or rule. However, basic reporting of in-force benefit amounts and policy activity from the last examination date to the current examination date will be required of all permit holders for insurance companies that have outstanding insurance policies funding prepaid contracts in Texas.

(3) A permit holder may apply to the commissioner for an exception to the requirements of this section. An exception may be granted or revoked for good cause only by prior written direction of the commissioner.

(g) Relocation of records. Prior to changing the location where required records are maintained or where the examination is to be performed pursuant to §154.053(a) of the Texas Finance Code, a permit holder must notify the department, specifying the new address in writing, and, if the change in location requires the granting of an exception, comply with subsection (f)(3) of this section before required records are moved to the new location. The commissioner may revoke a records location if the commissioner determines that such action is necessary to effectively regulate the permit holder and examine the records.

(h) Maintenance of files. Documents and records required to be maintained under this section must be filed within 30 days of receipt. Cash withdrawn on death maturity must be posted within 30 days of actual withdrawal.

(i) Disaster recovery plan. If required records are maintained electronically, the permit holder must provide evidence of a disaster recovery plan, including documentation to substantiate periodic testing and test results or compliance with TDI business continuity planning requirements if applicable, that includes offsite data storage capabilities regarding all records and documentation related to prepaid funeral contracts.

History

• Source Note: The provisions of this §25.10 adopted to be effective November 8, 2007, 32 TexReg 7897; amended to be effective July 8, 2010, 35 TexReg 5804; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.11 Recordkeeping Requirements for Trust-Funded Contracts

(a) Application and general requirements. This section applies to a permit holder that sells or maintains trust-funded prepaid funeral benefit contracts (prepaid contracts). Unless the commissioner grants an exception as provided for in subsections (f)(2) and (g) of this section, a permit holder must maintain and produce for examination the records as specified in this section. The permit holder:

(1) must make the records available to the department for examination at its physical location in Texas or if approved by the commissioner, in another state that the permit holder has designated in written notice to the department on file at the time of the examination;

(2) is required to make all the records specified in the department's pre-examination records request available to the department at the beginning of an examination and must produce such other records that provide additional clarification of required documents as may be requested during the examination in a manner that does not impede the efficient completion of the examination; and

(3) must maintain the records either in hard-copy form, in an electronic database, or on another form of media from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient completion of the examination.

(b) Corporate Records. All corporate records of a permit holder subject to this section and all corporate minutes created since the last examination must be maintained and made available to the department at each examination.

(c) General files. A permit holder subject to this section must maintain and produce for department examination general files regarding its prepaid funeral benefits operations. The files must contain the original or a copy of the following:

(1) unless the permit holder is restricted from selling prepaid funeral benefits, financial statements of the permit holder or the permit holder's parent or holding company including a balance sheet and income statement dated not later than the last day of the permit holder's preceding fiscal year, or the permit holder's most recent income tax return, which must also include a balance sheet;

(2) if the permit holder received a uniform risk rating of 3, 4, or 5 at the last examination or if the last examination was a limited scope examination, the examination report acknowledgements, signed by the permit holder's board of directors for the last examination report;

(3) all written complaints received since the last examination related to prepaid contracts, and all documents received or created since the last examination related to any regulatory action or evidencing litigation activity;

(4) all recordkeeping exceptions and other department or commissioner approvals or directions upon which the permit holder relies in connection with its current operations;

(5) all trust agreements approved by the department since the last examination and all trust agreements that are still active, including amendments and changes to the trust agreements and all successor trust agreements;

(6) all investment plans and reports created or received since the last examination, and all such plans and reports that apply to active trust funds;

(7) all preneed abandoned property reports filed with the department and the State Comptroller of Public Accounts since the last examination;

(8) records of the trustee/depository, reflecting at a minimum all savings account statements, certificate of deposit records, and/or trust statements, received since the last examination;

(9) a copy of all price lists for any outstanding prepaid contract that has an issue date since the last examination;

(10) if the permit holder sells through multiple locations or entities, provide a list of funeral home providers for all outstanding contracts; and

(11) a list of funeral home providers or entities that have outstanding contracts under this permit that are known to the permit holder to have ceased business since the last examination.

(d) Individual files.

(1) A permit holder subject to this section shall maintain a prepaid contract file on each purchaser. The file must either be maintained separately or be capable of retrieval separately for outstanding contracts and may be maintained either chronologically or alphabetically. Each file must contain all correspondence pertaining to the contract.

(2) Each file pertaining to an outstanding contract must contain a copy of the executed prepaid contract, any revocable and irrevocable assignments, the individual ledger, and, if applicable, all power of attorney agreements or letters of guardianship.

(3) Each file pertaining to a matured contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid contract. In addition, a matured contract file must contain:

(A) a fully executed and completed department withdrawal form or evidence of department withdrawal approval, and a computation of earnings withdrawal, if applicable, unless computation procedures are otherwise documented in the general file;

(B) the original or a final copy of the completed at-need contract or funeral purchase agreement, itemization of services performed and merchandise delivered, or the interment order if the prepaid contract relates only to a grave opening and closing fee, outer burial container or other related merchandise and services. The document must be signed by the decedent's personal representative and indicate the prepaid credits and discounts applied and the balance due, if any, from the family at the time of death;

(C) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred;

(D) documentation to substantiate any upgrades or downgrades or discounts or credits given and to explain any differences between the prepaid and the at-need contracts;

(E) a pre-need to at-need reconciliation, which must be signed by the funeral provider, if the provider is not also the seller; and

(F) if applicable, evidence of payment to the decedent's personal representative of any refund of prepaid contract overcharges by the funeral provider.

(4) Each file pertaining to a matured-contract file for which services were provided by a funeral provider other than the permit holder or a permit holder related by common ownership, must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid contract and:

(A) a signed statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;

(B) evidence of payment to the servicing funeral provider; and

(C) a copy of a Texas certified death certificate or a death certificate from the state in which death occurred.

(5) Each file pertaining to a canceled prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding contract, a completed departmental withdrawal form or evidence of departmental withdrawal approval; and evidence of payment of the cancellation benefit.

(e) Other records. A permit holder subject to this section must maintain the following records regarding its prepaid funeral benefits operations in hard-copy form, in an electronic database, or on another form of media from which they may be reasonably retrieved in hard-copy form:

(1) an historical contract register, maintained either chronologically or by contract number, indicating:

(A) the contract number;

(B) the date of purchase;

(C) the purchaser's name;

(D) the beneficiary's name (if different from the purchaser's name);

(E) the amount of the contract; and

(F) final disposition of the contract, including notations as to whether the contract is matured or canceled, the date of withdrawal from the depository or date withdrawal requested from the depository, and the amount of funds withdrawn; or, in lieu thereof, a record separate from the register, listing matured and canceled contracts for the examination period and setting out the contract number, contract purchaser, date of withdrawal from the depository or date withdrawal was requested from the depository, and amount of the withdrawal;

(2) cash receipts records reflecting payments collected;

(3) deposit records reflecting payments deposited;

(4) individual ledgers for each contract purchaser, balanced at least quarterly to the control ledger and to the records of the trustee/depository, reflecting the:

(A) contract purchaser's name;

(B) contract number;

(C) the date of purchase;

(D) the face amount of the prepaid funeral contract;

(E) total finance charges payable under the contract, if any;

(F) total retention allowable under the contract, if any;

(G) beginning contract balance;

(H) amounts paid on the contract itemized to reflect retention, finance charges and principal paid with individual cumulative totals;

(I) earnings on deposits, if any; and

(J) total amount of the trust; and

(5) a control ledger for all purchasers, balanced at least quarterly to the principal total and contract count total of the individual ledgers and in total to the records of the trustee/depository, reflecting:

(A) the net cumulative total of outstanding contracts;

(B) deposits of payments;

(C) withdrawal of payments;

(D) net amount of payments on deposit;

(E) earnings of deposit accounts;

(F) earnings withdrawn on deposit accounts; and

(G) net amount of earnings.

(f) Exceptions.

(1) With respect to contracts sold prior to the effective date of this section, a permit holder will not violate this section if it cannot produce records required under this section which were not previously required by statute or rule.

(2) A permit holder may apply to the commissioner for an exception to the requirements of this section. An exception may be granted or revoked for good cause only by prior written direction of the commissioner.

(g) Relocation of Records. Prior to changing the location where required records are maintained or where the examination is to be performed pursuant to §154.053(a) of the Texas Finance Code, a permit holder must notify the department, specifying the new address in writing, and, if the change in location requires the granting of an exception, comply with subsection (f)(2) of this section before required records are moved to the new location. The commissioner may revoke approval of a records location if the commissioner determines that such action is necessary to effectively regulate the permit holder and examine the records.

(h) Maintenance of Files. Documents and records required to be maintained under this section must be filed within thirty days of receipt. Cash received must be posted within 30 days of receipt, and cash withdrawn on death maturity must be posted within 30 days of the actual withdrawal.

(i) Disaster recovery plan. If required records are maintained electronically, the permit holder must provide evidence of a disaster recovery plan, including documentation to substantiate periodic testing and test results, including offsite data storage capabilities regarding all records and documentation related to prepaid contracts.

History

• Source Note: The provisions of this §25.11 adopted to be effective March 8, 2012, 37 TexReg 1497; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.12 Withdrawal of Funds

(a) Death maturity. The funds on deposit on a matured contract may be withdrawn as prescribed by Finance Code, §154.262 and §154.263, without prior approval of the banking commissioner (the commissioner).

(b) Cancellation. The funds on deposit on a cancelled contract may be withdrawn as prescribed by Finance Code, §154.155 and §154.205, without prior approval of the commissioner.

(c) Payment of charges. Withdrawal of earnings for paying reasonable and necessary charges of a bank, savings bank, savings and loan association, trust department of a bank, or trust company does not need prior approval of the commissioner, but will be subject to examination.

(d) Payment of taxes. Withdrawal of earnings for the purpose of paying taxes caused or created by the existence of prepaid funeral deposit or trust accounts requires prior written approval of the commissioner. Approval may be requested by submitting documentation to substantiate the additional tax liability from prepaid funeral benefits earnings.

(e) Payment of guaranty fund assessments. A permit holder is authorized, without prior approval of the commissioner, to withdraw earnings for the purpose of paying guaranty fund assessments levied pursuant to the authority of Finance Code, §154.261.

(f) Payment of examination costs and assessments made in conjunction with examinations. Withdrawal of earnings for the purpose of paying to the department examination costs and assessments made in conjunction with the examination under Finance Code, §154.261, does not require prior approval of the commissioner.

(g) Abandoned funds. Withdrawal of abandoned funds under Finance Code, §154.303, require prior written approval of the commissioner of banking. Approval may be requested by submitting to the department a completed application for unclaimed property on a form prescribed by the Texas treasury department.

(h) Preparation of financial statements. A permit holder is authorized, with prior written approval of the commissioner, to withdraw earnings for the purpose of paying for the preparation of financial statements required by the department pursuant to the authority of Finance Code, §154.261, including financial statements required in lieu of an examination by the department. Approval may be requested by submitting a written request to the department together with the bill for preparation of the financial statement.

History

• Source Note: The provisions of this §25.12 adopted to be effective May 2, 1984, 9 TexReg 2236; amended to be effective March 23, 1994, 19 TexReg 1651.

7 Tex. Admin. Code § 25.13 Annual Report Filing

(a) Valid permit. A permit issued by the department to sell prepaid funeral benefits remains in effect until it is revoked by the department or surrendered by the permit holder.

(b) Date of filing. Each permit holder with outstanding prepaid funeral benefit contracts must file an annual report with the department by March 1 of each year for the preceding calendar year.

(c) Contents of filing. The Annual Report filing must be sworn to by an authorized agent or corporate officer of the permit holder before a notary and must provide:

(1) the name and permit number of the permit holder;

(2) a contact name and contact information for the permit holder;

(3) a recapitulation of the prepaid funeral benefits contract activity for the preceding calendar year, including beginning balances, additions, deletions, adjustments, and ending balances;

(4) a copy of the permit holder's in-force policy run or control ledger as of December 31 that substantiates the ending balances;

(5) an explanation for any material variances between the ending balances in the recapitulation described in subsection (c)(3) of this section, and those in the in-force policy run or control ledger described in subsection (c)(4) of this section;

(6) a sworn affidavit completed and signed by the insurance company or depository institution attesting to the permit holder's holdings, balances, or accounts as of December 31; and

(7) the Guaranty Fund assessment, if applicable.

History

• Source Note: The provisions of this §25.13 adopted to be effective March 11, 2010, 35 TexReg 1952; amended to be effective September 8, 2019, 44 TexReg 4708; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.14 Uniform Risk Ratings

(a) In general. All prepaid funeral benefit permit holders are subject to periodic examination. As a result of the examination, the permit holder will be assigned a confidential uniform risk rating of 1 to 5 as further described in this section. The uniform risk rating represents a judgment of the overall risk profile presented by the permit holder in relation to the purposes of regulation. In general, a rating of 1 indicates the highest level of compliance and the least degree of supervisory concern, and a rating of 5 indicates the lowest level of compliance and the highest degree of supervisory concern. A rating of 3, 4 or 5 is considered less than satisfactory for purposes of Finance Code §154.053(b)(1)(A).

(b) Overall risk profile. Evaluation of the overall risk profile of the permit holder can be described as involving three interrelated attributes or components, although these attributes are not separately rated.

(1) Management. This attribute or portion of the evaluation involves judgment of the ability, skill, and motivation of management and staff of the permit holder to identify, measure, monitor, and control potential problems and risks. Competent management should be able to develop and apply management practices and procedures suitable to the size of the permit holder and the nature and complexity of its activities. In addition, the willingness and ability of management to comply with applicable laws and regulations are important considerations.

(2) Compliance. This attribute or portion of the evaluation involves judgment of the degree to which the permit holder administers prepaid funeral contracts in accordance with governing instruments and applicable laws and regulations and the degree to which the permit holder adheres to sound fiduciary principles. The examiner will consider the extent and nature of violations discovered during the examination, and will assess the manner and methods by which the permit holder discovers and corrects violations. Correction of violations cited in previous examinations will also be considered.

(3) Financial condition. This attribute or portion of the evaluation involves judgment of the overall financial condition of the permit holder in relation to the risks imposed by its size and the nature and complexity of its activities. An important consideration is the extent of the financial resources available to the permit holder for the purpose of fulfilling its responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future. Availability of financial resources can be demonstrated through or enhanced by undertakings of a parent company or associated holding company.

(c) Uniform risk ratings. The uniform risk rating is a single number, 1 to 5, that is based upon a qualitative analysis of the overall risk profile of the permit holder. The rating is not determined through application of a mathematical formula, but is instead based upon a judgment that balances an assessment of the attributes described in subsection (b) of this section in light of all other relevant factors, such as the size of the permit holder and the complexity of its operations.

(1) Rating "1" (Strong Overall Condition). Permit holders assigned a uniform risk rating of 1 are sound in every respect; any adverse findings or comments are of a minor nature and can be resolved in the normal course of business by management. Permit holders in this group give no cause for supervisory concern.

(A) Management.

(i) Consistently and effectively identifies, measures, monitors, and controls potential problems and risks. Demonstrates the ability to promptly and successfully address existing and potential problems and risks.

(ii) Demonstrates strong management practices and procedures relative to the size of the permit holder and the nature and complexity of its activities.

(iii) Demonstrates a willingness and ability to comply with applicable laws and regulations.

(B) Compliance.

(i) Administers prepaid funeral contracts in accordance with governing instruments and applicable laws and regulations.

(ii) Demonstrates adherence to sound fiduciary principles.

(iii) Any noted violations are isolated, technical in nature and easily correctable.

(iv) Corrects any violations in a timely manner and correction may occur after self evaluation.

(C) Financial condition.

(i) The overall financial condition of the permit holder is strong in relation to the risks imposed by its size and the nature and complexity of its activities.

(ii) Demonstrates more than sufficient financial resources available for the purpose of fulfilling the permit holder's responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future.

(2) Rating "2" (Satisfactory Overall Condition). Permit holders assigned a uniform risk rating of 2 are generally satisfactory but may reflect a few weaknesses. To the extent that deficiencies are correctable in the normal course of business, supervisory concern is not warranted.

(A) Management.

(i) In general, effectively identifies, measures, monitors, and controls potential problems and risks. Minor weaknesses may exist, but are not material to the soundness of the permit holder and are being addressed.

(ii) Demonstrates satisfactory management practices and procedures relative to the size of the permit holder and the nature and complexity of its activities.

(iii) Demonstrates a willingness and ability to comply with applicable laws and regulations.

(B) Compliance.

(i) Administers prepaid funeral contracts in substantial compliance with governing instruments and applicable laws and regulations.

(ii) Demonstrates adherence to sound fiduciary principles.

(iii) Any noted violations are generally technical in nature and few in number.

(iv) Corrects violations in a timely manner.

(C) Financial condition.

(i) The overall financial condition of the permit holder is satisfactory in relation to the risks imposed by its size and the nature and complexity of its activities.

(ii) Demonstrates sufficient financial resources available for the purpose of fulfilling the permit holder's responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future.

(3) Rating "3" (Marginal Overall Condition). Permit holders assigned a uniform risk rating of 3 exhibit operating and compliance weaknesses ranging from moderate to marginally severe. Permit holders in this group require more than normal supervision to assure correction of deficiencies and are considered less than satisfactory.

(A) Management.

(i) May inadequately identify, measure, monitor, or control potential problems and risks. The capabilities or resources of management may be insufficient to address existing and potential problems and risks.

(ii) Management practices and procedures need improvement or are less than satisfactory in relation to the size of the permit holder and the nature and complexity of its activities.

(iii) May demonstrate a reluctance to take all necessary steps to comply with applicable laws and regulations.

(B) Compliance.

(i) Compliance practices are less than satisfactory. Contract administration may be in substantial noncompliance with governing instruments, and applicable laws.

(ii) May fail to consistently adhere to sound fiduciary principles.

(iii) Violations may be in evidence, some of which may be repeat criticisms.

(iv) May fail to correct violations in a timely manner.

(C) Financial condition.

(i) The overall financial condition of the permit holder is less than satisfactory in relation to the risks imposed by its size and the nature and complexity of its activities.

(ii) Financial resources may not be sufficient for the purpose of fulfilling the permit holder's responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future. The permit holder's financial condition needs to be improved.

(4) Rating "4" (Poor Overall Condition). Permit holders assigned a uniform risk rating of 4 exhibit poor operating and compliance weaknesses. Permit holders in this group require increased supervisory attention to assure prompt corrective action.

(A) Management.

(i) The level of problems and risk exposure is excessive. Problems and risks are inadequately identified, measured, monitored, or controlled and require immediate action by management to preserve the soundness of the permit holder. Identified criticisms are not being addressed or resolved.

(ii) Management practices and procedures are inadequate relative to the size of the permit holder and the nature and complexity of its activities.

(iii) May demonstrate an unwillingness or inability to take all necessary steps to comply with applicable laws and regulations.

(B) Compliance.

(i) The level of compliance problems is significant. Contract administration may be notably deficient and in substantial noncompliance with governing instruments, and applicable laws.

(ii) May fail to consistently adhere to sound fiduciary principles.

(iii) Substantive violations exist and may remain uncorrected from previous examinations.

(iv) May fail to correct violations in a timely manner.

(C) Financial condition.

(i) The overall financial condition of the permit holder is deficient or deteriorating in relation to the risks imposed by its size and the nature and complexity of its activities.

(ii) Demonstrates insufficient financial resources available for the purpose of fulfilling the permit holder's responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future. The permit holder's financial condition needs to be improved.

(5) Rating "5" (Critically Deficient Overall Condition). Permit holders assigned a uniform risk rating of 5 exhibit performance or conditions which are critically deficient in numerous major respects. Permit holders in this group are of the greatest supervisory concern and as such, require ongoing supervisory attention.

(A) Management.

(i) Problems and risks are inadequately identified, measured, monitored, or controlled and now threaten the continued viability of the permit holder or the ability to perform as contracted. Incompetent or neglectful administration and inadequate resources may have contributed to existing problems. Management has not demonstrated the ability to promptly and successfully address existing and potential problems and risks.

(ii) Management practices and procedures are critically deficient relative to the size of the permit holder and the nature and complexity of its activities, and may evidence a flagrant disregard for the interests of contract purchasers and beneficiaries.

(iii) May demonstrate an unwillingness or inability to take all necessary steps to comply with applicable laws and regulations.

(B) Compliance.

(i) The level of compliance problems is critically deficient. Contract administration may be critically deficient or incompetent and there is a flagrant disregard for the terms of the governing instruments, and interests of contract beneficiaries.

(ii) May frequently engage in transactions that compromise its duties and sound fiduciary principles.

(iii) Numerous substantive violations exist and may be flagrant or repeated.

(iv) Fails to correct violations in a timely manner.

(C) Financial condition.

(i) The overall financial condition of the permit holder is critically deficient in relation to the risks imposed by its size and the nature and complexity of its activities.

(ii) Demonstrates insufficient financial resources available for the purpose of fulfilling the permit holder's responsibilities and obligations over the life of the prepaid funeral contracts under its control, including those currently outstanding and those reasonably anticipated to exist in the future. The continued viability of the permit holder is threatened.

History

• Source Note: The provisions of this §25.14 adopted to be effective March 11, 2010, 35 TexReg 1953.

7 Tex. Admin. Code § 25.17 Guaranty Fund

(a) Fund established. Pursuant to Finance Code Chapter 154, Subchapter H, guaranty fund is established to guarantee performance by sellers and providers of prepaid funeral services. The fund is named the Prepaid Funeral Guaranty Fund, and is supervised by an advisory council composed of members as set out in Finance Code §154.355. The fund is composed of two separate accounts, one for trust-funded contracts and one for insurance-funded contracts.

(b) Advisory Council. The advisory council is named the Guaranty Fund Advisory Council. The consumer representative and the insurance-funded industry representative serve a two-year term beginning on January 1 of an even-numbered year and ending December 31 of the following odd-numbered year. The trust-funded industry representative serves a two-year term beginning on January 1 of an odd-numbered year and ending December 31 of the following even-numbered year. The banking commissioner or the commissioner's official designee serves as the chairperson of the council.

(c) Assessments. The department shall make and collect assessments from all sellers of prepaid funeral benefits pursuant to Finance Code Chapter 154, Subchapter H. Each seller shall remit the amount of its calculated assessment to the department each year with its Annual Report filing.

(d) Expenses. The commissioner may use any earnings from the Prepaid Funeral Guaranty Fund for reimbursement of travel expenses incurred by the industry and the consumer representatives of the Guaranty Fund Advisory Council pursuant to the travel guidelines applicable to state employees, and for the expenses of providing any other legislatively mandated action with respect to the Prepaid Funeral Guaranty Fund, including but not limited to audits.

(e) Meetings. The Guaranty Fund Advisory Council shall meet on a periodic basis as determined by the commissioner in order to fulfill the requirements of supervising the operation and maintenance of the Prepaid Funeral Guaranty Fund.

History

• Source Note: The provisions of this §25.17 adopted to be effective November 5, 2009, 34 TexReg 7597; amended to be effective November 10, 2011, 36 TexReg 7505; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.18 Cancelled Permits

(a) Notice. Within 30 days of cancellation of a permit to sell prepaid funeral benefits, the department shall notify the parties to the contracts sold by the cancelled permit holder of the cancellation. The notice shall provide information regarding the purchaser's options, the Prepaid Funeral Guaranty Fund, and the process for seeking a successor permit holder.

(b) Bid list. The department shall maintain a bid list of entities that wish to:

(1) bid for the right to assume a cancelled trust-funded permit holder's obligations under prepaid funeral contracts and the right to receive the balance of prepaid funeral funds paid or to be paid under those contracts; or

(2) bid for the right to assume a cancelled insurance-funded permit holder's obligations under prepaid funeral contracts; or

(3) bid to provide administrative and record keeping services related to a cancelled permit holder's outstanding prepaid funeral contracts.

(c) Solicitation of bids. On or before the 60th day after the date of cancellation of a permit to sell prepaid funeral benefits, the department shall notify those on the bid list and all permit holders in the vicinity of the cancelled permit holder of the cancellation. If the cancelled permit is trust-funded, the department shall additionally notify all funeral providers in the vicinity of the canceled permit holder of the cancellation. The commissioner shall have the discretion to combine or group contracts for bidding and sale purposes. The notice must include:

(1) the name and address of the cancelled permit holder;

(2) the number and aggregate dollar amount of unperformed prepaid funeral contracts;

(3) the balance of unearned prepaid funeral funds in trust or the value of insurance policies related to unperformed prepaid funeral contracts;

(4) the date by which sealed bid proposals must be submitted to the department to be considered for the bid award;

(5) instructions as to how eligible potential bidders may inspect the cancelled permit holder's prepaid funeral contract records; and

(6) a statement that, with the exception of bids to provide administrative and record keeping services, all successful bidders must have or obtain an appropriate permit to sell prepaid funeral contracts in Texas.

(d) Selection considerations. After the deadline has expired for submitting sealed bids, the commissioner may select a successor to the cancelled permit holder or may select a provider of administration and record keeping services in a situation where no acceptable successor permit holder is found.

(1) If the bidder is a permit holder, the commissioner shall consider:

(A) whether the bidder has demonstrated an ability to properly manage, maintain, and account for its own prepaid funeral funds;

(B) whether the bidder has properly remedied violations of law cited by the department in its examination reports;

(C) whether the bidder has a history of repeated or continuous violations;

(D) whether the bidder has the ability to fulfill the terms of the prepaid funeral contract;

(E) whether the bidder poses any other significant regulatory concern;

(F) the current or potential claim against the Prepaid Funeral Guaranty Fund; and

(G) any other relevant information.

(2) If the bidder is a non-permit holder funeral provider, the commissioner shall consider, to the extent applicable, all of the factors listed in paragraph (1) of this subsection, as applicable, and the following:

(A) the bidder's general reputation in the community where it is located;

(B) whether the bidder's business ability, experience, character, and general fitness warrant the confidence of the public;

(C) any state or federal law enforcement, administrative, or other action taken against the bidder; and

(D) the bidder's willingness to obtain a permit from the commissioner to sell prepaid funeral benefits in the State of Texas and to abide by the statutes and rules governing such permits.

(3) If the bidder is a provider of administration and record keeping services, the commissioner shall consider the following:

(A) the bidder's business experience and knowledge of Chapter 154 of the Finance Code;

(B) the bidder's financial capacity;

(C) the bidder's fee structure and its effect on the Prepaid Funeral Guaranty Fund;

(D) the bidder's general reputation;

(E) whether the bidder's business ability, experience, character, and general fitness warrant the confidence of the public;

(F) any state or federal regulatory or law enforcement, administrative, or other action taken against the bidder; and

(G) any other relevant information.

(e) Selection of successor. The commissioner alone shall be responsible for the selection of a successor permit holder or service provider under this section. However, the commissioner shall make no contract that obligates the Prepaid Funeral Guaranty Fund unless approved by the Guaranty Fund Advisory Council.

(f) Rejection of bids. The commissioner may reject all bid proposals received pursuant to this section.

(1) If all bids for a cancelled trust-funded permit are rejected, a new bid proposal may be solicited or, alternatively, the balance of trust-funded prepaid funeral funds paid or to be paid under the contracts of the cancelled permit holder shall be placed in the Prepaid Funeral Guaranty Fund for management by the Guaranty Fund Advisory Council. The department shall manage the prepaid funeral contracts; provided, however, that the commissioner may thereafter solicit additional bid proposals under subsection (d) of this section.

(2) If all bids for a cancelled insurance-funded permit are rejected, a new bid proposal may be solicited or, alternatively, the department shall manage the prepaid funeral contracts; provided, however, that the commissioner may thereafter solicit additional bid proposals under subsection (d) of this section.

(g) Additional solicitation of bids. The department may from time to time solicit bids on prepaid funeral contracts from a cancelled permit for which no bids were accepted or received as a result of the original or any subsequent bid solicitations.

(h) Employment of persons to assist. The department may, with the approval of the Guaranty Fund Advisory Council, employ persons to assist with the bid solicitation and selection process as needed.

History

• Source Note: The provisions of this §25.18 adopted to be effective November 5, 2009, 34 TexReg 7597.

7 Tex. Admin. Code § 25.19 Guaranty Fund Claims

(a) Claims not eligible. In addition to claims excluded under Finance Code Section 154.359, the following claims are not eligible for payment from the Prepaid Funeral Guaranty Fund:

(1) a claim based on a trust-funded prepaid funeral benefits contract that was purchased prior to August 31, 1987;

(2) a claim based on a prepaid funeral benefits contract purchased from a contract seller that did not hold a permit to sell prepaid funeral benefits at the time of sale;

(3) a claim based on a prepaid funeral benefits contract purchased under a plan that does not pay assessments to the guaranty fund, such as the plan litigated in Sexton v. Mount Olivet Cemetery Association, 720 S.W. 2d 129 (Tex. App.-Austin 1986, no writ) (specifically including, but not limited to, any prepaid funeral benefits purchased from Mount Olivet Cemetery Association);

(4) a claim under an insurance-funded prepaid funeral contract for a loss arising from or relating to the occurrence of one of the following events:

(A) default of a funeral provider under a contract written prior to June 19, 2011;

(B) contract default of a permit holder that occurred prior to September 1, 2009;

(C) the suspension or revocation of a permit under Chapter 154 of the Finance Code prior to September 1, 2009; or

(D) the bankruptcy, receivership, seizure, or other failure of the permit holder prior to September 1, 2009.

(b) Claimant's filings. A claimant shall file with the department a completed claim form prescribed by the department together with the following documents and information:

(1) a copy of the prepaid funeral contract and any amendments thereto;

(2) evidence of the amount paid on the prepaid funeral contract;

(3) a copy of a certified copy of the death certificate for the contract beneficiary, if applicable;

(4) if the claimant is not the purchaser of the contract, evidence of the claimant's authority to file a claim and receive any funds awarded;

(5) if claimant is acting for the benefit of a group of purchasers as part of a plan to arrange for a successor permit holder, a copy of the plan, and information required by Finance Code §154.3595(c);

(6) a statement setting forth any special circumstances that may bear on the claim; and

(7) other information that may be pertinent to the claim that is requested by the department.

(c) Claims review process.

(1) The Guaranty Fund Advisory Council may delegate to the commissioner the authority to settle and determine claims against the Prepaid Funeral Guaranty Fund up to such amount and with such restrictions as the council may from time to time determine.

(2) A claimant may request that the Guaranty Fund Advisory Council review a determination by the commissioner regarding a claim against the Prepaid Funeral Guaranty Fund by submitting a request for review of the action to the Guaranty Fund Advisory Council within 30 days of receipt of notice of the commissioner's action. Such request shall be addressed to the Guaranty Fund Advisory Council in care of the commissioner and filed with the commissioner on or before the close of business on the last day of the 30-day period. The Guaranty Fund Advisory Council shall review and may revise the commissioner's determination.

History

• Source Note: The provisions of this §25.19 adopted to be effective November 5, 2009, 34 TexReg 7597; amended to be effective November 10, 2011, 36 TexReg 7505; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.21 Introduction to Joint Memorandum of Understanding

(a) Occupations Code, §651.159 mandates the Texas Department of Banking, the Texas Funeral Service Commission, and the Texas Department of Insurance to adopt by rule a joint memorandum of understanding relating to prepaid funeral services and transactions that:

(1) outlines the responsibilities of each agency in regulating these services and transactions;

(2) establishes procedures to be used by each agency in referring complaints to one of the other agencies;

(3) establishes procedures to be used by each agency in investigating complaints;

(4) establishes procedures to be used by each agency in notifying the other agencies of a complaint or of the investigation of a complaint;

(5) describes actions the agencies regard as deceptive trade practices;

(6) specifies the information the agencies provide consumers and when that information is to be provided; and

(7) sets the administrative penalties each agency imposes for violations.

(b) Any revisions to the joint memorandum of understanding will be adopted by rule by each agency.

(c) The joint memorandum of understanding entered into by the three agencies is found at §25.22 of this title (relating to Joint Memorandum of Understanding).

History

• Source Note: The provisions of this §25.21 adopted to be effective September 21, 1993, 18 TexReg 5977; amended to be effective July 11, 2002, 27 TexReg 5963.

7 Tex. Admin. Code § 25.22 Joint Memorandum of Understanding

(a) Pursuant to Occupations Code, §651.159, the Texas Funeral Service Commission (herein referred to as the "TFSC"), the Texas Department of Insurance (herein referred to as the "TDI"), and the Texas Department of Banking (herein referred to as the "DOB") hereby adopt the following joint memorandum of understanding (JMOU) relating to prepaid funeral benefits as defined in Finance Code, Chapter 154. The TFSC, TDI, and DOB intend this memorandum of understanding to serve as a vehicle to assist the three agencies in their regulatory activities, and to make it as easy as possible for a consumer with a complaint to have the complaint acted upon by all three agencies, where appropriate. In order to accomplish this end, where not statutorily prohibited, the three agencies will share information between the agencies which may not be available to the public generally under the Public Information Act, Government Code, Chapter 552. Such information will be transmitted between agencies with the understanding that it is considered confidential, is being furnished to the other agencies in furtherance of their joint responsibilities as state agencies in enforcing their respective statutes, and that it may not be disseminated to others except as required.

(b) Responsibilities of each agency in regulating prepaid funeral benefits.

(1) The Texas Funeral Service Commission is responsible for the following:

(A) licensing funeral directors, embalmers, provisional funeral directors, provisional embalmers, crematory, and funeral establishments. The TFSC may refuse to license a person or establishment which violates Finance Code, Chapter 154, under Occupations Code, §651.460(b)(3);

(B) taking action under Occupations Code, §651.460(b)(3) against any licensee violating Finance Code, Chapter 154; and

(C) taking action under Occupations Code, §651.460(b)(3) against any funeral director in charge, crematory owner, and/or funeral establishment owner for violations of Finance Code, Chapter 154, by persons directly or indirectly connected to the crematory or funeral establishment.

(2) The Texas Department of Banking is responsible for administering Finance Code, Chapter 154 and 7 Texas Administrative Code (TAC), Chapter 25, including, but not limited to, the following:

(A) bringing enforcement actions against any person, including licensees of TFSC and TDI, who violate Finance Code, Chapter 154 and/or 7 TAC, Chapter 25; and

(B) all other actions authorized by Chapter 154 and 7 TAC, Chapter 25.

(3) The Texas Department of Insurance is responsible for the following:

(A) regulating insurers that issue or propose to issue life insurance policies or annuity contracts which may fund prepaid funeral contracts;

(B) regulating any person that performs the acts of an insurance agent as defined in the Insurance Code, Chapter 4001 and Insurance Code, Chapter 101;

(C) regulating insurance policies and annuity contracts that may fund prepaid funeral contracts;

(D) regulating unfair trade practices relating to the insurance policies and annuity contracts that may fund prepaid funeral contracts pursuant to the Insurance Code, Chapter 542;

(E) regulating unfair claims settlement practices by insurance companies pursuant to the Insurance Code, Chapter 542.

(c) Procedures used by each agency in exchanging information with or referring complaint to one of the other agencies.

(1) Exchanging information. If, upon receipt of a complaint, or during the course of an investigation, an agency (referred to as the receiving agency) receives any information that might be deemed of value to another of the agencies (referred to as the reviewing agency), the receiving agency will contact the reviewing agency and will forward the relevant information to the reviewing agency at its request.

(2) Referral of complaints for handling. When an agency receiving a complaint refers the complaint to another agency for handling, the receiving agency will contact the complainant in writing informing him or her of the referral, provide contact information to the reviewing agency, and encourage the complainant to recontact the receiving agency if she or he has any problem with the reviewing agency's processing of the complaint.

(d) Procedures to be used by each agency in investigating a complaint.

(1) All agencies.

(A) Each agency will develop internal complaint procedures for violations relating to prepaid funeral benefits. The procedures should at a minimum provide for:

(i) identification of necessary data and documents to be obtained from the complainant; and

(ii) such other steps deemed necessary for the agency to perform an adequate and appropriate investigation.

(B) Each agency may assist either of the other agencies with investigations relating to prepaid funeral benefits.

(2) The Texas Funeral Service Commission.

(A) Complaints received by the TFSC will be logged in and investigated as required under Occupations Code, Chapter 651. A complaint about violations of Chapter 154 and/or 7 TAC, Chapter 25, will be referred to the DOB.

(B) If disciplinary action against a licensee of the TFSC is found to be appropriate, the matter will be referred to the Administrator of Consumer Affairs & Compliance Division of TFSC.

(C) If the complaint involves a matter handled by either the DOB or TDI, as well as a violation of the TFSC statutes or regulations, it will be referred to the appropriate agency for further action. DOB will be primarily responsible for enforcing violations of Chapter 154 or 7 TAC, Chapter 25. The agencies will coordinate their investigations to avoid duplication of effort.

(D) In the event that the TFSC issues an order against a person or entity who also sells or provides prepaid funeral benefits or is a licensee under the jurisdiction of TDI, the TFSC will send the DOB and the TDI a copy of the order.

(3) Texas Department of Banking.

(A) Complaints received by the Special Audit Division will be entered into a complaint log and assigned a reference number. If, after agency notice to the subject of the complaint, the complaint is not resolved, the DOB will investigate.

(B) If disciplinary action against a person who violated Finance Code, Chapter 154 or 7 TAC, Chapter 25 is appropriate, the matter will be referred to the agency's legal staff.

(C) If the complaint involves a matter handled by either the TDI or TFSC, as well as a violation of Finance Code, Chapter 154 or 7 TAC, Chapter 25, the DOB will coordinate with those agencies. DOB will be primarily responsible for enforcing violations of Chapter 154 or 7 TAC, Chapter 25.

(D) In the event that the DOB issues an order against a person or entity who is a licensee under the jurisdiction of the TFSC or the TDI, the DOB will send the TFSC and the TDI a copy of the order.

(4) Texas Department of Insurance.

(A) Complaints received by the Consumer Protection Division of TDI will be logged in and investigated, except that if a complaint is solely about violations of Chapter 154 and/or 7 TAC, Chapter 25, the complaint will be referred to the DOB. Other areas of TDI can be called upon for assistance in the investigation of the complaint where appropriate.

(B) If disciplinary or other regulatory action against a licensee of the TDI is found to be appropriate, the matter will be referred to the Compliance Intake Unit of TDI.

(C) If the complaint involves a matter handled by either the DOB or TFSC, as well as a violation of the TDI statutes or regulations, it will be referred to the appropriate agency for further action. DOB will be primarily responsible for enforcing violations of Chapter 154 or 7 TAC, Chapter 25. The agencies will coordinate their investigations to avoid duplication of effort.

(D) In the event that the Commissioner of Insurance issues an order against a person that also sells, funds or provides prepaid funeral benefits, or is subject to the jurisdiction of the DOB or the TFSC, the TDI will send the DOB and the TFSC a copy of the order.

(e) Actions the agencies regard as deceptive trade practices.

(1) The TFSC, the DOB, and the TDI regard as deceptive trade practices those actions found under Business and Commerce Code, §17.46.

(2) With respect to trade practices within the business of insurance, the TDI regards as deceptive trade practices those actions found under Insurance Code, Chapter 541, other chapters of the Code and the regulations promulgated by the TDI thereunder.

(f) Information the agencies will provide consumers and when that information is to be provided.

(1) TFSC, DOB, and TDI will continue to provide consumers with the brochure entitled "Facts About Funerals" developed by TFSC (in Spanish and in English). DOB will continue to provide consumers with information on its website in accordance with Finance Code, §154.132, including the informational brochure developed in accordance with Finance Code, §154.131.

(2) DOB, TDI, and TFSC will maintain their toll-free numbers.

(3) TFSC, DOB, and TDI, as state agencies, are subject to the Public Information Act, Government Code, Chapter 552. Upon written request, the three agencies will provide consumers with public information which is not exempt from disclosure under that Act. As noted in the preamble to this JMOU, the agencies may, where not statutorily prohibited, exchange information necessary to fulfill their statutory responsibilities among each other, without making such information public information under the Public Information Act.

(g) Administrative penalties each agency imposes for violations.

(1) Texas Funeral Service Commission. The TFSC may impose an administrative penalty, issue a reprimand, or revoke, suspend, or place on probation any licensee who violates Finance Code, Chapter 154. TFSC administrative penalties vary based on the violation; TFSC sanctions are imposed under Occupations Code, Chapter 651.

(2) Texas Department of Banking. DOB administrative penalties vary based on the violation; DOB sanctions are imposed under Finance Code, Chapter 154.

(3) Texas Department of Insurance. TDI administrative penalties vary based on the violation; TDI sanctions are imposed under Insurance Code, Chapter 82.

History

• Source Note: The provisions of this §25.22 adopted to be effective September 21, 1993, 18 TexReg 5977; amended to be effective July 11, 2002, 27 TexReg 5963; amended to be effective September 8, 2011, 36 TexReg 5668.

7 Tex. Admin. Code § 25.23 Application Fees

(a) Definitions.

(1) Outstanding contracts--Unmatured, prepaid funeral benefit contracts.

(2) You, Your or I--A person having a valid permit to sell prepaid funeral benefit contracts issued by the Department under §154.101 of the Finance Code, except that, for purposes of subsection (b)(1) of this section, "you," "your," or "I" means an applicant for a new prepaid funeral benefits permit.

(b) Application fees. The application fees set forth in this subsection have been set in accordance with the Finance Code, Chapter 154, for the purpose of defraying the cost of administering the Finance Code, Chapter 154. Except as otherwise provided in this subsection, all fees are due at the time the application is filed and are nonrefundable. An application submitted without the appropriate filing fee will be deemed incomplete and will not be considered.

(1) New permit application fee. If you apply for a new prepaid funeral benefits permit, you must pay a $500 fee. In addition to the application fee, you must pay any extraordinary costs incurred by the department pursuant to any out of state investigation of you as required by the Finance Code, §154.102(3). You must pay any extraordinary costs within 20 days after written request by the department.

(2) Conversion application fee. If you apply to convert a trust-funded prepaid funeral benefits operation to an insurance-funded prepaid funeral benefits operation, you must pay a $1,000 fee per application. In the event additional processing time is required because the application is incomplete, you must pay the additional processing costs incurred in excess of the filing fee originally submitted, at the rate of $600 per eight-hour employee day, provided that the total fee cannot exceed $2,000. Until you have paid any such additional fee, the application will be deemed incomplete and will not be considered.

History

• Source Note: The provisions of this §25.23 adopted to be effective February 24, 1994, 19 TexReg 1037; amended to be effective August 18, 1994, 19 TexReg 6092; amended to be effective November 17, 1997, 22 TexReg 10958; amended to be effective July 11, 2002, 27 TexReg 5963; amended to be effective March 6, 2003, 28 TexReg 1834; amended to be effective September 9, 2004, 29 TexReg 8505; amended to be effective November 10, 2005, 30 TexReg 7210; amended to be effective November 8, 2007, 32 TexReg 7904; amended to be effective November 5, 2009, 34 TexReg 7599; amended to be effective September 8, 2019, 44 TexReg 4708.

7 Tex. Admin. Code § 25.24 What Fees Must I Pay for an Examination?

(a) Definitions.

(1) Examination--the process of evaluating the books and records of a permit holder relating to its sale of prepaid funeral benefit contracts to provide all safeguards to protect the prepaid funds and to assure that the funds will be available to pay for prearranged funeral services.

(2) Fiscal year--the 12-month period from September 1st to August 31st.

(3) You, Your or I--a person having a valid permit to sell prepaid funeral benefit contracts issued by the department under Section 154.101 of the Finance Code.

(b) As a prepaid funeral benefits seller, what fees must I pay for department examinations?

(1) An annual assessment must be paid as an examination fee to the department to defray the cost of administering Chapter 154 of the Finance Code. The amount of your annual assessment is based on the number of outstanding contracts as reflected on your most recent annual report filed with the department. You must pay the annual assessment specified in the following table:

Attached Graphic

(2) If more than one examination is required in the same fiscal year as a result of your failure to comply with the Finance Code, Chapter 154, this chapter, or a request by the department, you must pay for each additional examination at a rate of $75 per hour for each examiner required to conduct the additional examination and all associated travel expenses.

(3) If you are a new permit holder and have not yet filed your first annual report required by Section 154.052 of the Finance Code, you must pay an examination fee of $75 per hour for each examiner and all associated travel expenses. Your subsequent annual assessment will be calculated in accordance with paragraph (1) of this subsection.

(c) How will the department bill me for the examination fees and when must I pay them?

(1) Your annual examination fee (annual assessment) may be billed in quarterly or fewer installments each fiscal year. You must pay a billed installment by ACH debit or by another method if directed to do so by the department. At least 15 days prior to the scheduled ACH transfer, the department will send you a notice specifying the amount of the payment due and the date the department will initiate payment by ACH debit. The commissioner may decrease your annual assessment if it is determined that a lesser amount than would otherwise be collected is adequate to administer the Act.

(2) You will be billed for additional examinations described in subsection (b)(2) of this section with the delivery of the examination report. You must pay this fee upon receipt of the examination report.

(d) Adjustments for inflation. In this section, "GDPIPD" means the Gross Domestic Product Implicit Price Deflator, published quarterly by the Bureau of Economic Analysis, United States Department of Commerce. The "annual GDPIPD factor" is equal to the percentage change in the GDPIPD index values published for the first quarter of the current year compared to the first quarter of the previous year (the March-to-March period immediately preceding the calculation date), rounded to a hundredth of a percent (two decimal places).

(1) Beginning September 1, 2020, and each September 1 thereafter, the table in subsection (b)(1) of this section, as most recently revised before such date pursuant to this subsection, may be revised as follows:

(A) the base assessment amount listed in column three of the table may be increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to whole dollars; and

(B) each factor listed in column three of the table may be increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to two decimal places.

(2) If the table in subsection (b)(1) of this section is revised for inflation (or deflation), then not later than August 1 of each year, the department shall calculate and prepare a revised table reflecting the inflation-adjusted values to be applied effective the following September 1 and will provide each permit holder with notice of and access to the revised table.

History

• Source Note: The provisions of this §25.24 adopted to be effective March 6, 2003, 28 TexReg 1835; amended to be effective November 10, 2005, 30 TexReg 7210; amended to be effective November 8, 2007, 32 TexReg 7904; amended to be effective November 10, 2011, 36 TexReg 7505; amended to be effective September 8, 2019, 44 TexReg 4708; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.25 Conversion from Trust-Funded to Insurance-Funded Benefits

(a) Definitions. Definitions of words and terms in Finance Code, §154.002, are incorporated in this section by reference. The following words and terms have the following meanings when used in this section, unless the context clearly indicates otherwise.

(1) Aggregate trust funds--The trust funds to be transferred with respect to an individual prepaid contract as of the transfer date, comprised of the paid-in principal plus the earnings attributable to that prepaid contract. As the context may require, the term also refers to the sum of the aggregate trust funds for all prepaid contracts subject to conversion.

(2) Applicant--A permit holder under Finance Code, Chapter 154, who files an application under this section.

(3) Contract beneficiary--The person named in a prepaid contract as the intended recipient of contracted funeral merchandise and services.

(4) Conversion--A transaction under Finance Code, §154.204, and this section, to convert all outstanding trust-funded prepaid funeral benefits under existing prepaid contracts administered by the applicant to insurance-funded prepaid funeral benefits to be administered by the post-conversion permit holder after conversion.

(5) Insurance company--The insurance company designated in an application filed under this section to issue the annuities required for the conversion. The insurance company may also be the post-conversion permit holder if permitted under applicable insurance law and regulations.

(6) Paid-in principal--The amount required to be deposited in trust by the applicant with respect to an individual prepaid contract pursuant to Finance Code, §154.253. As the context requires, the term may also refer to the total amount deposited in trust by the applicant for all prepaid contracts.

(7) Post-conversion permit holder--The permit holder designated in an application filed under this section to hold and administer the prepaid contracts after conversion. The post-conversion permit holder may also be the insurance company if permitted under applicable insurance law and regulations.

(8) Prepaid contract--A contract for prepaid funeral benefits under Finance Code, Chapter 154.

(9) Purchaser--An individual who purchased a trust-funded prepaid contract that is the subject of an application filed under this section. The purchaser may also be the contract beneficiary. If permitted by the context, the term includes the purchaser's authorized agent.

(10) TDI--Texas Department of Insurance.

(11) Unpaid principal balance--The unpaid portion of the purchase price of a prepaid contract.

(b) Standards for approval and eligibility. The department will not approve a proposed conversion unless the following general requirements have been met.

(1) Standards for approval. The proposed insurance-funded benefits arrangement must safeguard the rights and interests of the purchasers to substantially the same degree as the trust-funded benefits arrangement sought to be replaced, as provided by Finance Code, §154.204, and this section. An application may be approved or denied without the necessity of a hearing, subject to the right of the applicant or the post-conversion permit holder to request a hearing. Without limiting its ability to consider any matter relevant to the determination of substantial equivalency, the department will not approve a proposed conversion unless:

(A) the form(s) of insurance policy proposed for use in the conversion is a single or flexible premium deferred fixed (not variable) annuity that is structured to protect and preserve the existing rights and interests of the purchaser, including the amount of funds the purchaser would be entitled to receive upon cancellation of the prepaid contract and the amount of funds payable upon maturity of the prepaid contract;

(B) the post-conversion permit holder directly or indirectly controls, is controlled by, or is under common control with the insurance company;

(C) neither the applicant nor the post-conversion permit holder have a record of noncompliance with respect to the requirements of Finance Code, Chapter 154, and this chapter, as evidenced by paragraph (2) of this subsection;

(D) the post-conversion permit holder accepts responsibility for verifying that the prepaid contracts proposed for conversion are performed in accordance with their terms, and undertakes to maintain the records the department requires to determine compliance with Finance Code, Chapter 154, and this chapter; and

(E) the post-conversion permit holder demonstrates the organizational and financial capability to discharge its accepted responsibilities.

(2) Eligibility. At the time the application is filed, processed and approved, the applicant and the post-conversion permit holder must each be in good standing with the department. To be in good standing with the department, the department's most recent report of examination of either permit holder must not cite any violation of applicable laws and regulations or other material deficiencies that have not been remedied or corrected to the satisfaction of the department, and the permit holder must not be delinquent with respect to any fees or filings due to the department. Within 45 days after an application for conversion is filed with the department, the department may conduct an examination of the applicant or the post-conversion permit holder or both before approving or denying the application if an examination has not been conducted within the preceding 12 months or for the purpose of verifying that previously cited violations or other deficiencies have been satisfactorily eliminated or corrected.

(c) Contents of application. An application for conversion must respond to each paragraph of this subsection by number. Overlapping or duplicate responses may be cross-referenced for brevity.

(1) Letter requesting conversion. The applicant shall submit a letter to the commissioner, signed by a duly authorized officer, that:

(A) requests approval of the conversion of the applicant's prepaid contracts;

(B) requests authorization to transfer the applicant's responsibility for the prepaid contracts to the post-conversion permit holder;

(C) summarizes the amount of aggregate trust funds by depository and account number and the component amounts of paid-in principal and earnings, and requests authorization to transfer the aggregate trust funds from the currently approved depository or trustee to the insurance company;

(D) represents that the applicant is in compliance with Finance Code, §154.301, regarding prepaid contracts presumed to be abandoned, and has filed the reports and delivered funds as required by Finance Code, §154.304; and

(E) if the applicant is not an individual, includes a certified resolution of the applicant's board authorizing the conversion, the application, and the execution of related documents by the submitting officer.

(2) Agreement regarding conversion. The applicant must submit an original, signed copy of the agreement among the applicant, the post-conversion permit holder, and the insurance company regarding the transfer, receipt, and application of trust funds upon conversion that, among other matters, contains the following provisions:

(A) agreement of the parties that all prepaid contracts of the applicant in existence as of the date of the application will be subject to conversion, excluding prepaid contracts that are presumed abandoned under Finance Code, §154.301;

(B) agreement of the insurance company that:

(i) the formula for determining the cash surrender value or cancellation benefit of each annuity to be issued in the conversion will be at least as generous to the purchaser as the formula that would have applied under Finance Code, §154.155, had the prepaid contract not been converted from trust-funded to insurance-funded;

(ii) the face amount of the annuity to be issued with respect to each prepaid contract will not be less than the amount of aggregate trust funds transferred for that prepaid contract;

(iii) for any prepaid contract which is not fully paid and the balance due not included in the annuity described in clause (ii) of this subparagraph, the face amount of the supplemental annuity to be issued may not be less than the unpaid principal balance, and no credit or reduction will be applied to the unpaid principal balance for earnings attributable to paid-in principal under the prepaid contract;

(iv) upon request, a copy of the specifications page of the funding annuity or annuities will be furnished to the purchaser of the prepaid contract to be funded; and

(v) no commissions or other compensation will be paid out of or deducted from the aggregate trust funds to be transferred in the proposed conversion.

(C) agreement of the post-conversion permit holder with respect to the converted prepaid contracts to:

(i) maintain all records required by §25.10 of this title (relating to Recordkeeping Requirements for Insurance-Funded Contracts);

(ii) verify that each death or cancellation benefit claim under a converted prepaid contract is paid in accordance with Finance Code, Chapter 154, and this chapter;

(iii) verify that each prepaid contract is performed by the funeral provider at maturity in accordance with its terms;

(iv) verify that any additional charges imposed by the funeral provider and collected from the decedent's representatives are for additional services or merchandise not otherwise contemplated by and funded under the prepaid contract and, if not, promptly refund or require the funeral provider to refund any prepaid contract overcharges to the decedent's representatives; and

(v) if within the five-year period following approval of the conversion a purchaser presents a fully executed prepaid contract that was not listed in the applicant's pre-conversion or post-conversion summaries and provides proof of payments made on the contract, take action to cause the insurance company to issue one or more annuities with respect to the previously omitted prepaid contract as if it had originally been included in the conversion or, if cancellation is requested by the purchaser, pay or take action to cause the purchaser to be paid the cancellation benefit due. The maximum potential responsibility imposed by this clause is 5.0% of the aggregate trust funds transferred, except that if 5.0% of the aggregate trust funds is:

(I) less than $5000, the maximum potential responsibility imposed by this clause is $5,000;

(II) greater than $20,000, the maximum potential responsibility imposed by this clause is $20,000.

(3) Compensation to insiders. The applicant must submit a written disclosure of the estimated total commissions and other compensation to be paid by the insurance company in connection with the conversion to each insurance agent that controls, is controlled by, or is under common control with the applicant or a funeral provider under any of the prepaid contracts to be converted, expressed as a percentage, dollar amount, or both, and the identity of each such agent.

(4) Agreement of post-conversion permit holder and applicant. The applicant must submit a written agreement between the post-conversion permit holder and the applicant that, at a minimum, requires the applicant to relinquish the individual prepaid contract ledgers formerly maintained by the applicant under §25.11 of this title (relating to Recordkeeping Requirements for Trust-Funded Contracts) and obligates the post-conversion permit holder to maintain such ledgers to reflect the paid-in principal and the unpaid principal balance under each converted prepaid contract.

(5) Agreements between post-conversion permit holder and funeral providers. The applicant must submit the written agreement between the post-conversion permit holder and each person designated as the funeral provider under any prepaid contract to be converted that, at a minimum:

(A) sets forth the nature and scope of the relationship between the permit holder and the funeral provider and the respective rights and responsibilities of the parties with respect to the prepaid contracts of that funeral provider, including allocation of responsibilities for refunding any prepaid contract overcharges identified by the permit holder or the department;

(B) requires the funeral provider to perform and deliver the funeral benefits under each converted prepaid contract of that funeral provider in accordance with its terms;

(C) requires the funeral provider to provide the post-conversion permit holder with the documentation necessary to enable the permit holder to maintain the records required by Finance Code, Chapter 154, and §25.10 of this title; and

(D) obligates the parties to protect any nonpublic personal financial or health information of the purchaser and contract beneficiary under the prepaid contract in compliance with applicable law.

(6) Agreement of post-conversion permit holder and insurance company. If the proposed post-conversion permit holder is not the insurance company, the applicant must submit a written agreement between the post-conversion permit holder and the insurance company that, at a minimum, requires the insurance company to provide the post-conversion permit holder with the documentation necessary to enable the permit holder to maintain the records required by §25.10 of this title. The agreement must also obligate the parties to protect any nonpublic personal financial or health information of the purchaser and contract beneficiary under each converted prepaid contract and the owner and insured under each annuity issued in the proposed conversion in compliance with applicable law.

(7) Commitment of insurance company. If the post-conversion permit holder is not the insurance company and is unable to independently demonstrate that it has the organizational and financial resources to discharge its permit holder responsibilities, or otherwise intends to rely on the insurance company to provide such resources, the insurance company or its insurance holding company must commit to the department in writing to take all necessary steps to maintain the existence of the current or a successor post-conversion permit holder, cause such permit holder to maintain a permit, and provide adequate resources to such post-conversion permit holder to enable it to maintain the financial condition and general fitness necessary to discharge the post-conversion permit holder's responsibilities under Finance Code, Chapter 154, and this chapter.

(8) Commitment of applicant. The applicant must commit to the department in writing to obtain and maintain a permit under Chapter 154 and assume the post-conversion permit holder's responsibilities with respect to each converted contract for any year in which any converted contract remains outstanding. The commitment must obligate the applicant to submit its completed application with all required fees not later than the 31st day after the date the department notifies the applicant in writing of the facts that require licensure under the commitment.

(9) Form of annuity. The applicant must submit a copy of the form(s) of annuity proposed to be issued as part of the conversion. The submitted form(s) must be accompanied by a copy of the TDI notice of action approval letter. The applicant and not TDI is responsible for ensuring that the form of annuity complies with this section. Among other matters, the annuity must:

(A) provide guaranteed growth of the death benefit based on a fixed annual interest rate, compounded annually on gross premiums paid beginning in the first year of the policy, that is at least equal to a rate determined as the lesser of:

(i) 3.0%; and

(ii) the average of the five-year Constant Maturity Treasury Rate reported by the Federal Reserve Board of Governors for the 90 calendar day period ending not more than 30 days prior to the date of the commissioner's order of approval, rounded to the nearest 1/20th of one percent, less 125 basis points, but not less than 1.0%;

(B) provide a formula for determining cash surrender value or cancellation benefit that will be at least as generous to the purchaser as the formula that would have applied under Finance Code, §154.155, had the prepaid contract not been converted from trust-funded to insurance-funded;

(C) provide a death benefit for the duration of the prepaid contract that equals the sum of the aggregate trust funds transferred at conversion, all future premiums paid, and accumulated growth thereon as provided by subparagraph (A) of this paragraph, provided that the death benefit can never be less than the amount that would have been available under the prepaid contract on the date of conversion had the prepaid contract not been converted from trust-funded to insurance-funded; and

(D) not include any provision that allows for contesting coverage or limiting death benefits, refers to or requires a physical examination, or otherwise operates as an exclusion, limitation, or condition on payment of death benefits other than provisions requiring submission of proof of death or surrender of the annuity at the time the annuity matures or is canceled.

(10) Federal income tax treatment. The applicant must submit a written summary describing the pre-conversion, federal income tax status of the purchasers' trusts, in the aggregate, as either qualified funeral trusts under 16 U.S.C. §685 or grantor trusts, for the preceding taxable year. Disclosure of differing treatment of individual purchaser trusts is not required if the summary identifies and quantifies the percentage of purchaser trusts treated as grantor trusts and qualified funeral trusts. The applicant must also describe the post-conversion manner in which taxable income arising from the annuities will be reported for federal income tax purposes, including taxable income arising from payment of cash surrender value.

(11) Past performance. For purposes of this paragraph, the annual growth under an annuity equals the growth rate credited by the insurance company to the death benefit for the year. The applicant must submit separate historical yield tables or graphs reflecting the annual rate of growth in the death benefit, expressed as a percentage for each year of the most recent five-year period, under:

(A) previously issued annuities similar to the form of annuity proposed to be issued by the insurance company in the proposed conversion, to the extent such annuities were in existence in those periods; and

(B) annuities sold by the insurance company in this state during the most recent five-year period for the purpose of funding new prepaid funeral contracts.

(12) Form of assignment. The applicant must submit a copy of the form of assignment, if any, to be used in assigning annuity rights or proceeds to the post-conversion permit holder.

(13) Qualifications of post-conversion permit holder. With respect to the post-conversion permit holder, the applicant must submit:

(A) if the proposed post-conversion permit holder is not also the insurance company, a copy of the post-conversion permit holder's most recent annual financial statements and the most current year-to-date financial statements;

(B) a list of all previous conversions in this state accepted by the post-conversion permit holder and, with respect to each conversion, the date of the order approving the conversion and the date that the converted prepaid contracts were formally transferred to the post-conversion permit holder;

(C) a summary of the number and aggregate purchase price of all prepaid contracts administered by the post-conversion permit holder as of the end of the immediately preceding calendar year;

(D) a description of how the prepaid contracts to be converted will be administered by the post-conversion permit holder, including a description of activities or functions, other than delivery of funeral services and merchandise by the designated funeral provider, that will be outsourced and the contractor that will perform such activities or functions; and

(E) if any contractor named in response to subparagraph (D) of this paragraph directly or indirectly controls, is controlled by, or is under common control with the post-conversion permit holder, a summary of the contracting relationship for each of the preceding three fiscal years that includes a description of the services performed and the compensation paid by the post-conversion permit holder.

(14) Qualifications of insurance company. With respect to the insurance company, the applicant must submit:

(A) a letter from the insurance company addressed to the department, dated not more than 60 days prior to the date the application is filed, representing that the insurance company is in good standing and currently authorized to conduct the business of insurance in this state;

(B) to the extent available, a list of the current financial strength ratings of the insurance company determined by A.M. Best Company, Standard & Poor's, Wiess Research, Duff & Phelps, and Moody's Investors Service; and

(C) a list of all previous conversions in this state that were funded by the insurance company and, with respect to each conversion, the date of the order approving the conversion and the date that trust funds were formally transferred to the insurance company.

(15) Notice to purchasers. The applicant must submit the proposed form of public notice required by subsection (e)(2) of this section and each proposed letter regarding the proposed conversion to be sent to purchasers from the applicant, the post-conversion permit holder, or the insurance company, for approval by the department. The proposed form of notification letter from the applicant must:

(A) briefly and fairly disclose the terms of the proposed conversion in a manner that is not misleading and that enables the purchaser to understand the terms of the proposed conversion and the impact on the purchaser and the purchaser's contract;

(B) conspicuously disclose, by means of bolded type within a bordered text box or another method acceptable to the department, the purchaser's right under Finance Code, §154.204(b), to decline the conversion and remain in the existing trust-funded funeral benefit arrangement by filing a written request with the department within 60 days;

(C) inform the purchaser that a copy of the specifications page of the funding annuity is available upon request, if such notice is not contemporaneously provided by the insurance company in a separate letter;

(D) advise the purchaser that questions or complaints regarding the prepaid contract or the proposed conversion may be directed to the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705; 1-877-276-5554 (toll free);

(E) disclose that the prepaid funeral guaranty fund will no longer guarantee performance of the prepaid contract after conversion, that a successor funeral provider may not agree to provide the previously selected funeral services and merchandise for the same price specified in the prepaid contract with the original funeral provider, and at the option of the applicant, disclose as an aid for comparison that payment of the funding annuity, but not performance of the contract itself, will be guaranteed by the Texas Life, Accident, Health, and Hospital Service Insurance Guaranty Association after conversion (provided that, if approved by the department, such disclosure will not be deemed a violation of Insurance Code, §463.451);

(F) not contain promotional statements or claims that express subjective rather than objective views of the merits or benefits of conversion;

(G) if the prepaid contract allows the contract beneficiary to be changed and the annuity contract does not allow the annuitant to be changed, disclose that the prepaid contract beneficiary may no longer be changed after the funding annuity is issued; and

(H) explain any change in federal income taxation related to cancellation and maturity resulting from the conversion that is anticipated to affect the purchaser.

(16) Pre-conversion summary. The applicant must submit a pre-conversion summary pertaining to each prepaid contract to be converted, determined as of a date no earlier than 30 days prior to the date the application is filed, with totals for all prepaid contracts to be converted, if applicable, addressing each of the following categories:

(A) name and, if available, date of birth of the purchaser;

(B) date of contract;

(C) contract purchase price;

(D) paid-in principal;

(E) unpaid principal balance, if any;

(F) accumulated earnings;

(G) cancellation benefit due to the purchaser, assuming cancellation were to occur on the calculation date;

(H) amount eligible to be withdrawn from the trust fund by the applicant upon death of the contract beneficiary, assuming death were to occur on the calculation date;

(I) amount retained by the applicant under Finance Code, §154.252; and

(J) the guaranteed minimum interest rate to be applied to the death benefit calculated as if the date of the application were the date of the commissioner's order of approval.

(17) Pro forma post-conversion summary. The applicant must submit a pro forma post-conversion summary pertaining to each prepaid contract as if converted, determined as of the same date as the pre-conversion summary, with totals for all prepaid contracts, if applicable, addressing each of the following categories:

(A) name of annuitant;

(B) contract purchase price;

(C) paid-in principal;

(D) unpaid principal balance, if any;

(E) the amount of transferred trust funds applied to the premium for the annuity;

(F) amount retained by the applicant under Finance Code, §154.252;

(G) cash surrender value of each annuity, assuming the annuity were to be surrendered on the calculation date;

(H) death benefit under each annuity, assuming death were to occur on the calculation date; and

(I) the guaranteed minimum interest rate to be applied to the death benefit, including the actual calculation as determined under paragraph (9)(A) of this subsection.

(18) Voluntary cancellation of permit. If the applicant will not sell trust-funded prepaid contracts or administer previously sold trust-funded prepaid contracts after the conversion, the applicant must submit a completed form to voluntarily cancel its trust-funded permit. The applicant's voluntary cancellation will not be processed unless the conversion is approved, and will not be effective until the department completes the close-out examination of the applicant.

(19) Application fee. In connection with an application submitted under this section, the applicant must submit the conversion application fee required by §25.23 of this title (relating to Application Fees).

(20) Side agreements. To the extent not otherwise required by this subsection, the applicant must submit copies of any other agreements between or among the applicant, a funeral provider, the post-conversion permit holder, and/or the insurance company that contain contractual provisions or informal understandings or undertakings addressing any aspect of the proposed conversion or the future relationship among the applicant, a funeral provider, the post-conversion permit holder, and/or the insurance company with respect to any converted prepaid contract.

(d) Consideration of application; hearing. If the application is deficient, the department may require any person connected with the proposed conversion to submit additional information. An application may be approved or denied without the necessity of a hearing, subject to the right of the applicant or the post-conversion permit holder to request a hearing.

(1) Conditions in order approving conversion. An order approving conversion will impose certain conditions that are not subject to objection, as described in subsection (e) of this section. The order may also impose other, nonstandard conditions specific to the conversion at issue. The applicant or the post-conversion permit holder must submit a written request for hearing pursuant to paragraph (2) of this subsection if any nonstandard condition in the order is objectionable, in which case the order is deemed to be a denial. Consummation of the conversion transaction constitutes confirmation of acceptance by the applicant, the post-conversion permit holder, and the insurance company of any conditions imposed by the order and is considered for all purposes an agreement with the department enforceable against the applicant, the post-conversion permit holder, and the insurance company.

(2) Hearing. The applicant or the post-conversion permit holder may file a written request for hearing with the commissioner on or before the 30th day after the date of the order denying the application, or an order imposing nonstandard conditions objectionable to the applicant or the post-conversion permit holder, stating with specificity the reasons the applicant alleges that the decision of the department is in error. The request for hearing will be forwarded to the administrative law judge who must enter appropriate orders and conduct the hearing on or before the 60th day after the date the request for hearing was received, or as soon as is otherwise reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and Government Code, Chapter 2001. The applicant or the post-conversion permit holder has the burden of proof to demonstrate that the proposed insurance-funded prepaid funeral benefits safeguards the rights and interests of each affected purchaser to substantially the same degree as the existing trust-funded prepaid funeral benefits sought to be replaced. A denial of an application may not be appealed until a final order is issued.

(e) Standard conditions in order approving conversion. An order approving conversion will impose six required conditions that are not subject to objection. Failure to satisfy any of these conditions constitutes a violation of an order of the commissioner subject to possible enforcement action under Finance Code, Chapter 154.

(1) The order approving conversion will prohibit issuance of the annuities prior to the expiration of the time period for a purchaser to decline conversion, including any extended time period required by paragraph (4) of this subsection, except that the annuities may be issued prior to that date if expiration of the time period will occur during the free look period or if a purchaser electing to decline conversion will not be required to pay an early withdrawal penalty for cancellation of the annuity.

(2) Pursuant to Finance Code, §154.204(b), the order approving conversion will require the applicant to notify purchasers of the proposed conversion by the following means:

(A) The notification letter from the applicant described by subsection (c)(15) of this section must be sent to purchasers by certified mail or another form of mail that requires or provides proof of delivery to the last known address of the purchaser.

(B) The applicant must publish a one-time public notice in a newspaper of general circulation in the county in which the applicant is located, or in another publication or location as directed by the department, as evidenced by a publisher's affidavit attesting to the date of publication, advising purchasers of trust-funded prepaid contracts from applicant of the pending conversion, the right of a purchaser to decline conversion, and the manner in which a purchaser may obtain more information about the purchaser's rights and options regarding the conversion.

(3) The order approving conversion will provide that a prepaid contract for which the notification letter is returned unclaimed may not be converted to the insurance-funded funeral benefit arrangement approved in the order unless the requirements of this paragraph are met.

(A) With respect to each notification letter returned unclaimed because the address is incorrect, the addressee is unknown or has moved without leaving a forwarding address, or the addressee's forwarding order has expired, the applicant must search for a new address for the purchaser using available non-fee based resources. If a new address is located, the applicant must resend the notification letter one time in the manner required by subsection (e)(2)(A) of this section.

(B) With respect to each unclaimed notification letter for which a new address is not located and with respect to each re-mailed notification letter that is returned unclaimed, the applicant must review the related contract file in light of the returned letter to verify or change its prior determination that the contract should not be presumed abandoned under Finance Code, §154.301, and must retain documentation evidencing its review for examination by the department. A prepaid contract subject to this paragraph may be converted to the insurance-funded funeral benefit arrangement approved in the order only if the applicant makes a new affirmative finding that the contract should not be presumed abandoned. On or before the 120th day after the date of the order, the applicant must submit a report to the department summarizing its activities under this subparagraph and reporting the basis for findings made.

(4) The order approving conversion will require the post-conversion permit holder, on or before the 120th day after the date of the order, to submit to the department a notarized statement attesting that the annuities have been issued and funded on behalf of the purchasers listed in the pro forma post-conversion summary included in the conversion application and disclosing the date that the notification letters included in the conversion application were mailed to the purchasers.

(5) The order approving conversion will require the post-conversion permit holder, on or before the 120th day after the date the trust funds are transferred as authorized by the order, to submit to the department a final post-conversion summary pertaining to each converted prepaid contract, determined as of the conversion date, with totals for all prepaid contracts, if applicable, addressing each of the following categories:

(A) name of annuitant;

(B) policy number of the annuity issued to the annuitant, or of each annuity if a supplemental annuity is also issued;

(C) contract purchase price;

(D) paid-in principal;

(E) unpaid principal balance, if any;

(F) the amount of transferred trust funds applied to the premium for each annuity;

(G) amount retained by the applicant under Finance Code, §154.252;

(H) cash surrender value of each annuity, assuming the annuity were to be surrendered on the conversion date; and

(I) death benefit under each annuity, assuming death were to occur on the conversion date.

(6) The order approving conversion will require the conversion transaction to be fully implemented and completed on or before the 150th day after the date of the conversion order.

History

• Source Note: The provisions of this §25.25 adopted to be effective January 8, 2009, 34 TexReg 177; amended to be effective July 5, 2012, 37 TexReg 4866; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.31 Effect of Criminal Convictions on Permits

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Commissioner--The banking commissioner of Texas.

(2) Official--An individual applying for or holding a permit, or an owner, officer, or holder of more than 25 percent of the outstanding shares of an applicant for or holder of a permit that is an entity.

(3) Permit--The authorization issued by the commissioner pursuant to Finance Code, Chapter 154, Subchapter C, to sell or accept money for prepaid funeral benefits, or solicit an individual's designation of prepaid funeral benefits to be paid out of a fund, investment, security, or contract.

(b) Effect of criminal conviction on proposed or existing permit. The commissioner may deny an application for a permit, or cancel or suspend a permit if an official has been convicted of a crime which directly relates to the duties and responsibilities of a seller or servicer of prepaid funeral benefits contracts. Adverse action by the commissioner in response to a conviction of a crime specified in subsection (c) of this section is subject to mitigating circumstances and rights of the applicant or permit holder as specified in subsections (d) - (h) of this section.

(c) Crimes directly related to fitness for permit. The sale and servicing of prepaid funeral benefits involves or may involve representations to prospective plan purchasers, collection and investment of money paid by purchasers of prepaid funeral benefits, payment of premiums on insurance policies to fund the benefits, provision of funeral services on matured contracts, and compliance with reporting requirements to governmental agencies. Consequently, a crime involving the misrepresentation of costs or benefits of a product or service, the improper handling of money or property entrusted to the person for the future benefit of another, or the failure to file a governmental report or the filing of a false report is a crime directly related to the duties and responsibilities of a permit holder, including a crime involving:

(1) fraud, misrepresentation, deception, or forgery;

(2) breach of trust or other fiduciary duty;

(3) dishonesty or theft;

(4) violation of a statute of this or another state governing prepaid funeral benefits plans;

(5) violation of a statute of this or another state governing the provision of funeral services;

(6) failure to file a required report with a governmental body, or filing of a false report; or

(7) attempt, preparation, or conspiracy to commit one of the preceding crimes.

(d) Mitigating considerations. In determining whether a conviction for a crime specified in subsection (d) of this section renders an official presently unfit to be a permit holder, the commissioner shall consider:

(1) the extent and nature of the official's past criminal activity;

(2) the age of the official at the time of the commission of the crime;

(3) the time elapsed since the official's last criminal activity;

(4) the conduct and work activity of the official prior to and following the criminal activity;

(5) the official's rehabilitation or rehabilitative effort while incarcerated or following release; and

(6) the official's present fitness for a permit, evidence of which may include letters of recommendation from prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the official, the sheriff and chief of police in the community where the official resides, and other persons in contact with the convicted official.

(e) Required documentation. The applicant must, to the extent possible, secure and provide to the commissioner reliable documents and/or testimony evidencing the information required to make a determination under subsection (d) of this section, including the recommendations of the prosecution, law enforcement, and correctional authorities. The applicant must also furnish proof in such form as may be required by the commissioner that the official has maintained a record of steady employment, has supported such official's dependents, has otherwise maintained a record of good conduct, and has paid all outstanding court costs, supervision fees, fines, and restitution as may have been ordered in all criminal cases in which the official has been convicted.

(f) Notification of adverse action. If a permit application is denied, or if a permit is canceled or suspended because of the criminal conviction of an official, the commissioner will so notify the applicant or permit holder in writing. The notification must include a statement of the reasons for the action and a description of the procedure for administrative or judicial review of the action.

(g) Administrative hearing. An applicant whose permit application is denied, or a permit holder whose permit is suspended or canceled may request a hearing. A hearing on an order of suspension or cancellation must be requested not later than the 15th day after the date the order is mailed. A hearing is subject to the provisions of the Administrative Procedure Act, Chapter 2001, Government Code and the provisions of Chapter 9, Subchapter B of this title (relating to Contested Case Hearings).

(h) Judicial review. An applicant whose permit application has been denied, or a permit holder whose permit has been suspended or canceled because of the criminal conviction of an official may appeal a final order as set forth in Government Code, Chapter 2001, Subchapter G.

History

• Source Note: The provisions of this §25.31 adopted to be effective August 25, 1999, 24 TexReg 6473; amended to be effective May 7, 2020, 45 TexReg 2829.

7 Tex. Admin. Code § 25.41 How Do I Provide Information to Consumers on How to File a Complaint and What Action Must I Take When I Receive a Complaint?

(a) Definitions

(1) "Consumer" means an individual who obtains or has obtained a product or service from you that is to be used primarily for personal, family, or household purposes.

(2) "Consumer complaint" means a written complaint you receive from a consumer regarding the manner in which you operate your business selling prepaid funeral benefits or perform your obligations under a prepaid funeral benefits contract or Finance Code, Chapter 154. The term includes a written complaint you receive either directly from the consumer or through the Department. The term does not include an oral complaint.

(3) "Department" means the Texas Department of Banking.

(4) "Privacy notice" means any notice which you give regarding a consumer's right to privacy as required by a specific state or federal law.

(5) "Required notice" means a notice in a form set forth or provided for in subsection (b)(1) of this section.

(6) "You" or "I" means a prepaid funeral benefits contract seller that is licensed or permitted by the Texas Department of Banking under the Finance Code.

(b) How do I provide notice of how to file complaints?

(1) You must use the following notice in order to let your consumers know how to file complaints: Inquiries should be directed as below. All complaints must be in writing. Concerning the Prepaid Contract: Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705; 1-877 276-5554 (toll free); www.dob.texas.gov.

(2) You must provide the required notice in the language in which a transaction is conducted.

(3) You must include the required notice with each privacy notice that you send out. The language and form of the notice must substantially conform to the required notice set out in paragraph (1) of this subsection.

(4) Regardless of whether you are required by any state or federal law to give privacy notices, you must take appropriate steps to let your consumers know how to file complaints by giving them the required notice in compliance with paragraph (1) of this subsection.

(5) You must use the following measures to give the required notice:

(A) You must give the required notice when the consumer first obtains a product or service from you. This may be accomplished by including the required notice in all prepaid funeral benefits contract forms in compliance with §25.3(j) of this title (relating to What Requirements Apply to a Non-Model Contract or Waiver).

(B) Those portions of your website that offer consumer goods and services must contain access to the required notice. The language and form of the notice must substantially conform to the required notice set out in paragraph (1) of this subsection.

(c) When must I respond to a written consumer complaint and what must my response include?

(1) You must respond to the consumer complaint in writing on or before the 30th day after the date you receive the consumer complaint.

(2) In your written response, you must:

(A) set out the actions you have taken or plan to take, with a corresponding timeline, to resolve or otherwise dispose of the consumer complaint; or

(B) if you dispute the consumer complaint or do not believe any corrective or other action is required, explain your conclusion and refer to any supporting legal authority.

(3) If the consumer complaint was forwarded to you by the Department, you must send the Department a copy of your response on or before the 5th day after the date you mail the response to the consumer.

(d) Must I keep records of the consumer complaints I receive? Yes. You must keep the records regarding consumer complaints.

History

• Source Note: The provisions of this §25.41 adopted to be effective January 3, 2002, 26 TexReg 10851; amended to be effective May 21, 2002, 27 TexReg 4325; amended to be effective November 4, 2010, 35 TexReg 9696; amended to be effective November 10, 2011, 36 TexReg 7505.

Chapter 26 PERPETUAL CARE CEMETERIES

7 Tex. Admin. Code § 26.1 What Fees Must I Pay to Operate a Perpetual Care Cemetery?

(a) Definitions. The following words and terms, when used in this section, will have the following meanings, unless the text clearly indicates otherwise.

(1) "Act" means Health and Safety Code, Chapter 712, as amended.

(2) "Examination" means the department's review and evaluation of the books and records of a perpetual care cemetery corporation by on-site examination or off-site review pursuant to §712.044(a) of the Act.

(3) "You," "Your," or "I" means the owner or operator of a perpetual care cemetery.

(4) "Fund balance" means the total amount of perpetual care monies that are required to be deposited in your perpetual care fund under the Act, excluding capital gains, capital losses, undistributed interest income and any voluntary contributions.

(5) "Fiscal year" means the 12-month period from September 1st to August 31st.

(6) "Certificate of authority" means a certificate issued by the department to operate a perpetual care cemetery, which remains in effect until it is revoked by a district court or the department or surrendered by the certificate holder.

(7) "GDPIPD factor" means the annual factor that is equal to the percentage change in the Gross Domestic Product Implicit Price Deflator index values published quarterly by the Bureau of Economic Analysis, United States Department of Commerce for the first quarter of the current year compared to the first quarter of the previous year (the March-to-March period immediately preceding the calculation date), rounded to a hundredth of a percent (two decimal places).

(8) "Department" means the Texas Department of Banking.

(b) If I want to operate a perpetual care cemetery, what fees must I pay to the department?

(1) A filing fee of $500 must be paid with your application for a certificate of authority to operate a perpetual care cemetery as required by §712.0033(a) of the Act.

(2) If the department does not receive your completed annual report by the due date, a late fee of $100 per day for each business day after the due date that the department does not receive your completed annual report may be imposed. You must pay this fee immediately upon receipt of the department's written invoice.

(3) An annual assessment will be imposed as an examination fee on a perpetual care cemetery corporation to defray the cost of administering the Act, as required by §712.042 and §712.044(b) of the Act. The annual assessment will be collected pursuant to 7 TAC §26.1(c)(1). The amount of your annual assessment is based on your fund balance as reflected on the statement of funds in the most recent annual report you have filed with the department. You must pay the annual assessment specified in the following table:

Attached Graphic

(4) If you are a new certificate holder and have not yet filed your first annual report, which includes the statement of funds required by §712.041 of the Act, you must pay an examination fee of $75.00 per hour for each examiner and all associated travel expenses. Your subsequent annual assessments will be calculated in accordance with paragraph (3) of this subsection.

(c) How will the department bill me for the annual assessment and by when must I pay it?

(1) Your annual assessment may be billed in quarterly or fewer installments each fiscal year. You must pay a billed installment by ACH debit 15 days after the date of the department's notice of payment due. The commissioner may decrease your annual assessment if it is determined that a lesser amount than would otherwise be collected is adequate to administer the Act.

(2) The annual assessment is considered paid as of the date the department receives payment.

(d) Adjustments for inflation or deflation.

(1) Beginning September 1, 2020, and each September 1 thereafter, the table in subsection (b) of this section, as most recently revised before such date pursuant to this subsection, may be revised as follows:

(A) The base assessment amount listed in column three of the table may be increased or decreased by an amount proportionate to the measure of inflation or deflation reflected in the annual GDPIPD factor, rounded to whole dollars; and

(B) Each factor listed in column three of the table may be increased or decreased by an amount proportionate to the measure of inflation or deflation reflected in the annual GDPIPD factor, rounded to four decimal places for fund balances not over $499,999.99 and five decimal places for fund balances of $500,000.00 or more.

(2) If the table in subsection (b) of this section is revised for inflation or deflation, then not later than August 1 of each year, the department shall calculate and prepare a revised table reflecting the inflation-adjusted values to be applied effective the following September 1 and will provide each certificate holder with notice of and access to the revised table.

(e) Must I pay for additional examinations and if so, how much and when?

(1) If more than one examination is required in the same fiscal year as a result of your failure to comply with the Act, this chapter, or a request by the department, for each additional examination you must pay a fee for each assigned examiner of $75 per hour and reimburse the department for all associated travel expenses.

(2) You will be billed for an additional examination by written invoice submitted in connection with delivery of the examination report. You must pay this fee upon receipt of the examination report.

(f) Are any fees refundable? Fees paid under this section are nonrefundable.

(g) What will happen if a fee is deemed unlawful or in excess of the department's authority? If a fee or reimbursement imposed or required by this section or the manner of its calculation is determined to be unlawful or to exceed the department's authority to adopt and impose, the remainder of the section is unaffected.

History

• Source Note: The provisions of this §26.1 adopted to be effective March 6, 2003, 28 TexReg 1836; amended to be effective January 6, 2005, 29 TexReg 12164; amended to be effective November 8, 2007, 32 TexReg 7905; amended to be effective May 5, 2011, 36 TexReg 2723; amended to be effective November 10, 2011, 36 TexReg 7506; amended to be effective September 8, 2019, 44 TexReg 4709; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.2 What Records am I Required to Maintain?

(a) What unique defined terms are used in this section?

(1) "You" or "I" means the owner or operator of a perpetual care cemetery.

(2) "Perpetual care property" or "property" means all niches, crypts, and ground space sold in connection with perpetual care.

(3) "Consumer complaint" means a written complaint you receive, either at your corporate office or your cemetery location, from a consumer regarding the manner in which you operate your perpetual care cemetery or perform your obligations under a perpetual care cemetery contract or Health and Safety Code, Chapter 711, or Chapter 712. The term includes a written complaint you receive either directly from the consumer or through the department. The term does not include an oral complaint.

(4) "Maintain" means to store and retain records either in hard copy form or on microfiche or in an electronic database from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient completion of the examination.

(5) "Department" means the Texas Department of Banking.

(b) What records must I maintain?

(1) You must maintain the following records in a general file that is readily accessible to the department:

(A) your most current financial statement or tax return, either of which must:

(i) substantiate your use or expenditure of fund income; and

(ii) include a balance sheet and income statement dated not later than the last day of your preceding fiscal year;

(B) a sample form of each purchase agreement you currently use;

(C) a sample form of each document of conveyance of interment rights you currently use;

(D) the current trust agreement governing the fund and any amendments since the last examination;

(E) if the certificate holder received a uniform risk rating of 3, 4, or 5 at the last examination or if the last examination was a limited scope examination, the certificate holder's examination response and the examination report acknowledgments, signed by the certificate holder's board of directors, for the last examination report (See Texas Department of Banking Supervisory Memorandum 1014 (2011) for an explanation of the perpetual care cemetery rating system.);

(F) all trustee/depository statements covering the perpetual care fund, provided at least quarterly, and all written correspondence from the trustee that you received since the last examination;

(G) minutes of each meeting of the cemetery corporation's board of directors held since the last department examination or, if the cemetery corporation is a wholly-owned subsidiary and does not hold board meetings, minutes of each meeting of the parent corporation's board of directors held since the last examination;

(H) all recordkeeping exceptions and other department or commissioner approvals or directions upon which the certificate holder relies in connection with its current operations;

(I) all maps, plats, and property dedications, and a list of these that reflects the dates of filing in the county records under Health and Safety Code, §711.034;

(J) your current sales maps showing the sold and unsold spaces in all gardens, mausoleums, crematories, and columbaria in the cemetery;

(K) records and photographs relating to lawn crypt construction and completion, to demonstrate you complied with Health and Safety Code, §711.061, §711.063 and §711.064;

(L) each cemetery price list that you used at any time since the last examination;

(M) your quarterly reconciliation of capital gains and losses in the fund since the last examination, if your trust agreement includes capital gains and losses in the definition of trust income;

(N) all documents relating to the offer and sale of undeveloped mausoleum spaces as required under Health and Safety Code, Chapter 712, §712.044(a)(2)-(3) and Subchapter D; and

(O) all records relating to regulatory action or litigation to which the certificate holder is subject.

(2) You must maintain the following records in a segregated consumer complaint file:

(A) each written complaint that you received from a consumer regarding the manner in which you operate the perpetual care cemetery or perform your contractual obligations to a consumer; and

(B) all written correspondence and other records relating to a consumer complaint, including records showing how you resolved or otherwise disposed of the complaint.

(3) You must maintain either:

(A) separate files for each property purchaser, filed alphabetically or numerically, that contains all executed property purchase agreements, conveyance documents, and all related information; or

(B) files referenced by property location if:

(i) the cemetery maintains an alphabetical index on which the names of the property owners or purchasers can be cross-referenced to their property location; and

(ii) the files contain all executed property purchase agreements, conveyance documents, and all related information.

(4) You must maintain, and update at least monthly, a historical register of all interment rights sold, showing:

(A) the purchaser's name;

(B) the date of purchase;

(C) the purchase agreement number;

(D) a specific description of the property you sold; and

(E) how and when you disposed of the purchase agreement, including whether the agreement was conveyed, canceled, or voided.

(5) You must maintain a monthly recapitulation of all conveyance of interment rights issued since the date of your last examination that includes, for each paid-in-full property sale:

(A) the date the purchase agreement was executed;

(B) the property purchaser's name;

(C) the purchase agreement number;

(D) the date that the purchase agreement was paid-in-full;

(E) the conveyance document number;

(F) the amount of ground area, number of crypts, or number of niches conveyed under the purchase agreement, and the corresponding sales price of each;

(G) the deposits to the fund from sales, as required by Health and Safety Code, §712.028;

(H) any additional deposits to the fund:

(i) that are required by contract in an amount in excess of the deposits required by Health and Safety Code, §712.028;

(ii) that result from exchanged or traded-in property;

(iii) that result from the sale of additional or subsequent rights of interment; or

(iv) that are voluntarily made in excess of the amount of deposits required by Health and Safety Code, §712.028;

(I) total deposits for each conveyance, which is the sum of subparagraphs (G) and (H) of this subsection for each conveyance; and

(J) cumulative monthly totals of the amounts listed in subparagraphs (F), (G), and (H) of this subsection.

(c) Where do I need to keep the records required under this section?

(1) You must keep all required records at the perpetual care cemetery's physical location, corporate office located in this state, or another location approved in writing by the commissioner.

(2) If the physical location of the records is not conducive to examination by department personnel, the department may request that you provide your records at a mutually agreeable location in your area that is more suitable for conducting an examination. In this situation, if you refuse to agree, the commissioner may consider your inaction to constitute refusal to submit to an examination and initiate an appropriate enforcement action against you under Health and Safety Code, §§712.0441 - 712.0444.

(d) With respect to purchase agreements executed prior to the effective date of this section, a perpetual care cemetery will not violate this section if it cannot produce records required under this section that were not previously required by statute or rule.

History

• Source Note: The provisions of this §26.2 adopted to be effective May 21, 2002, 27 TexReg 4325; amended to be effective March 11, 2004, 29 TexReg 2302; amended to be effective January 4, 2007, 31 TexReg 10758; amended to be effective May 5, 2011, 36 TexReg 2723; amended to be effective November 10, 2011, 36 TexReg 7506; amended to be effective January 1, 2015, 39 TexReg 10405; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.3 How to Respond to a Written Notice to Prohibit Interment of a Homicide Perpetrator in the Same Cemetery as a Homicide Victim

(a) What unique defined terms are used in this section?

(1) "Authorized person" means the person that has the right to control the disposition of an individual's remains, as specified by Health and Safety Code, §711.002.

(2) "Barred individual" means a natural person whose remains you have been or may be requested to inter in your cemetery, who caused the death of a victim already interred in your cemetery as a result of conduct constituting:

(A) murder under Penal Code, §19.02;

(B) capital murder under Penal Code, §19.03;

(C) criminally negligent homicide under Penal Code, §19.05;

(D) intoxication manslaughter under Penal Code, §49.08; or

(E) a crime under a statute of another state that is similar to Penal Code, §19.02, §19.03, §19.05, or §49.08.

(3) "Time of interment" means the time you place the remains of an individual in the individual's final resting place.

(4) "Written notice" means the notice specified by Health and Safety Code, §712.009(b)(2), requesting that a barred individual not be interred in your cemetery.

(5) "You" or "I" means the owner or operator of a perpetual care cemetery.

(6) "Department" means the Texas Department of Banking.

(b) What should I do if I receive a written notice requesting that I not inter a named person in my cemetery? If you receive a written notice under Health and Safety Code, §712.009(b)(2), this subsection specifies the actions you should take within the two-week period following the date you receive the notice. It may be in your best interests to inform your attorney and the department that you received a notice under Health and Safety Code, §712.009(b)(2). If you consult an attorney, you should follow your attorney's advice.

(1) If you receive the written notice after the time of interment of the person named as a barred individual in the notice, you should state that interment has already occurred in a written reply to the person who sent you the notice.

(2) If you receive the written notice prior to the time of interment of the person named as a barred individual in the notice, you should take the actions specified in this paragraph of this subsection.

(A) If you are not aware that the person named as the barred individual has died or you have not scheduled interment of the named person's remains, you should make appropriate entries in your records to temporarily prevent any future interment of the named person for a period of up to two weeks, to permit you to investigate the facts and circumstances surrounding the notice.

(B) If the named person has died and interment of the remains of the named person in your cemetery is pending, you should:

(i) temporarily suspend any plans to inter the named person for a period of up to two weeks, to permit you to investigate the facts and circumstances surrounding the notice; and

(ii) notify the authorized person of the possibly barred individual that you are required to temporarily suspend interment to investigate the facts and circumstances surrounding the notice.

(C) You should immediately examine the written notice and any accompanying documents to determine if the written notice satisfies the requirements of subsection (c) of this section. If the written notice satisfies these requirements without any further inquiry, you must comply with subsection (d) of this section. If the written notice does not comply with subsection (c) of this section, you should identify as soon as possible, in a written reply to the person who sent you the notice, the additional information or documents that must be furnished to you in order for the notice to comply with subsection (c) of this section. You should also specify a date by which you must receive the additional information or documents. You may also choose to include other information in your reply, such as:

(i) notice that you have not yet been requested to inter the barred individual's remains, or that interment has been temporarily suspended pending a reply to your request for additional information;

(ii) notice that failure to submit a timely response with the requested information and documents may permit interment of the person named as the barred individual;

(iii) notice that, if you determine the written notice complies with subsection (c) of this section, you will not inter the barred individual in your cemetery during the seven year period following the date of the notice, and that the period can be extended from time to time if you receive a timely renewal notice; and/or

(iv) if your cemetery is the only cemetery serving the municipality or county in which the victim and the person named as the barred individual lived, notice that you will inter the barred individual's remains in a different part of your cemetery or otherwise as far away as possible from the place where the victim is interred, if you determine the written notice complies with subsection (c) of this section.

(c) What must the written notice contain to satisfy legal requirements? To satisfy the requirements of Health and Safety Code, §712.009, a written notice must be received by you prior to the time of interment of the person named as the barred individual, and must contain, or have attached documents containing, information that unambiguously:

(1) identifies a victim interred in your cemetery;

(2) identifies the sender as the authorized person of the victim;

(3) identifies a person as a barred individual and requests that the barred individual not be interred in your cemetery; and

(4) demonstrates that the named person is a barred individual, by including:

(A) a certified, final trial court judgment that has not been overturned on appeal, convicting the identified person of an offense specified in subsection (a)(2) of this section for causing the victim's death; or

(B) effective only if the individual dies before conviction, a certified document that:

(i) identifies the named person as causing the victim's death, in violation of a specified offense that is listed in subsection (a)(2) of this section; and

(ii) is signed by an authorized representative of the medical examiner or law enforcement agency having jurisdiction over the specified offense.

(d) What must I do if I receive a written notice that complies with subsection (c) of this section? If you are subject to a written notice that satisfies the requirements of Health and Safety Code, §712.009(b)(2), as discussed in subsection (c) of this section, you should take the actions specified in this subsection.

(1) If the barred individual has died and you had temporarily suspended interment of the barred individual's remains under subsection (b)(2)(B) of this section, you should notify the authorized representative of the barred individual that you may not inter the barred individual in your cemetery. Alternatively, if your cemetery is the only cemetery serving the municipality or county in which the victim and the barred individual lived, you should explain the authorized representative's options to select an interment location within the boundaries you specify for the purpose of ensuring interment of the barred individual's remains is in a different part of your cemetery or otherwise as far away as possible from the place where the victim is interred. At your option, you may also explain other, non-interment services you can provide. If a contract exists that purports to require you to inter the barred individual's remains, you should also comply with subsection (e) of this section.

(2) If you are not aware that the barred individual has died or you have not scheduled or been requested to provide interment of the barred individual's remains, you should make appropriate entries in your records to either:

(A) prevent interment of the barred individual's remains for a period of seven years following the date you received the written notice; or

(B) require interment of the barred individual's remains in a different part of your cemetery or as far as possible away from the place where the victim is interred, for a period of seven years following the date you received the written notice, if your cemetery is the only cemetery serving the municipality or county in which the victim and the barred individual lived.

(3) If you are not aware that the barred individual has died or you have not scheduled or been requested to provide interment of the barred individual's remains, you should also make appropriate entries in your records to remind you of future actions that may be required if you are requested in the future to inter the barred individual's remains. For example, if the written notice contained and relied on a certified trial court judgment, you should, by means of a notice in writing, give a reasonable opportunity (e.g., two weeks) to:

(A) the authorized person of the barred individual, to submit satisfactory proof that the conviction was overturned on appeal, to possibly avoid the application of Health and Safety Code, §712.009; and

(B) the authorized person of the victim, to submit a document that satisfies subsection (c)(5)(B) of this section if the conviction was overturned on appeal, or a certified document demonstrating that the conviction was finally upheld on appeal, to ensure that Health and Safety Code, §712.009, will apply to interment of the barred individual.

(e) Does a written notice that complies with subsection (c) of this section ever expire?

(1) If you are subject to a written notice that satisfies the requirements of Health and Safety Code, §712.009(b)(2), as discussed in subsection (c) of this section, you are bound by Health and Safety Code, §712.009, for a period that ends seven years after the date you received the written notice. However, the authorized representative of the victim may periodically extend this period by sending you a written renewal notice under Health and Safety Code, §712.009(f).

(2) If you receive a written renewal notice before the expiration of the seven year period initiated by a previous notice, you should immediately examine the written renewal notice, any accompanying documents, and the documents you received in connection with any prior notice to determine if the written renewal notice satisfies the requirements of subsection (c) of this section, in a manner similar to the investigation you conducted under subsection (b)(2)(C) of this section when you received the initial written notice.

(3) If a written renewal notice, any accompanying documents, and the documents you received in connection with any prior notice collectively satisfy the requirements of Health and Safety Code, §712.009(b)(2), as discussed in subsection (c) of this section, the period during which you are bound by Health and Safety Code, §712.009, will be extended for an additional period that ends seven years after the date you received the written renewal notice.

(f) What should I do if I have a contract to inter the barred individual's remains and I am subject to a written notice that complies with subsection (c) of this section? You should consult an attorney if you have a contract to inter the remains of a barred individual. Although you are protected from owing damages to the authorized representative of the barred individual under Health and Safety Code, §712.009(e), if you are barred from interring remains under that section, you will still be required to return any funds you received under a contract that you did not earn. You and the authorized representative of the barred individual may be able to negotiate a satisfactory settlement to enable you to earn at least a portion of the funds you received for the contract, such as by performing services not involving interment in your cemetery or assisting in alternate arrangements for disposition of the barred individual's remains.

(g) What records must I maintain if I receive a written notice? You must maintain the following records with respect to each victim interred in your cemetery that has been identified by a written notice:

(1) the written notice you received that identified a victim interred in your cemetery;

(2) the documents you received with the written notice or in response to your request for additional documents;

(3) each written renewal notice you received relating to the initial written notice retained under paragraph (1) of this subsection;

(4) any documents you received with a written renewal notice or in response to your request for additional documents;

(5) to the extent not already identified by prior paragraphs of this subsection, all correspondence to or from the authorized person of the victim or the authorized person's legal representative or attorney, including any complaints that you were required by a written notice to comply with Health and Safety Code, §712.009, but you inappropriately or unlawfully failed to comply;

(6) to the extent not already identified by prior paragraphs of this subsection, all correspondence to or from the authorized person of the barred individual or the authorized person's legal representative or attorney, including any complaints that a written notice was defective and did not require you to comply with Health and Safety Code, §712.009, but you inappropriately or unlawfully complied;

(7) all correspondence to or from your attorney concerning a written notice or related matters, subject to valid claims of privilege;

(8) if interment is authorized under Health and Safety Code, §712.009(d), documents demonstrating that you interred the barred individual in a place that is as far away as possible from the place you interred the victim;

(9) any contract that purported to require interment of the barred individual in your cemetery and, to the extent not already identified by prior paragraphs of this subsection, all correspondence, agreements, modifications, releases, cancelled checks, and deposit slips relating to the resolution of claims related to the contract; and

(10) to the extent not already identified by prior paragraphs of this subsection, all correspondence, pleadings, briefs, and court orders relating to litigation you initiated or defended with regard to issues of compliance or noncompliance with Health and Safety Code, §712.009.

(h) How long must I retain records relating to a written notice I received?

(1) With respect to a written notice that you determined was invalid and did not require you to comply with Health and Safety Code, §712.009, you must retain the records specified by subsection (g) of this section at least until the day after the third anniversary of the date you received the written notice.

(2) With respect to a written notice that you determined met the requirements of Health and Safety Code, §712.009, you must retain the records specified by subsection (g) of this section at least until the day after the 10th anniversary of the date you last received a written notice or renewal notice (i.e., the day after the third anniversary of the date the effective period of the last written notice or renewal notice expired).

History

• Source Note: The provisions of this §26.3 adopted to be effective May 21, 2002, 27 TexReg 4327; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.4 When Must I Order and Set a Burial Marker or Monument in my Perpetual Care Cemetery?

(a) Definitions.

(1) "Department" means the Texas Department of Banking.

(2) "Purchaser" means the person who signs the contract to buy a burial marker or monument from you, and includes a person authorized under the terms of the contract to act for such person in connection with the contract. If such person is deceased and is the person for whom the marker or monument has been purchased, the term also includes any person listed in Health and Safety Code, §711.002, as you deem appropriate under the circumstances.

(3) "Set" means install or place.

(4) "You" or "I" means a cemetery corporation that owns or operates a perpetual care cemetery. For purposes of subsection (b)(1) of this section the term also includes a representative or agent that receives payment for the marker or monument on your behalf, whether or not the agent or representative signs the purchase order.

(b) When must I order the purchaser's burial marker or monument? You must order the marker or monument and pay the amount, if any, required by the vendor or manufacturer to initiate the order on or before the 21st day after the date as of which both of the following events have occurred:

(1) the purchaser pays you:

(A) the amount you require to order the marker or monument; and

(B) all amounts due under the perpetual care cemetery agreement, including charges for interment rights, the plot or plots on which the marker or monument is to be set, and fees for perpetual or endowment care; and

(2) the purchaser approves the design and lettering for the marker or monument and signs the necessary documentation directing or authorizing you to order the marker or monument.

(c) When must I set the burial marker, once it has been delivered to my cemetery location? You must set the marker on or before the earlier of a date stipulated by the certificate holder in writing or the 15th day after the date as of which all of the following events have occurred:

(1) the purchaser inspects and accepts the marker if you require inspection and approval;

(2) the purchaser pays you:

(A) all amounts due under the contract for the marker, including the amount due for the base if your cemetery requires that a base be used with the marker; and

(B) any remaining amounts due under the perpetual care cemetery agreement, including charges for interment rights, the plot or plots on which the marker or monument is to be set, and fees for perpetual or endowment care; and

(3) if the purchaser has stipulated in writing that the marker be set later than required under this subsection, the purchaser asks you to set the marker.

(d) When must I set the burial monument, once it has been delivered to my cemetery location? You must set the monument on or before the earlier of a date stipulated by the certificate holder in writing or the 25th day after the date as of which all of the following events have occurred:

(1) the purchaser inspects and accepts the monument if you require inspection and approval;

(2) the purchaser pays you:

(A) all amounts due under the contract for the monument, including the amount due for the foundation if your cemetery requires that a foundation be used with the monument; and

(B) any remaining amounts due under the perpetual care cemetery agreement, including charges for interment rights, the plot or plots on which the marker or monument is to be set, and fees for perpetual or endowment care; and

(3) if the purchaser has stipulated in writing that the monument be set later than required under this subsection, the purchaser asks you to set the monument.

(e) What if I cannot set the burial marker or monument within the time period required by subsection (c) or (d) of this section because of inclement weather or other special circumstances? If you cannot set the marker or monument within the required time period, you must notify the purchaser in writing no later than the 5th day after the date by which the marker or monument must be set under subsection (c) or (d) of this section. Your written notice must:

(1) if possible, state the date you expect to set the marker or monument; and

(2) provide an explanation of the delay.

(f) What marker list must I maintain? You must keep a list of all marker transactions since the last examination, and the purchaser's marker or monument contract file must include all documentation necessary to verify and substantiate the dates specified in subsections (b), (c), (d), and (e) of this section, as applicable, and your compliance with this section.

(g) Must I inform the purchaser of the date requirements established by this section? Yes. You must provide written notice to the purchaser of all of the date requirements in one of the following:

(1) purchase agreement;

(2) marker/monument order form;

(3) cemetery rules and regulations; or

(4) cemetery price list.

(h) Does subsection (b) of this section apply to burial markers or monuments the purchaser buys from someone other than my cemetery or an affiliate of my cemetery? No. Subsection (b) of this section applies to only those markers and monuments purchased from you or from an affiliate of your cemetery. For purposes of this subsection, an affiliate means a company that directly or indirectly controls, is controlled by, or is under common control with you.

(i) If a purchaser buys a burial marker or monument from a vendor other than my cemetery and has it delivered to my cemetery, must I install the marker or monument within the time period provided for in subsection (c) or (d) of this section? Yes, provided:

(1) the purchaser has paid you all amounts due for the space or spaces in your cemetery on which the marker or monument will be set;

(2) the purchaser or vendor has paid all setting fees;

(3) the marker or monument meets your cemetery's standards requirements; and

(4) if applicable, the vendor has met all requirements relating to the setting and placement of the marker or monument under your cemetery's rules and regulations.

History

• Source Note: The provisions of this §26.4 adopted to be effective March 11, 2004, 29 TexReg 2302; amended to be effective January 4, 2007, 31 TexReg 10758; amended to be effective May 5, 2011, 36 TexReg 2723; amended to be effective November 10, 2011, 36 TexReg 7506; amended to be effective January 1, 2015, 39 TexReg 10405; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.5 When Must I Issue a Conveyance Document for a Cemetery Plot?

A perpetual care cemetery must issue a conveyance document for a cemetery plot, as defined by Health and Safety Code, §711.001(25), no later than 20 days after the end of the month in which the contract is paid in full.

History

• Source Note: The provisions of this §26.5 adopted to be effective May 5, 2011, 36 TexReg 2723; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.6 Required Record for a Cremains Receptacle

(a) For purposes of this section, the terms "cremains receptacle," "plot" and "niche" have the meanings assigned by Health and Safety Code, §711.001.

(b) After a perpetual care cemetery organization has properly dedicated and platted cemetery property, the organization may place a cremains receptacle that contains not more than four niches on a plot after a cremains receptacle map has been created. The cremains receptacle map must:

(1) be a diagram or drawing of the cremains receptacle as it is to be situated on the plot;

(2) include a notation of the plot by garden, lot and space the cremains receptacle is to be placed on;

(3) include a legend indicating the direction of the head of the plot i.e., north, south, east, or west;

(4) include the approximate dimensions of the cremains receptacle;

(5) include a unique identifier for each niche (i.e., number or letter);

(6) include the date the cremains receptacle was placed on the plot;

(7) include the purchase agreement number of the cremains receptacle; and

(8) include signature and date lines for approval by cemetery management.

(c) The original cremains receptacle map must be maintained with the cemetery's plat maps and be made available at each Department of Banking examination.

(d) A copy of the cremains receptacle map must be maintained in the plot owner's file.

(e) A cumulative register or list of all cremains receptacle maps must be maintained and be made available at each Department of Banking examination. The register must include at a minimum the date of cemetery management approval of the map and the plot location of the cremains receptacle.

History

• Source Note: The provisions of this §26.6 adopted to be effective November 7, 2013, 38 TexReg 7691; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.11 How Do I Provide Information to Consumers on How to File a Complaint?

(a) Definitions.

(1) "Consumer" means a person who obtains or has obtained interment rights, merchandise or services from you under an agreement that provides for perpetual care. For purposes of §26.12 of this title (relating to What must I do If I Receive a Written Consumer Complaint?), the term includes:

(A) a person authorized under the terms of the agreement to act in connection with the agreement; and

(B) if the person for whom such interment rights, merchandise or services have been obtained is deceased, any person listed in Health and Safety Code, §711.002(a).

(2) "Privacy notice" means any notice which you give regarding a consumer's right to privacy as required by a specific state or federal law.

(3) "Required notice" means a notice in a form set forth or provided for in subsection (b)(1) of this section.

(4) "You" or "I" means a perpetual care cemetery that is certificated by the Texas Department of Banking under the Health and Safety Code.

(b) How do I provide notice of how to file complaints?

(1) You must use the following notice in order to let your consumers know how to file complaints: Complaints concerning perpetual care cemeteries should be directed to: Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705; 1-877-276-5554 (toll free); www.dob.texas.gov.

(2) You must provide the required notice in the language in which a transaction is conducted.

(3) You must include the required notice with each privacy notice that you send out. The language and form of the notice must substantially conform to the required notice set out in paragraph (1) of this subsection.

(4) Regardless of whether you are required by any state or federal law to give privacy notices, you must take appropriate steps to let your consumers know how to file complaints by giving them the required notice in compliance with paragraph (1) of this subsection.

(5) You must use the following measures to give the required notice:

(A) You must give the required notice when the consumer first obtains a product or service from you by including the required notice in the perpetual care cemetery purchase agreement.

(B) Those portions of your website that offer or promote consumer goods and services must contain access to the required notice. The language and form of the notice must substantially conform to the required notice set out in paragraph (1) of this subsection.

History

• Source Note: The provisions of this §26.11 adopted to be effective January 3, 2002, 26 TexReg 10852; amended to be effective May 21, 2002, 27 TexReg 4328; amended to be effective March 11, 2004, 29 TexReg 2302; amended to be effective November 4, 2010, 35 TexReg 9697; amended to be effective January 3, 2019, 43 TexReg 8583; amended to be effective January 8, 2023, 47 TexReg 8981.

7 Tex. Admin. Code § 26.12 What Must I Do If I Receive a Written Consumer Complaint?

(a) Definitions.

(1) "Consumer complaint" means a written complaint you receive, either at your corporate office or your cemetery location, from a consumer regarding the manner in which you operate your perpetual care cemetery or perform your obligations under a perpetual care cemetery contract or Health and Safety Code, Chapter 711 or Chapter 712. The term includes a written complaint you receive either directly from the consumer or through the Department. The term does not include an oral complaint.

(2) "Department" means the Texas Department of Banking.

(3) "You" or "I" means a cemetery corporation that owns or operates a perpetual care cemetery.

(b) When must I respond to a written consumer complaint and what must my response include?

(1) You must respond to the consumer complaint in writing on or before the 30th day after the date you receive the consumer complaint.

(2) In your written response, you must:

(A) set out the actions you have taken or plan to take, with a corresponding timeline, to resolve or otherwise dispose of the consumer complaint; or

(B) if you dispute the consumer complaint or do not believe any corrective or other action is required, explain your conclusion and refer to any supporting legal authority.

(3) If the consumer complaint was forwarded to you by the department, you must send the department a copy of your response on or before the 5th day after the date you mail the response to the consumer.

(c) Must I keep records of the consumer complaints I receive? Yes. You must keep the records regarding consumer complaints in accordance with the requirements of §26.2(b)(2) of this title (relating to What Records am I Required to Maintain?).

History

• Source Note: The provisions of this §26.12 adopted to be effective March 11, 2004, 29 TexReg 2302; amended to be effective January 8, 2023, 47 TexReg 8981.

Chapter 27 APPLICATIONS

7 Tex. Admin. Code § 27.1 Notices to Applicants; Application Processing Times; Appeals

(a) An application for a prepaid funeral sellers permit or perpetual care cemetery certificate of authority granted by the commissioner must be filed on a form or in a manner approved by the banking commissioner. The department shall issue a written notice informing each applicant either that the application is complete and accepted for filing, or that the application is deficient and that specific additional information is required. The department shall issue the notice to the applicant within 10 business days of the receipt of the application.

(b) The commissioner shall determine whether to deny or approve an application within the following periods and in the following manner after a complete application has been accepted for filing:

(1) prepaid funeral seller's permits: 45 days; and

(2) perpetual care cemetery certificates of authority: 45 days.

(c) An applicant may appeal directly to the commissioner for a timely resolution of a dispute arising from a violation of the periods set forth in this section. An applicant shall perfect an appeal by filing a written request therefor prior to the expiration of 30 days after the date a decision is made on the application, addressed to the commissioner, requesting review by him of the application to determine whether the commissioner or the department exceeded the established period for the granting or denying of the application. The commissioner shall base his decision on the written appeal by the applicant and any response by the department and, if he deems necessary, the commissioner may require a hearing.

(d) The commissioner shall decide the appeal in the applicant's favor if he determines that he or the department exceeded the time period set out herein and failed to establish good cause for exceeding the period. The commissioner shall issue a written decision to the applicant within 60 days of the filing of an appeal. If an appeal is decided in an applicant's favor, the applicant will be reimbursed all of its application fees.

History

• Source Note: The provisions of this §27.1 adopted to be effective May 3, 1988, 13 TexReg 1911; amended to be effective September 6, 2001, 26 TexReg 6670; amended to be effective November 10, 2011, 36 TexReg 7507.

Chapter 33 MONEY SERVICES BUSINESSES

7 Tex. Admin. Code § 33.7 How Do I Obtain an Exemption from Licensing Because I Exchange Currency in Connection with Retail, Wholesale or Service Transactions?

(a) Does this section apply to me?

(1) This section applies if you are a retailer, wholesaler, or service provider and in the ordinary course of business:

(A) accept the currency of a foreign country or government as payment for your goods or services;

(B) in connection with the transaction, make or give change in the currency of a different foreign country or government; and

(C) qualify for an exemption under Finance Code, §152.102(e).

(2) This section does not apply, and you do not conduct currency exchange within the meaning of Finance Code, Chapter 152, or need a currency exchange license under the Act, if you accept payment for your goods or services in a foreign currency or a check denominated in a foreign currency and any change you make or give in connection with the transaction is in the same foreign currency as the payment you receive.

(b) To request an exemption, you must submit a letter to the commissioner that fully explains your business and is accompanied by a statement, signed and sworn to before a notary, affirming that none of the disqualifying conditions set out in Finance Code, §152.102(e)(1) - (5), apply to you. For purposes of the subsection (e)(4) disqualification, you are considered to be engaged in the "business of cashing checks, drafts or other payment instruments" if, in the 12 month period immediately preceding the filing of the application for exemption, you derived more than 1.00% of your gross receipts, directly or indirectly, from fees or other consideration you charged, earned, or imputed from cashing checks, drafts or other monetary instruments.

(c) The commissioner may require you to provide additional information or otherwise investigate or examine you to verify your eligibility for the exemption.

(d) The commissioner may grant the exemption if the commissioner determines that you are eligible and the exemption is in the public interest.

History

• Source Note: The provisions of this §33.7 adopted to be effective August 31, 2006, 31 TexReg 6643; amended to be effective May 12, 2022, 47 TexReg 2735; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.15 What May I Do If the Department Does Not Comply with the New License Application Processing Times?

(a) Does this section apply to me? This section applies if you applied for a new money transmission or currency exchange license under Finance Code, Chapter 152, and you believe that the department failed to comply with the application processing times specified in Finance Code, §152.106.

(b) What does "promptly" mean for purposes of Finance Code, §152.106(a) and this rule? "Promptly" means on or before the 30th day after the date the department receives your application.

(c) May I file a complaint? Yes. If the department does not process your application for a new money transmission or currency exchange license within the time periods specified in Finance Code, 152.106, you may file a written complaint with the banking commissioner. The complaint must set out the facts regarding the delay and the specific relief you seek. The department must receive your complaint on or before the 30th day after the date the commissioner approves or denies your license application.

(d) How will the banking commissioner evaluate my complaint?

(1) The department division responsible for complying with the applicable time period must submit a written response to the banking commissioner regarding your complaint that includes any facts on which the division relies to show that good cause existed for exceeding the applicable time period.

(2) The banking commissioner will review your written complaint and the division's response. If the commissioner deems it necessary, a hearing may be held to take evidence on the matter.

(3) The banking commissioner will determine, based upon your complaint and the division's response, if the department exceeded the applicable time period and, if so, whether the responsible division established good cause for the delay.

(e) When will the banking commissioner notify me of the decision? The banking commissioner will notify you of the decision regarding your complaint on or before the 60th day after the date the commissioner receives your written complaint. The commissioner's decision is final and may not be appealed.

(f) What happens if the banking commissioner decides in my favor? If the banking commissioner decides that the department exceeded the applicable time period without good cause, the department will reimburse you all of your application fees.

(g) Does the banking commissioner's decision regarding my complaint affect the decision on my application? No. A decision in your favor under this section does not affect any decision by the banking commissioner to grant or deny your license application. The decision to grant or deny your license application is based upon applicable substantive law without regard to whether the department timely processed your application.

History

• Source Note: The provisions of this §33.15 adopted to be effective May 18, 2006, 31 TexReg 3869; amended to be effective January 4, 2018, 42 TexReg 7581; amended to be effective November 7, 2019, 44 TexReg 6522; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.27 What Fees Must I Pay to Get and Maintain a License?

(a) Does this section apply to me? This section applies if you hold a money transmission or currency exchange license issued under Finance Code, Chapter 152, or are an applicant for a new money transmission or currency exchange license, as applicable. This section also applies if you are a person other than a license holder or applicant and are investigated under the authority of Finance Code, §152.056.

(b) Definitions. The following words and terms, when used in this section, have the following meanings unless the context clearly indicates otherwise.

(1) "Annual Assessment" means the fee assessed annually to pay the costs incurred by the department to examine a license holder and administer Finance Code, Chapter 152, including the annual license fee required by Finance Code, §152.107(d)(1).

(2) "Examination" means the process, either by on-site or off-site review, of evaluating the books and records of a license holder under the authority of Finance Code, §152.057, relating to its money services activities. For purposes of this section, the term does not include an investigation conducted under the authority of Finance Code, §§152.056 or 152.106.

(c) What provisions of Finance Code, Chapter 152, authorize the fees, assessments, and reimbursements required under this section? The fees, assessments, and reimbursements established by or required under this section are authorized by one or more of the following provisions of Finance Code, Chapter 152: §§152.052(b)(1), 152.056(e), 152.107(d)(1), 152.104(d), and 152.151(b)(2).

(d) What fees must I pay to obtain a new license?

(1) You must pay a $10,000 application fee to obtain a new money transmission license or a $5,000 application fee to obtain a currency exchange license. If your application is accepted for processing pursuant to Finance Code, §152.106, your application fee will be nonrefundable. You may also be required to pay the following additional fees:

(A) If the commissioner determines that it is necessary to conduct an on-site investigation of your business, you must pay a non-refundable investigation fee at a rate of $120 per hour for each department examiner required to conduct the investigation and all associated travel expenses;

(B) If the commissioner determines that it is necessary to employ a third-party screening service to assist with the investigation of your license application, you must pay the department for the reasonable costs for the third-party investigation; and

(C) If the commissioner determines it is necessary to perform background checks using fingerprint identification records, you must either submit payment for the costs of this service at the time you file your application or pay the department upon request.

(2) The commissioner may reduce the fees required under paragraph (1) of this subsection, if the commissioner determines that a lesser amount than would otherwise be collected is necessary to administer and enforce Finance Code, Chapter 152, and this chapter.

(e) What fees must I pay to maintain my money transmission or currency exchange license? You must pay your annual assessment. Subject to paragraph (3) of this subsection, the amount of your annual assessment is determined based on the total annual dollar amount of your Texas money transmission and/or currency exchange transactions, as applicable, as reflected on your most recent annual report filed with the department under Finance Code, §152.107(d)(2).

(1) If you hold a currency exchange license, you must pay the annual assessment specified in the following table:

Attached Graphic

(2) If you hold a money transmission license, you must pay the annual assessment specified in the following table:

Attached Graphic

(3) If you are a new license holder and have not yet filed your first annual report under Finance Code, §152.107(d)(2), you must pay an examination fee of $120 per hour for each examiner and all associated travel expenses for an examination.

(4) Adjustments for inflation. In this section, "GDPIPD" means the Gross Domestic Product Implicit Price Deflator, published quarterly by the Bureau of Economic Analysis, United States Department of Commerce. The "annual GDPIPD factor" is equal to the percentage change in the GDPIPD index values published for the first quarter of the current year compared to the first quarter of the previous year (the March-to-March period immediately preceding the calculation date), rounded to a hundredth of a percent (two decimal places).

(A) Beginning September 1, 2025, and each September 1 thereafter, the tables in paragraphs (1) and (2) of this subsection, as most recently revised before such date pursuant to this subsection, may be revised by the commissioner as follows:

(i) the base assessment amount, listed in column three of each table may be increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to whole dollars;

(ii) each factor listed in column three of each table may be increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to the number of decimal places set forth in the applicable row; and

(iii) the maximum assessment amount, listed in column three, row eight of each table may be increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to whole dollars.

(B) If the table in paragraphs (1) and (2) of this subsection are revised for inflation (or deflation), then not later than August 1 of each year, the department shall calculate and prepare revised tables reflecting the inflation-adjusted values to be applied effective the following September 1, and will provide each license holder with notice of and access to the revised table.

(f) What fees must I pay in connection with a department investigation?

(1) If the commissioner considers it necessary or appropriate to investigate you or another person in order to administer and enforce Finance Code, Chapter 152, as authorized under §152.056, you or the investigated person must pay the department an investigation fee calculated at a rate of $120 per employee hour for the investigation and all associated travel expenses.

(2) If the commissioner determines that it is necessary to employ a third-party screening service to assist with an investigation, you must pay the department for the costs incurred for the third-party investigation.

(3) If the commissioner determines it is necessary to perform background checks using fingerprint identification records in an investigation, you must pay the department the costs incurred for this service.

(g) What fees must I pay in connection with a proposed change of control of my money transmission or currency exchange business?

(1) You must pay a non-refundable $1,000 fee at the time you file an application requesting approval of your proposed change of control.

(2) You must pay a non-refundable $500 fee to obtain the department's prior determination of whether a person would be considered a person in control and whether a change of control application must be filed. If the department determines that a change of control application is required, the prior determination fee will be applied to the fee required under paragraph (1) of this subsection.

(3) If the department's review of your change of control application or prior determination request requires more than eight employee hours, you must pay an additional review fee of $120 per employee hour for every hour in excess of eight hours.

(4) The commissioner may reduce the filing fees described in paragraph (1) or (2) of this subsection, if the commissioner determines that a lesser amount than would otherwise be collected is necessary to administer and enforce Finance Code, Chapter 152, and this chapter.

(h) What other fees must I pay?

(1) If the department does not receive your completed annual report on or before the due date prescribed by the commissioner under Finance Code, §152.107, you must pay a late fee of $100 per day for each business day after the due date that the department does not receive your completed annual report.

(2) If more than one examination is required in the same fiscal year because of your failure to comply with Finance Code, Chapter 152, this chapter, or a department directive, you must pay for the additional examination at a rate of $120 per hour for each examiner required to conduct the additional examination and all associated travel expenses. A fiscal year is the 12-month period from September 1st of one year to August 31st of the following year.

(3) If the department travels out-of-state to conduct your examination, you must pay for all associated travel expenses.

(4) If the commissioner determines it is necessary to conduct an on-site examination of your authorized delegate to ensure your compliance with Finance Code, Chapter 152, you must pay an examination fee of $120 per hour for each examiner and any associated travel expenses.

(i) How and when do I need to pay for the fees required by this section?

(1) You must pay the license application fees required under subsection (d)(1) and (2) of this section at the time you file your application for a license.

(2) The department will bill you by written invoice for any investigation and third-party screening service fees under subsection (d)(1)(A), (B), or (C) of this section. You must pay the fees within 10 days of receipt of the department's written invoice.

(3) Your annual assessment required under subsection (e) of this section may be billed in quarterly or fewer installments in such periodically adjusted amounts as reasonably necessary to pay for the costs of examination and to administer Finance Code, Chapter 152. You must pay the annual assessment fee by ACH debit, or by another method if directed to do so by the department. At least 15 days prior to the scheduled ACH transfer, the department will send you a notice specifying the amount of the payment due and the date the department will initiate payment by ACH debit. The commissioner may decrease your annual assessment if it is determined that a lesser amount than would otherwise be collected is necessary to administer the Act.

(4) You must pay the investigation fee required under subsection (f) of this section within 10 days of receipt of the department's written invoice.

(5) You must pay the filing fees required by subsection (g) of this section at the time you file your proposed change of control or prior determination request. You must pay any required additional fees within 10 days of receipt of the department's written invoice.

(6) If you owe a late fee as provided by subsection (h)(1) of this section, you must pay this fee immediately upon receipt of the department's written invoice.

(7) The department will bill you for any additional examination fees required under subsection (h)(2), (3) or (4) of this section by written invoice. You must pay this additional examination fee within 10 days of receipt of the department's written invoice.

(8) A fee is considered paid as of the date the department receives payment.

(j) What if I cannot afford the annual assessment?

(1) This subsection applies only if you hold a currency exchange license. If you are experiencing financial difficulties, you may be able to obtain a temporary reduction in the amount of your annual assessment for one year by meeting the requirements of this subsection.

(2) To request a reduction in your annual assessment, you must file a written application as described in paragraph (2)(A) of this subsection and the commissioner must find that your application satisfies the requirements described in paragraph (2)(B) of this subsection. If the commissioner decides to reduce your annual assessment, the commissioner has discretion to determine the amount of the reduction.

(A) To request a reduction in your annual assessment, you must:

(i) file a written application with the department not later than 10 days before the date the current annual assessment is due, accompanied by a written business recovery plan and other supporting documentation sufficient to demonstrate that you satisfy each factor described in paragraph (2)(B) of this subsection; and

(ii) file any additional documentation the department requests not later than the seventh day after the date you receive the written request.

(B) The commissioner will not reduce your annual assessment unless the commissioner finds, based on your application and supporting documentation, that:

(i) Your payment of the full assessment will cause you to become financially insolvent, and your current or impending financial condition is temporary and you reasonably expect to have the ability to pay your annual assessment in full by at least the third year after the year in which your request is made, based on a written business recovery plan that is reasonable and attainable; or

(ii) your business is temporarily closed during the annual assessment period and you have conducted no currency exchange activities during that period.

History

• Source Note: The provisions of this §33.27 adopted to be effective August 31, 2006, 31 TexReg 6643; amended to be effective November 10, 2011, 36 TexReg 7508; amended to be effective January 2, 2014, 38 TexReg 9486; amended to be effective September 4, 2014, 39 TexReg 6827; amended to be effective January 4, 2018, 42 TexReg 7581; amended to be effective May 10, 2018, 43 TexReg 2747; amended to be effective November 7, 2019, 44 TexReg 6522; amended to be effective July 12, 2020, 45 TexReg 4499; amended to be effective May 12, 2022, 47 TexReg 2735; amended to be effective November 16, 2023, 48 TexReg 6584; amended to be effective September 5, 2024, 49 TexReg6735.

7 Tex. Admin. Code § 33.30 Notice of Cybersecurity Incident

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) "Cybersecurity incident" means any observed occurrence in an information system, whether maintained by you or by an affiliate or third party service provider at your direction, that:

(A) jeopardizes the cybersecurity of the information system or the information the system processes, stores or transmits; or

(B) violates the security policies, security procedures or acceptable use policies of the information system owner to the extent such occurrence results from unauthorized or malicious activity.

(2) "Information system" means a set of applications, services, information technology assets or other information-handling components organized for the collection, processing, maintenance, use, sharing, dissemination or disposition of electronic information, including the operating environment as well as any specialized system such as electronic payment systems, industrial/process control systems, telephone switching and private branch exchange systems and environmental control systems.

(3) "You" means a holder of a money transmission or currency exchange license issued under Finance Code, Chapter 152.

(b) Notice required. You must notify the banking commissioner and submit the information required by subsection (c) of this section as soon as practicable but prior to customer notification, and not later than 15 days following your determination that a cybersecurity incident regarding your information system will likely:

(1) require you to submit a notice or report to another state or federal regulatory or law enforcement agency or to a self-regulatory body other than the notice required by this section;

(2) require you to provide a data breach notification to any of your customers under applicable state or federal law, including Business and Commerce Code, §521.053, or a similar law of another state; or

(3) substantively impact your ability to effect transactions on behalf of your customers, accurately report transactions to your customers, or otherwise conduct your business.

(c) The notice required by subsection (b) of this section must include, to the extent known at the time of submission:

(1) a brief description of the cybersecurity incident, including the approximate date of the incident, the date the incident was discovered, and the nature of any data that may have been illegally obtained or accessed;

(2) subject to subsection (d) of this section, a list of the state and federal regulatory agencies, self-regulatory bodies, and foreign regulatory agencies to whom you have provided or will provide notice of the incident; and

(3) the name, address, telephone number, and email address of your employee or agent from whom additional information may be obtained regarding the incident.

(d) Omission of certain information. The filing of a suspicious activity report (SAR) related to the cybersecurity incident under applicable federal law constitutes a notice described by subsection (b)(1) of this section. However, you should not reference or mention the filing of a SAR in the notice filed with the commissioner.

(e) Incident response plan. The notice requirement imposed by this section must be incorporated into the written incident response plan that you maintain as part of your information security program.

History

• Source Note: The provisions of this §33.30 adopted to be effective January 2, 2020, 44 TexReg 8238; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.31 What Records Must I Keep Related to Currency Exchange Transactions?

(a) Does this section apply to me? This section applies if you hold a license issued by the department under Finance Code, Chapter 152, or are the authorized delegate of a license holder, as applicable, and you conduct currency exchange transactions.

(b) What are the general recordkeeping requirements?

(1) As a general matter, you must maintain:

(A) records of all filings made, and that contain all information required, under applicable federal laws and regulations, including the BSA and 31 CFR Chapter X;

(B) in addition to the records required under Finance Code, Chapter 152, the records required under this section related specifically to currency exchange transactions; and

(C) records sufficient to enable you to file accurate and complete reports with the commissioner or department in accordance with Finance Code, Chapter 152 and Chapter 33 of this title (relating to Money Services Businesses).

(2) You must obtain and retain the information required under this section in a log or by another means of retention that allows the information to be readily retrieved. In addition, you must:

(A) maintain your records in such a manner that you can identify and make available to the department the records related to your Texas transaction activity, and separately account for your Texas transaction activity; and

(B) make your records available to the department within the time period reasonably requested.

(c) What specific records must I keep related to currency exchange?

(1) With respect to currency exchange transactions in an amount in excess of $1,000, you must keep a record for each transaction that contains:

(A) the customer and transaction information required under 31 CFR §1022.410(b)(3), provided that, if your customer does not have a taxpayer identification number (e.g., social security, employee identification number) or passport number and is an alien, you may provide the number and description of an alternate valid entry document issued by a U.S. Federal or state government, such as a border crossing card; and

(B) the specific identifying information (number, type, issuer) of a document that contains the name and a photograph of your customer and that is customarily acceptable within the banking community as means of identification when cashing checks for nondepositors;

(C) your customer's date of birth;

(D) the rate of exchange;

(E) the amount of any fee charged for the transaction;

(F) the location of the office where the transaction is conducted;

(G) information sufficient to identify your employee or representative who conducts the transaction, such as initials, unique employee or representative code, or other appropriate identifier and a corresponding legend, if necessary; and

(H) the unique number of the receipt required under §33.33 of this title (relating to Currency Exchange Receipts).

(2) With respect to a transaction subject to paragraph (1) of this subsection, you must ask your customer whether the customer is conducting the transaction on the customer's own behalf or on behalf of another person (individual or business). If your customer is conducting the transaction on behalf of another person, you must, in addition to the information required under paragraph (1)(A) - (H) of this subsection, obtain and record the name and address of the other person together with appropriate identification for the other person, such as taxpayer identification, passport, or alien registration number.

(3) With respect to currency exchange transactions in an amount of $1,000 or less, you must keep a record for each transaction that contains:

(A) the date and amount of the transaction;

(B) the currency names and total amount of each currency;

(C) the location of the office where the transaction is conducted;

(D) the rate of exchange; and

(E) the amount of fee charged for the transaction.

(d) May I obtain a waiver of the recordkeeping requirements? The commissioner may waive any requirement of this section upon a showing of good cause if the commissioner determines that:

(1) you maintain records sufficient for the department to examine your currency exchange business; and

(2) the imposition of the requirement would cause an undue burden on you and conformity with the requirement would not significantly advance the state's interest under Finance Code, Chapter 152.

History

• Source Note: The provisions of this §33.31 adopted to be effective August 31, 2006, 31 TexReg 6643; amended to be effective July 8, 2010, 35 TexReg 5805; amended to be effective May 5, 2011, 36 TexReg 2724; amended to be effective July 5, 2018, 43 TexReg 4452; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.33 What Receipts Must I Issue Related to Currency Exchange Transactions?

(a) Does this section apply to me? This section applies if you hold a license issued by the department under Finance Code, Chapter 152, or are the authorized delegate of a license holder, as applicable, and you conduct currency exchange transactions.

(b) Must I issue a receipt in connection with the currency exchange transactions I conduct?

(1) For purposes of this section, "receipt" means a receipt, electronic record or other written confirmation.

(2) With respect to a currency exchange transaction in an amount in excess of $1,000, you must issue a receipt for each transaction that:

(A) can be linked to the exchange transaction records required under §33.31(c)(1) and (2) of this title (relating to What Records Must I Keep Related to Currency Exchange Transactions?); and

(B) contains:

(i) the name of your licensed business and the business address or telephone number;

(ii) the unique transaction or identification number;

(iii) the date and amount of the transaction;

(iv) the currency names and total amount of each currency;

(v) the rate of exchange; and

(vi) the amount of fee charged for the transaction;

(3) With respect to a currency exchange transaction you conduct with another financial institution as that term is defined in 31 C.F.R. §1010.100(t) or with a financial institution located outside the United States, you must obtain a contemporaneous receipt for each transaction, regardless of where the transaction is conducted. If the other financial institution is a money services business as that term is defined in 31 C.F.R. §1010.100(ff), or a money services business or financial institution located outside the United States, the receipt must contain:

(A) the date and amount of the transaction;

(B) the currency names and total amount of each currency;

(C) the rate of exchange;

(D) the name and address of the money services business issuing the receipt; and

(E) information sufficient to identify the employee or representative who conducts the transaction for the entity issuing the receipt, such as initials, unique employee or representative code, or other appropriate identifier.

History

• Source Note: The provisions of this §33.33 adopted to be effective August 31, 2006, 31 TexReg 6643; amended to be effective July 8, 2010, 35 TexReg 5805; amended to be effective May 5, 2011, 36 TexReg 2724; amended to be effective March 7, 2013, 38 TexReg 1357; amended to be effective May 12, 2022, 47 TexReg 2735; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.35 What Records Must I Keep Related to Money Transmission Transactions?

(a) Does this section apply to me? This section applies to you if you hold a money transmission license issued by the department under Finance Code, Chapter 152, or are the authorized delegate of a license holder, as applicable.

(b) What are the general recordkeeping requirements?

(1) As a general matter, you must maintain:

(A) records of all filings made, and that contain all information required, under applicable federal laws and regulations, including the Bank Secrecy Act and 31 CFR Chapter X (collectively BSA);

(B) in addition to the records required under Finance Code, Chapter 152, the records required in this section related to specific types of money transmission transactions; and

(C) records sufficient to enable you to file accurate and complete reports with the commissioner or department in accordance with Finance Code, Chapter 152 and Chapter 33 of this title (relating to Money Services Businesses).

(2) You must obtain and retain the information required under this section in a log or by another means of retention that allows the information to be readily retrieved. In addition, you must:

(A) maintain your records in such a manner that you can identify and make available to the department the records related to your Texas transaction activity, and separately account for your Texas transaction activity; and

(B) make your records available to the department within the time period reasonably requested.

(3) If the BSA requires your authorized delegate to obtain, record and maintain information in connection with transactions conducted as your authorized sales representative, you shall, upon request by the department, arrange with the authorized delegate to have the records made available to the department. For example, the BSA requires your authorized delegate to maintain records related to the sale of travelers checks issued by you because your authorized delegate, as seller, is the person that actually receives currency. The department may require you to arrange for the production of those records for examination or as otherwise necessary or, alternatively, obtain the records directly from your authorized delegate.

(4) If you exchange currency in connection with a money transmission transaction subject to this section, you must comply with the recordkeeping requirements of this section and not the requirements of §33.31 of this title (relating to Currency Exchange Recordkeeping).

(c) What specific records must I keep related to the sale of payment instruments?

(1) This subsection applies to transactions, including third-party bill paying transactions, in which you issue or sell, either as a license holder or the authorized delegate of a license holder, as applicable, travelers checks, money orders, checks or similar payment instruments to one purchaser for $3,000 or more in currency.

(2) You must keep a record for each transaction that contains the customer and transaction information required under 31 CFR §1010.415(a)(2) and (b).

(d) What specific records must I keep related to the issuance and sale of stored value products?

(1) This subsection applies to transactions in which you issue or sell, as a license holder or the authorized delegate of a license holder, as applicable, stored value products (e.g., cards, devices, services, digital wallets/e-wallets) in any amount for currency or an instrument payable in currency.

(2) You must maintain transaction records regarding each stored value transaction that are appropriate for your business activities and the type of stored value product you issue or sell. The records must be sufficient to enable the department to determine the volume of your stored value transactions and the amount of your outstanding stored value liability.

(e) What specific records must I keep related to transmission of funds transactions?

(1) This subsection applies to transactions, including third-party bill paying transactions, in which you, either as a license holder or the authorized delegate of a license holder, as applicable:

(A) receive money from a sender for transmission to the sender's designated recipient and the sender pays for or otherwise funds the transmission with currency, an instrument payable in currency, such as a check or money order, or a credit card; or

(B) receive transmitted funds and pay the designated recipient with currency or an instrument payable in currency.

(2) The requirements of this subsection do not apply to a transmission of funds transaction governed by the Electronic Fund Transfer Act of 1978 (title XX, Pub. L. 950630, 92 Stat. 3728, 15 USC 1693, et seq.), as well as any other funds transfers that are made through an automated clearing house, an automated teller machine, or a point-of-sale system within the meaning of 31 CFR §1010.100(w).

(3) If a transmission of funds otherwise subject to this subsection is funded by a credit card, you must obtain and record only the information required under the applicable provisions of 31 CFR §1010.410(e).

(4) For purposes of paragraph (5) of this subsection, "identifying number" means the taxpayer identification number (e.g., social security, employee identification number) or passport number of your customer or the person on whose behalf your customer conducts the transaction, as applicable, or, if your customer or other person has no such number and is an alien, then the number of an alien identification card or other official document evidencing foreign nationality or residence, such as a foreign driver's license or foreign voter registration card.

(5) With respect to a transmission transaction in an amount of $3,000 or more, you must keep a record for each transaction that contains:

(A) for an in-person transaction in which your customer is the sender and orders the transaction on the customer's own behalf or on behalf of another person:

(i) the customer and transaction information required under 31 CFR §1010.410(e)(1)(i) and (e)(2)(i), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) a photograph identification of your customer;

(III) the identity of the issuer of the photograph identification;

(IV) the recipient's name; and

(V) the name of the recipient's bank and bank account number if the funds are to be deposited in the recipient's bank account;

(ii) your customer's date of birth;

(iii) the time of day the transaction is conducted;

(iv) the location of the office where the transaction is conducted;

(v) the method of payment (e.g., cash, check, credit card) unless cash is the only method of payment;

(vi) the amount of any fee charged for the transaction; and

(vii) the unique number of the receipt required under §33.37 of this title (relating to What Receipts Must I Issue Related to Money Transmission Transactions?).

(B) for a not-in person transaction, for example, a transaction ordered by phone, fax, mail or online, in which your customer is the sender and orders the transaction on the customer's own behalf or on behalf of another person:

(i) the customer and transaction information required under 31 CFR §1010.410(e)(1)(i) and (e)(2)(ii), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) the recipient's name; and

(III) the name of the recipient's bank and bank account number if the funds are to be deposited in the recipient's bank account;

(ii) your customer's date of birth;

(iii) your customer's telephone number, or, if your customer has no telephone, a notation in the record of that fact;

(iv) the time of day the transaction is conducted;

(v) the location of the office where the transaction is conducted;

(vi) the method of payment (e.g., cash, check, credit card);

(vii) the amount of any fee charged for the transaction; and

(viii) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(C) for an in-person transaction in which your customer receives payment of the transmitted funds as the designated recipient or on behalf of the designated recipient:

(i) the customer and transaction information required under 31 CFR §1010.410(e)(1)(iii) and (e)(3)(i), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) a photograph identification of your customer;

(III) the identity of the issuer of the photograph identification; and

(IV) the sender's name;

(ii) your customer's date of birth;

(iii) your customer's telephone number, or, if your customer has no telephone, a notation in the record of that fact;

(iv) the time of day your customer receives payment of the transmitted funds;

(v) the location of the office where your customer receives payment of the transmitted funds;

(vi) the method of payment (e.g., cash, check); and

(vii) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(D) for a transaction where the transmission proceeds are delivered to the designated recipient other than in person:

(i) the customer and transaction records required under 31 CFR §1010.410(e)(1)(iii) and (e)(3)(ii);

(ii) the sender's name;

(iii) the location of the office where the transmitted funds are received; and

(iv) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(6) With respect to a transmission transaction in an amount less than $3,000, whether your customer is the sender or the recipient, you must keep a record for each transaction that contains:

(A) the date of the transaction and time of day your customer orders the transmission or receives payment of the transmitted funds;

(B) the location of the office where the transaction is conducted;

(C) the amount of the transmission;

(D) the amount of any fee charged for the transaction;

(E) the names of the sender and recipient; and

(F) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(f) What records must I keep related to currency transportation?

(1) This subsection applies to a transaction in which you, as a license holder or the authorized delegate of a license holder, receive currency or an instrument payable in currency to physically transport the currency or its equivalent from one location to another by motor vehicle or other means of transportation or through the use of the mail or a shipping, courier or other delivery services.

(2) With respect to a transaction subject to paragraphs (3) or (4) of this subsection, you must ask your customer whether the customer is conducting the transaction on the customer's own behalf or on behalf of another person (individual or business.) If your customer is conducting the transaction on behalf of another person, you must obtain and record, in addition to the information required under paragraphs (3) or (4) of this subsection, the name and address of the other person together with appropriate identification for the other person, such as taxpayer identification, passport, or alien registration number.

(3) With respect to a transportation transaction in an amount of $3,000 or more in which your customer is the sender and orders the transportation of the currency on the customer's own behalf or on behalf of another person, you must keep a record for each transaction that contains:

(A) your customer's name, address, date of birth and telephone number or, if your customer has no telephone, a notation in the record of that fact;

(B) your customer's taxpayer identification number (e.g., social security number, employee identification number) or passport number or, if your customer does not have such a number and is an alien, then the number of an alien identification card or other official document evidencing your customer's foreign nationality or residence, such as a foreign driver's license or foreign voter registration card;

(C) the specific identifying information (number, type, issuer) of a document that contains the name and a photograph of your customer and that is customarily acceptable within the banking community as a means of identification when cashing checks for nondepositors;

(D) the designated recipient's name;

(E) the designated recipient's address and telephone number to the extent that information is available to you after reasonable inquiry;

(F) the amount of currency or instrument(s) to be transported and, if an instrument, the type of instrument (e.g., money order, check);

(G) the date and time of day you receive from your customer the currency or instrument(s) to be transported;

(H) the location of the office where the transaction is conducted;

(I) the amount of any fee charged for the transaction; and

(J) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(4) With respect to a transportation transaction in an amount of $3,000 or more in which your customer receives the transported currency as the designated recipient or on behalf of the designated recipient, you must keep a record for each transaction that contains:

(A) your customer's name, address, date of birth and telephone number or, if your customer has no telephone, a notation in the record of that fact;

(B) your customer's taxpayer identification number (e.g., social security number, employee identification number) or passport number or, if your customer does not have such a number and is an alien, then the number of an alien identification card or other official document evidencing your customer's foreign nationality or residence, such as a foreign driver's license or foreign voter registration card;

(C) the specific identifying information (number, type, issuer) of a document that contains the name and a photograph of your customer and that is customarily acceptable within the banking community as a means of identification when cashing checks for nondepositors;

(D) the sender's name;

(E) the sender's address and telephone number to the extent that information is available to you after reasonable inquiry;

(F) the amount of currency or instrument(s) to be delivered to your customer and, if an instrument, the type of instrument (e.g., money order, check);

(G) the date and time of day your customer receives the transported currency or instrument(s);

(H) the location of the office where the transported currency or instrument(s) is delivered to your customer; and

(I) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(5) With respect to a transportation transaction in an amount less than $3,000, whether your customer is the sender or the recipient, you must keep a record for each transaction that contains:

(A) the date and time of day you receive from your customer the currency or instrument(s) to be transported or your customer receives the transported currency or instrument(s), as applicable;

(B) the location of the office where the transaction is conducted;

(C) the amount of the currency or instrument(s) transported;

(D) the amount of any fee charged for the transaction;

(E) the names of the sender and recipient; and

(F) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(g) May I obtain a waiver of the recordkeeping requirements? The commissioner may waive any requirement of this section upon a showing of good cause if the commissioner determines that:

(1) you maintain records sufficient for the department to examine your money transmission business; and

(2) the imposition of the requirement would cause an undue burden on you and conformity with the requirement would not significantly advance the state's interest under Finance Code, Chapter 152.

History

• Source Note: The provisions of this §33.35 adopted to be effective August 31, 2006, 31 TexReg 6643; amended to be effective July 8, 2010, 35 TexReg 5805; amended to be effective May 5, 2011, 36 TexReg 2724; amended to be effective July 5, 2018, 43 TexReg 4452; amended to be effective January 3, 2019, 43 TexReg 8584; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.51 How do I Provide Information to My Customers about How to File a Complaint?

(a) Does this section apply to me? This section applies if you hold a money transmission or currency exchange license issued by the department under Finance Code, Chapter 152.

(b) Definitions. Words used in this section that are defined in Finance Code, Chapter 152, have the same meaning as defined in the Finance Code. The following words and terms, when used in this section, shall have the following meanings unless the text clearly indicates otherwise.

(1) "Conspicuously posted" means displayed so that a customer with 20/20 vision can read it from the place where he or she would typically conduct business with you or, alternatively, on a bulletin board, in plain view, on which you post notices to the general public (such as equal housing posters, licenses, Community Reinvestment Act notices, etc.).

(2) "Customer" means, as to money transmission or currency exchange, any Texas resident to whom, either directly or through an authorized delegate, you provide or have provided money transmission or currency exchange products or services or for whom you conduct or have conducted a money transmission or currency exchange transaction.

(3) "Privacy notice" means any notice regarding a person's right to privacy that you are required to give under a specific state or federal law.

(4) "Required notice" means the notice described in subsection (d) of this section.

(c) Must I provide notice to customers about how to file complaints? Yes. You must tell each of your customers how to file a complaint concerning the money transmission or currency exchange business you conduct under Finance Code, Chapter 152, in accordance with this section.

(d) What must the notice say?

(1) You must use:

(A) a notice that conforms to the complaint notice requirements of the Remittance Transfer Rule of Regulation E (12 C.F.R. Part 1005, Subpart B), such as described by 12 C.F.R. §1005.31(b)(2)(vi), if the Remittance Transfer Rule applies to you; or

(B) a notice that substantially conforms to the language and form of the following notice: If you have a complaint, first contact the consumer assistance division of (Name of License Holder) at (License Holder consumer assistance telephone number), if you still have an unresolved complaint regarding the company's (money transmission or currency exchange) activity, please direct your complaint to: Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705, 1-877-276-5554 (toll free), www.dob.texas.gov.

(2) You must provide the required notice in the language in which the transaction is conducted.

(e) How and where must I provide the required notice?

(1) If a state or federal law requires you to send a privacy notice to your customers, you must include the required notice with each privacy notice.

(2) If you maintain a website by which a customer may remit money for transmission or obtain information about the customer's transaction or an existing account, you must include the required notice on your website. The notice must be prominently displayed on the initial page the customer uses to initiate the remittance, transaction or access the information, or on a page available no more than one link from the initial page. The link must clearly describe the information available by clicking the link, e.g., "Texas customers click here for information about filing complaints about our money transmission or currency exchange product or service."

(3) In addition to including the required notice in a privacy notice in accordance with paragraph (1) of this subsection and on your website in accordance with paragraph (2) of this subsection, you must tell customers how to file complaints by one or more of the following methods:

(A) You may include the required notice in at least 8 point type, on each payment instrument or other access device or receipt used in connection with your money transmission or currency exchange business, provided that:

(i) the payment instrument or other access device constitutes the only means of accessing the money received for transmission; or

(ii) you issue a receipt for every money transmission or currency exchange transaction you conduct.

(B) If you personally receive all the funds paid by your customers, you may conspicuously post the required notice where you conduct money transmission or currency exchange activities with customers on a face to face basis.

(C) You may provide each customer with the required notice separately, provided that:

(i) not later than the time the transaction is conducted, you deliver the required notice in a form that your customer can retain; or

(ii) if you use an access device, such as a stored value card, in your money services business and mail the device to your customer, you include the required notice in the mailing; and

(iii) if the same access device may be used continuously, such as a reloadable stored value card, you also deliver the required notice to your customer at least once every twelve months. You may include the required notice with a privacy statement, with or on another statement, or by another means so long as the customer actually receives the notice within each twelve-month period.

(4) If your business is entirely internet based, so that account relationships and transactions are initiated solely by means of the internet, the additional disclosures described in paragraph (3) of this subsection are not required.

(f) How do I provide the required notice if I conduct business through authorized delegates?

(1) If you conduct business through one or more authorized delegates, each authorized delegate must provide the required notice by one or more of the methods described in subsection (e)(3) of this section. You must specify the method or methods to be used by your authorized delegate and provide your authorized delegate with the means by which to give the notice you select.

(2) If your authorized delegate personally receives all funds paid by your customers and you require your authorized delegate to post the required notice described in subsection (e)(3)(B) of this section, you may use one posted notice to provide the required notice and the authorized delegate designation required under §33.52 of this title.

(g) Am I subject to an enforcement action if I do not provide the required notice? Yes. You are subject to enforcement sanctions under Finance Code, Chapter 152, Subchapter I, if you:

(1) fail to provide the required notice in accordance with this section; or

(2) fail to specify the method and provide the means by which your authorized delegate must give the required notice in accordance with subsection (f)(1) of this section.

(h) Is my authorized delegate subject to an enforcement action if the delegate does not provide the required notice? Yes, if you have complied with subsection (f)(1) of this section. If you have specified the method and provided the means by which your authorized delegate must give the required notice, your authorized delegate is subject to enforcement sanctions if the delegate fails to provide the required notice as directed.

History

• Source Note: The provisions of this §33.51 adopted to be effective May 18, 2006, 31 TexReg 3869; amended to be effective July 8, 2010, 35 TexReg 5805; amended to be effective November 4, 2010, 35 TexReg 9698; amended to be effective March 7, 2013, 38 TexReg 1357; amended to be effective January 4, 2018, 42 TexReg 7581; amended to be effective July 5, 2018, 43 TexReg 4452; amended to be effective November 7, 2019, 44 TexReg 6522; amended to be effective May 12, 2022, 47 TexReg 2735; amended to be effective November 16, 2023, 48 TexReg 6584; amended to be effective September 5, 2024, 49 TexReg 6735.

7 Tex. Admin. Code § 33.52 Authorized Delegate Notice

(a) In addition to the complaint notice required by §33.51(f) of this title, an authorized delegate of a money transmission license holder appointed in accordance with Texas Finance Code, Chapter 152, Subchapter F, must provide each of its Texas customers with notice that:

(1) is written in the language in which the transaction is conducted;

(2) states the name of the license holder; and

(3) indicates that the person is an authorized delegate conducting money transmission on behalf of the license holder.

(b) The notice must be provided by one or more of the methods described in §33.51(e)(3) of this title. If the authorized delegate maintains a website that advertises the money transmission services it provides on behalf of the license holder, the notice must also be prominently displayed on this website.

(c) The authorized delegate notice may be provided on a single form with the complaint notice required under §33.51 of this title.

History

• Source Note: The provisions of this §33.52 adopted to be effective May 7, 2015, 40 TexReg 2410; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.53 Exemption for Debt Management Service Providers

(a) For purposes of this section, the terms "debt management service" and "provider" have the meanings assigned by Texas Finance Code §394.202.

(b) A debt management service provider who, in the course of conducting its debt management services, receives money from consumers for distribution to the consumer's creditors need not obtain a money transmission license if that provider:

(1) is registered and in good standing with the Office of Consumer Credit Commissioner as a debt management service provider under Finance Code Chapter 394;

(2) is in compliance with all requirements of Finance Code Chapter 394 and 7 TAC Chapter 88 (relating to Consumer Debt Management Services); and

(3) conducts no money transmission as defined by Finance Code §152.003, except as necessary to provide debt management services to contractual customers.

(c) Any debt management service provider who receives money from consumers and who is exempted from registration by the Office of Consumer Credit Commissioner for any reason, including under Finance Code §394.203(c)(5), must contact the Department of Banking to seek a determination as to whether a money transmission license is required.

(d) Any debt management service provider exempted from money transmission licensing under subsection (b) of this section must immediately contact the Department of Banking in the event that any of the conditions listed in subsection (b) of this section change.

History

• Source Note: The provisions of this §33.53 adopted to be effective January 5, 2012, 36 TexReg 9285; amended to be effective November 16, 2023, 48 TexReg 6584.

7 Tex. Admin. Code § 33.55 Clarification of Texas Finance Code § 152.004(9)

For an attorney to qualify for the exemption under Texas Finance Code § 152.004(9), the attorney must be licensed to practice law and a member of the State Bar of Texas, or a Texas professional corporation organized to provide professional legal services, and must be performing legal services in connection with the real property transaction.

History

• Source Note: The provisions of this §33.55 adopted to be effective September 4, 2025, 50 TexReg 5699.

Chapter 35 CHECK VERIFICATION ENTITIES

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 35.1 Definitions

In this subchapter:

(1) Banking Commissioner--The Commissioner of the Texas Department of Banking.

(2) Department--The Texas Department of Banking.

(3) Electronic notification system--The secure e-mail or other secure system established under §11.309, Finance Code, and used by financial institutions to notify check verification entities as required by §523.052, Business & Commerce Code.

(4) Financial institution--A financial institution as defined by §523.052(a)(2), Business & Commerce Code.

(5) Police report--A police report of an offense under Section 32.51, Penal Code.

(6) Sworn statement--The sworn statements referred to in §523.052(b)(2) and §523.052(e)(2)(B), Business & Commerce Code, except when the term is specifically limited to one of the sworn statements.

(7) Written authorization--The written authorization referred to in §523.052(b)(3), Business & Commerce Code.

History

• Source Note: The provisions of this §35.1 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter B REGISTRATION OF CHECK VERIFICATION ENTITIES

7 Tex. Admin. Code § 35.11 Who must register with the banking commissioner?

An entity is a check verification entity and must register with the banking commissioner if it:

(1) is a consumer reporting agency as defined in the Fair Credit Reporting Act (15 U.S.C. Section 1681 et seq.);

(2) contracts with businesses in this state to recommend acceptance or rejection of checks or similar sight orders received by the businesses; and

(3) compiles and maintains files on consumers on a nationwide basis regarding the consumers' check-writing history for those businesses with which it contracts.

History

• Source Note: The provisions of this §35.11 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.12 What is the registration requirement for a check verification entity?

A check verification entity must register with the department and then renew the registration annually thereafter on forms prescribed by the department.

History

• Source Note: The provisions of this §35.12 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.13 What must a check verification entity do to register in Texas?

(a) A check verification entity must complete and submit the registration form prescribed by the banking commissioner, which at a minimum, must include:

(1) the full legal name, any assumed name, principal business address, mailing address, business telephone number, facsimile number, and website address of the check verification entity;

(2) the full legal name, title, business telephone number, facsimile number, and e-mail address of the following persons associated with the check verification entity:

(A) the person responsible for questions about the registration or renewal process; and

(B) the person responsible for compliance with the requirements of §523.052, Business & Commerce Code.

(3) a statement that:

(A) the registration information is true and correct; and

(B) it has business clients in Texas and compiles and maintains files on consumers on a nationwide basis regarding consumers' check-writing history for those businesses;

(4) such other information as the banking commissioner may require, including information confirming that the registering entity is required to register under §35.11 of this title; and

(5) a certification by an authorized officer that the information therein is true and correct; and

(b) Submit the nonrefundable annual registration fee of $100 with the registration form.

History

• Source Note: The provisions of this §35.13 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.14 Is there a fee for registering a check verification entity?

A check verification entity must pay a $100 fee to the department when it initially submits a completed registration form to the department and then annually thereafter when it submits a form to renew its registration.

History

• Source Note: The provisions of this §35.14 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.15 When does a check verification entity's registration expire?

Regardless of the date on which a registration under this chapter is effective, the registration expires on March 1 of each year.

History

• Source Note: The provisions of this §35.15 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.16 How does a check verification entity renew its registration?

To renew a registration, a check verification entity must file a completed registration form pursuant to the instructions in §35.13 of this title, on or before February 1 of each year.

History

• Source Note: The provisions of this §35.16 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.17 What must a check verification entity do when its registration information changes?

A check verification entity must notify the department of any change in the registration information provided to the department not later than the 30th day after the date of the change.

History

• Source Note: The provisions of this §35.17 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.18 How long will the department take to process my registration?

(a) On or before the 15th day after the date the department receives your registration form, the department will notify you in writing that:

(1) your registration form is incomplete and specify the additional information required before the department will accept your registration for filing; or

(2) your registration is complete and accepted for filing.

(b) On or before the 30th day after the date the department accepts your registration for filing, the banking commissioner will approve or deny your registration and advise you in writing of the decision.

History

• Source Note: The provisions of this §35.18 adopted to be effective June 30, 2016, 41 TexReg 4638.

7 Tex. Admin. Code § 35.19 What remedy is available if the department does not comply with the registration processing times?

(a) If the department does not process your registration within the time periods specified in §35.18 of this title, you may file a written complaint with the banking commissioner. The complaint must set out the facts regarding the delay and the specific relief you seek. The department must receive your complaint on or before the 30th day after the date the commissioner approves or denies your registration.

(b) The department division responsible for complying with the applicable time period must submit a written response to the banking commissioner regarding your complaint that includes any facts on which the division relies to show that good cause existed for exceeding the applicable time period.

(c) The banking commissioner will review your written complaint and the division's response. If the commissioner deems it necessary, a hearing may be held to take evidence on the matter.

(d) The banking commissioner will determine, based upon your complaint and the division's response, if the department exceeded the applicable time period and, if so, whether the responsible division established good cause for the delay.

(e) The banking commissioner will notify you of the decision regarding your complaint on or before the 60th day after the date the commissioner receives your written complaint. The commissioner's decision is final and may not be appealed.

(f) If the banking commissioner decides that the department exceeded the applicable time period without good cause, the department will reimburse you all of your registration fees.

(g) A decision in your favor under this section does not affect any decision by the banking commissioner to grant or deny your registration. The decision to grant or deny your registration is based upon applicable substantive law without regard to whether the department timely processed your registration.

History

• Source Note: The provisions of this §35.19 adopted to be effective June 30, 2016, 41 TexReg 4638.

Subchapter C RESPONSIBILITIES OF THE BANKING COMMISSIONER

7 Tex. Admin. Code § 35.31 What is the banking commissioner required to do with respect to the electronic notification system?

(a) The banking commissioner is required to establish an electronic notification system, through secure email or another secure system, to be used by a financial institution to notify check verification entities as required by §523.052, Business & Commerce Code.

(b) The department will maintain the electronic notification system for financial institutions to use to transmit the required information to check verification entities, but the department:

(1) will not verify the accuracy, validity, or completeness of any information transmitted through the electronic notification system; and

(2) is not furnishing the information to the check verification entities.

History

• Source Note: The provisions of this §35.31 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter D PROCEDURE FOLLOWING A CUSTOMER REPORT OF AN OFFENSE UNDER SECTION 32.51, PENAL CODE

7 Tex. Admin. Code § 35.51 What is an offense under Section 32.51, Penal Code?

Generally, a person commits an offense under §32.51, Penal Code, if the person, with the intent to harm or defraud another, obtains, possesses, transfers, or uses:

(1) identifying information of another person without the other person's consent; or

(2) without legal authorization, information concerning a deceased person that would be identifying information of that person were that person alive.

History

• Source Note: The provisions of this §35.51 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.52 What must a financial institution or check verification entity do when a person reports to it that the person was the victim of an offense under Section 32.51, Penal Code?

(a) When a customer reports to a financial institution that they have been the victim of an offense under §32.51, Penal Code, the financial institution is encouraged to provide the customer with a sworn statement form under §523.052(b)(2), Business & Commerce Code, and a written authorization form under §523.052(b)(3).

(b) When a person reports to a check verification entity that they have been the victim of an offense under §32.51, Penal Code, the check verification entity is encouraged to provide the person with a sworn statement form under §523.052(e)(2)(B), Business & Commerce Code.

(c) If a person agrees to receive the documents described in subsection (a) or (b) of this section in a particular electronic format or on the Internet, a financial institution or check verification entity may provide the documents to the person electronically or by providing the person with the URL address of the webpage where the forms are located:

(1) on the website of the financial institution or check verification entity; or

(2) on the department's website.

History

• Source Note: The provisions of this §35.52 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.53 Will the department provide model forms for the sworn statement and written authorization required by Section 523.052(b)(2) and (3), Business & Commerce Code?

(a) The department has provided a model form combining the sworn statement under §523.052(b)(2), Business & Commerce Code, and the written authorization under §523.052(b)(3) for use by financial institutions.

(b) The department has provided a model form sworn statement under §523.052(e)(2)(B), Business & Commerce Code, for use by check verification entities.

(c) A financial institution or check verification entity may use and accept:

(1) the model forms provided by the department; and

(2) other forms that contain spaces for persons to provide the information required by §523.052, Business & Commerce Code, and this Chapter.

(d) The model forms in subsection (a) and (b) of this section are available on the department's website. The department encourages financial institutions, check verification entities, and other financial institution regulators to make the model forms, or the forms they use, available on their websites.

(e) A financial institution may use and accept a form that combines the sworn statement and the written authorization into a single form.

History

• Source Note: The provisions of this §35.53 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.54 What information must appear on the sworn statement required by Section 523.052(b)(2), Business & Commerce Code, for use when a person contacts a financial institution with the intent to send information through the electronic notification system?

The sworn statement form required by §523.052(b)(2), Business & Commerce Code, must include:

(1) a notice, at the top of the first page, that provides that:

(A) the customer must file a police report regarding an offense under §32.51, Penal Code; and

(B) the customer must return the completed sworn statement with either:

(i) the incident or case number of the police report; or

(ii) a copy of the police report.

(2) blanks for the customer to provide:

(A) customer's name, address, phone number, date of birth;

(B) the number and the issuing governmental entity's name for the customer's:

(i) driver's license or state issued identification card; or

(ii) if the customer does not have a driver's license or state issued identification card, other government-issued identification.

(C) the account number of any account compromised by the alleged offense and closed in response to the alleged offense;

(D) routing number for the financial institution where the account was closed;

(E) numbers or the range of numbers of any checks that have been lost, stolen, or compromised, if any;

(F) the incident or case number of the police report; and

(G) a signature before a notary public.

History

• Source Note: The provisions of this §35.54 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.55 What information must appear on the written authorization required by Section 523.052(b)(3), Business & Commerce Code?

The written authorization form provided to a customer by a financial institution must contain:

(1) a signature bar for the customer's signature; and

(2) a provision in uppercase, bold-faced type that is substantially similar to this provision and in at least 12-point font: THE STATE OF TEXAS HAS ESTABLISHED AN ELECTRONIC NOTIFICATION SYSTEM TO DELIVER INFORMATION TO CHECK VERIFICATION ENTITIES REGARDING VICTIMS OF OFFENSES UNDER SECTION 32.51, PENAL CODE, REGARDING FRAUDULENT USE OR POSSESSION OF IDENTIFYING INFORMATION OF A PERSON. THE CHECK VERIFICATION ENTITIES USE INFORMATION RECEIVED TO ASSIST BUSINESSES IN DECIDING WHETHER TO ACCEPT CHECKS AND OTHER PAYMENT DEVICES PRESENTED TO THEM. BY SUBMITTING THIS FORM, YOU ARE AUTHORIZING _______________________ (NAME OF FINANCIAL INSTITUTION) TO SUBMIT THE INFORMATION YOU PROVIDED ON THE SWORN STATEMENT TO THE ELECTRONIC NOTIFICATION SYSTEM.

History

• Source Note: The provisions of this §35.55 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.56 What information must appear on the sworn statement required by Section 523.052(e)(2)(B), Business & Commerce Code, for use with a person who contacts a check verification entity directly?

The sworn statement required by §523.052(e)(2)(B), Business & Commerce Code, must include:

(1) the information required by §35.54 of this title; and

(2) a statement that the person has requested that their financial institution close any account that has been compromised by the alleged offense.

History

• Source Note: The provisions of this §35.56 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.57 When must a financial institution submit customer information through the electronic notification system?

A financial institution must submit the information required by §523.052(d), Business & Commerce Code, to the electronic notification system not later than the second business day after the date the customer:

(1) notifies the financial institution that the customer was a victim of an offense under §32.51, Penal Code;

(2) requests the financial institution close an account that has been compromised by the alleged offense; and

(3) presents to the home office, if in Texas, or to any branch of the financial institution in Texas:

(A) an incident or case number of the police report or a copy of the police report of an offense under §32.51, Penal Code;

(B) the sworn statement required by §523.052(b)(2), Business & Commerce Code; and

(C) the written authorization required by §523.052(b)(3), Business & Commerce Code.

History

• Source Note: The provisions of this §35.57 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

7 Tex. Admin. Code § 35.58 May a financial institution or check verification entity accept a case or offense number issued by a police department instead of a copy of the police report?

Instead of a copy of the police report regarding an offense under §32.51, Penal Code, a person may provide a financial institution or check verification entity the case or offense number issued by the police department.

History

• Source Note: The provisions of this §35.58 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.59 What procedures must a check verification entity maintain to prevent recommending approval of a check or similar sight order after receipt of a notification of an offense under Section 32.51, Penal Code?

A check verification entity must process a notification received through the electronic notification system or pursuant to §523.052(e)(2), Business & Commerce Code, in the same manner as it processes information received from its usual sources, including information received from its business customers.

History

• Source Note: The provisions of this §35.59 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter E PROCEDURES WHEN INCORRECT INFORMATION IS REPORTED TO THE CHECK VERIFICATION ENTITY

7 Tex. Admin. Code § 35.71 What must a financial institution do when it receives notice from a customer or a check verification entity that it sent incorrect information through the electronic notification system?

A financial institution that determines or is informed that information it furnished to check verification entities through the electronic notification system is not complete or accurate must correct that information promptly in accordance with 15 U.S.C. §§1681 et seq. and other applicable law. The electronic notification system is available to the financial institution to provide the registered check verification entities with complete and accurate information.

History

• Source Note: The provisions of this §35.71 adopted to be effective January 3, 2008, 32 TexReg 9940.

7 Tex. Admin. Code § 35.72 What must a check verification entity do when it receives notice directly from a person pursuant to Section 523.052(e)(2), Business & Commerce Code, or from a financial institution through the electronic notification system that information the check verification entity received was erroneous?

Subject to other applicable state or federal law, a check verification entity that is notified that information it received through the electronic notification system is not complete or accurate must process the notice in the same manner as it processes such notices received from its usual sources, including information received from its business customers.

History

• Source Note: The provisions of this §35.72 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Part 4 DEPARTMENT OF SAVINGS AND MORTGAGE LENDING

Chapter 51 DEPARTMENT ADMINISTRATION

Subchapter A COMPLAINTS

7 Tex. Admin. Code § 51.1 Purpose

This subchapter governs SML's administration of Finance Code §13.011, requiring SML to maintain a system to act on consumer complaints. This subchapter establishes processes and procedures used by SML to process inquiries and complaints submitted by consumers.

History

• Source Note: The provisions of this §51.1 adopted to be effective July 10, 2025, 50 TexReg 3867.

7 Tex. Admin. Code § 51.2 Definitions.

In this chapter, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(2) "Complainant" means a person who submits a complaint to SML.

(3) "Complaint" means a signed, written communication received by the Consumer Responsiveness Unit that expresses dissatisfaction with a transaction or alleges wrongful conduct.

(4) "Consumer Responsiveness Unit" or "CRU" means the section or unit within SML that receives inquiries and complaints from consumers and investigates complaints.

(5) "Inquiry" means a communication received by the Consumer Responsiveness Unit that expresses dissatisfaction with a transaction or alleges wrongful conduct but is not a complaint.

(6) "Respondent" means an entity or individual who is the subject of a complaint.

(7) "SML" means the Department of Savings and Mortgage Lending.

History

• Source Note: The provisions of this §51.2 adopted to be effective July 10, 2025, 50 TexReg 3867.

7 Tex. Admin. Code § 51.3 Computation of Time

In this subchapter, the calculation of any time period measured in days is made using calendar days unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded, and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §51.3 adopted to be effective July 10, 2025, 50 TexReg 3867.

7 Tex. Admin. Code § 51.4 Processing Inquiries and Complaints.

(a) Processing Inquiries. When an inquiry is received, the CRU will determine whether SML has jurisdiction and regulates the entity and the issue that is the subject of the inquiry. If SML does not, the CRU will inform the person making the inquiry of the appropriate regulatory authority, if known. If SML regulates the entity and the issue that is the subject of the inquiry, the CRU will inform the person making the inquiry of the procedure for submitting a complaint.

(b) Submitting a Complaint. Complaints may be submitted on SML's website (sml.texas.gov), by mail (Attn: Consumer Responsiveness Unit, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705), or by email (complaintsubmission@sml.texas.gov). SML will collect the following items and information, if available:

(1) the complainant's name and contact information;

(2) the respondent's name, Nationwide Multistate Licensing System ID, if applicable, and contact information;

(3) the date and place of the alleged misconduct, violation, or transaction;

(4) a description of the facts or conduct alleged to violate applicable statutes or rules; and

(5) any written documentation supporting the complaint.

(c) Processing Complaints.

(1) Jurisdiction review. When a complaint is received, the CRU will determine whether SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint. If SML does not, the CRU will inform the person making the complaint of the appropriate regulatory authority, if known, and the complaint will be closed. The CRU may conduct a preliminary investigation that is limited in scope to determine if SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint.

(2) Reasonable cause review. If SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint, the CRU will determine if reasonable cause exists to conduct an investigation. Reasonable cause exists if the complaint presents facts and evidence indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The CRU may conduct a preliminary investigation that is limited in scope to determine if reasonable cause exists. If reasonable cause does not exist, the complaint will be closed. SML may close a complaint for lack of reasonable cause if it involves facts and evidence that are substantially similar to those investigated in a previous complaint submitted by the complainant.

(3) Respondent's response. If reasonable cause exists, SML will send a copy or a summary of the complaint and appropriate supporting documentation to the respondent to request a response unless SML determines that doing so would jeopardize investigation of the complaint or an enforcement action. A respondent must respond within 14 days after the date the request is sent, unless an extension is given. The respondent must respond by the new deadline if an extension is given. If the respondent fails to respond, the factual matters alleged in the complaint may be construed against the respondent and may constitute grounds for an enforcement action against the respondent. SML will provide a copy of the response to the complainant unless the respondent requests that the response be kept confidential from the complainant, or SML determines that providing the response would jeopardize investigation of the complaint or an enforcement action. The respondent may provide a copy of the response to the complainant at the time it sends its response to SML, and if so, the respondent must indicate as such in the response (i.e., by listing the complainant as a carbon copy recipient).

(4) Investigation. On receipt of the respondent's response, the CRU will conduct an investigation. Investigations will be conducted as SML considers appropriate based on the relevant facts and circumstances known or reasonably inferred. An investigation may include:

(A) review of documentary evidence;

(B) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(C) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(D) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(E) other lawful investigative methods SML considers appropriate.

(5) Closing the complaint after an investigation. When investigation and analysis of the complaint are complete, the complaint will be closed. SML will send written notice (closing notice) to the complainant and the respondent within 10 business days after the date the complaint is closed, except as provided by subparagraph (E) of this paragraph. The closing notice will include a general description of how the complaint was closed (disposition) but will not include the investigator's specific findings or other information obtained during the investigation that is made confidential by law. Common dispositions include:

(A) Litigation. The complaint involves facts and issues that are being litigated or arbitrated by the parties or have been determined by a judicial or arbitration decision.

(B) Resolution. The complaint is resolved by agreement of the parties or is resolved to the satisfaction of SML through corrective action taken by the respondent.

(C) No violation. SML has determined that no violation occurred.

(D) Insufficient evidence. SML has determined that there is insufficient evidence to establish that a violation occurred.

(E) Enforcement referral. SML has determined that there is sufficient evidence to establish that a violation occurred and the complaint is referred for an enforcement action. A respondent referred for an enforcement action will be notified through the enforcement action and does not receive a closing notice.

(6) Request for Reconsideration. A complainant who disagrees with the disposition of a complaint (including a complaint closed for lack of jurisdiction under paragraph (1) of this subsection or for lack of reasonable cause under paragraph (2) of this subsection) may request reconsideration within 60 days after the date the closing notice is sent. On receipt of a timely request, a senior investigator from the CRU (other than the investigator who made the initial determination) or a staff attorney will review the file and determine the disposition. The individual assigned to review the file may investigate the complaint further to determine the disposition. SML will send written notice to the complainant within 10 business days after the date the disposition is determined. The disposition determined as a result of a request for reconsideration under this subparagraph is considered final and may not be challenged further by the complainant.

(d) Limitations Period. A complaint must be submitted within four years after the date the alleged act or omission giving rise to the complaint occurred or should reasonably have been discovered by the complainant. A complaint submitted outside this period for which SML has jurisdiction will be closed for lack of reasonable cause under subsection (c)(2) of this section.

(e) Public Information. Complaints and inquiries submitted to SML are generally considered public information unless a specific statutory exception applies.

(f) Protecting the Complainant's Identity. At the request of the complainant, SML will take reasonable measures to protect the complainant's identity to the extent possible. However, complainants are cautioned that, as provided by subsections (c)(3) and (e) of this section, complaints are generally considered public information, and the respondent is generally given notice of and the opportunity to respond to the complaint. The information provided to the respondent may show or indicate the complainant's identity. If the complaint results in SML taking enforcement action that requires an administrative hearing or judicial proceeding, SML may be required to prove the violation using evidence that shows or indicates the complainant's identity.

(g) Prioritizing Complaints. SML will prioritize complaints to determine the order in which complaints are investigated, considering the seriousness of the allegations and the length of time a complaint has been open.

(h) Complaint Monitoring. SML will monitor how long each complaint is open and will make reasonable efforts to resolve a complaint within 120 days after the date the complaint is received. SML will notify the complainant of the status of his or her complaint at least quarterly until the complaint is closed unless doing so would jeopardize investigation of the complaint or an enforcement action.

History

• Source Note: The provisions of this §51.4 adopted to be effective July 10, 2025, 50 TexReg 3867.

7 Tex. Admin. Code § 51.5 Complaint Information

(a) SML will maintain records of complaints received in accordance with its records retention policy.

(b) SML will report complaint activity to the Finance Commission of Texas at each of its regular meetings.

(c) SML will make information available on its website describing the processes and procedures in §51.4 of this title (relating to Processing Inquiries and Complaints).

History

• Source Note: The provisions of this §51.5 adopted to be effective July 10, 2025, 50 TexReg 3867.

Subchapter B HEARINGS AND APPEALS

7 Tex. Admin. Code § 51.100 Appeals, Hearings, and Informal Settlement Conferences

(a) Alternative Resolution of Appeal. If an enforcement action is appealed, SML may resolve the matter through negotiation, mediation, agreed order, consent order, informal settlement conference, alternative dispute resolution, or other appropriate means.

(b) Informal Settlement Conferences. An individual or entity subject to an enforcement action may request an informal settlement conference. An informal settlement conference does not create any new rights or obligations. Informal settlement conferences:

(1) are conducted at the discretion of legal and enforcement staff;

(2) may not be requested for purposes of delay; and

(3) may be conducted remotely, including by phone or videoconference.

(c) Mediation. SML may, at the discretion of the Commissioner or his or her designee, arrange for the services of a qualified mediator or subject matter expert to assist in resolving complaints or other matters.

(d) Hearings. Hearings are governed by the rules in Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings). Cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings are held in Austin, Texas. An appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas.

History

• Source Note: The provisions of this §51.100 adopted to be effective July 14, 2022, 47 TexReg 3962; amended to be effective July 10, 2025, 50 TexReg 3867.

Subchapter C ADVISORY COMMITTEES

7 Tex. Admin. Code § 51.200 Advisory Committees

The following advisory committees created under Finance Code §13.018 are continued in existence, and unless continued further, are automatically abolished on September 1, 2030:

(1) the mortgage grant advisory committee under §52.5 of this title (relating to Mortgage Grant Advisory Committee); and

(2) any other advisory committee created under Finance Code §13.018 that exists at the time this rule is adopted.

History

• Source Note: The provisions of this §51.200 adopted to be effective July 14, 2022, 47 TexReg 3962; amended to be effective July 10, 2025, 50 TexReg 3867.

Chapter 52 Mortgage Grant Fund

7 Tex. Admin. Code § 52.1 Purpose

This chapter governs SML's administration of the Mortgage Grant Fund under Finance Code Chapter 156, Subchapter G other than claims made against the Mortgage Grant Fund in accordance with Finance Code §156.555 which are governed by Chapter 53 of this title (relating to Recovery Claims).

History

• Source Note: The provisions of this §52.1 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 52.2 Definitions

In this chapter, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Auxiliary mortgage loan activity company" has the meaning assigned by Finance Code §156.002.

(2) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(3) "Finance Commission" means the Finance Commission of Texas.

(4) "Grant Coordinator" means the employee of SML that assists the Commissioner in discharging his or her duties related to the Mortgage Grant Fund, as provided by §52.4 of this title (relating to Grant Coordinator).

(5) "Mortgage Grant Advisory Committee" or "MGAC" means the Mortgage Grant Advisory Committee created to advise the Commissioner concerning administration of the MGF grant program, as provided by §52.5 of this title (relating to Mortgage Grant Advisory Committee).

(6) "Mortgage Grant Administration Manual" or "MGAM" means the manual of the policies and procedures governing administration of the MGF and the MGF grant program, as provided by §52.3 of this title (relating to Management by the Commissioner).

(7) "Mortgage Grant Fund" or "MGF" means the fund the Commissioner administers under Finance Code Chapter 156, Subchapter G.

(8) "SML" means the Department of Savings and Mortgage Lending.

History

• Source Note: The provisions of this §52.2 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 52.3 Management by the Commissioner

(a) Management by the Commissioner. As provided by Finance Code §156.553, the Commissioner serves as manager and administers all aspects of the MGF.

(b) Periodic Reports to the Finance Commission. The Commissioner or Grant Coordinator will report the status and activities of the MGF to the audit committee of the Finance Commission at each regular meeting of the committee, or as directed by the Finance Commission.

(c) Mortgage Grant Administration Manual. The Commissioner maintains a manual of the policies and procedures governing administration of the MGF and the MGF grant program. The MGAM, and any amendments to the MGAM, must be approved by the Finance Commission.

History

• Source Note: The provisions of this §52.3 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 52.4 Grant Coordinator

The Commissioner may appoint an employee of SML to serve as Grant Coordinator to assist the Commissioner in discharging his or her duties related to the MGF. The Commissioner may designate one or more SML employees to act on behalf of the Grant Coordinator when the Grant Coordinator is not available. The Grant Coordinator serves under the direction of the Commissioner and acts as liaison between grantees, the Commissioner, and the MGAC. The Commissioner may delegate any authority of the Commissioner to act as manager of the MGF to the Grant Coordinator, including any duties listed under Finance Code §156.553(a).

History

• Source Note: The provisions of this §52.4 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 52.5 Mortgage Grant Advisory Committee

(a) Purpose. The MGAC exists as an advisory committee to make recommendations to the Commissioner and Grant Coordinator concerning administration of the MGF grant program. The MGAC will continue in existence until the abolishment date set by §51.200 of this title (relating to Advisory Committees).

(b) Governance. The MGAC is governed by the MGAM.

(c) Advisory Role of the MGAC. The MGAC, at the request of the Commissioner, makes recommendations concerning administration of the MGF grant program including:

(1) evaluating grant applications to determine whether the application should be approved, and the amount of the grant award;

(2) monitoring ongoing grant awards to evaluate performance and determine compliance;

(3) considering potential amendments to the MGAM; and

(4) evaluating potential candidates for appointment to the MGAC.

History

• Source Note: The provisions of this §52.5 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 52.6 Grant Program

(a) Purpose. This section governs disbursements made from the MGF to provide grants for financial education relating to mortgage loans, as provided by Finance Code §156.554(b)(1).

(b) Grant Cycle. The fund may have one competitive grant cycle every two years. A new grant cycle begins on January 1 of every odd-numbered year. An applicant may choose to apply for a one-year grant or a two-year grant. The grant cycle for a one-year grant begins on January 1 and ends on December 31 of the odd-numbered year for the applicable cycle. The grant cycle for a two-year grant begins on January 1 of the odd-numbered year and ends on December 31 of the following even-numbered year for the applicable cycle.

(c) Eligibility. A grant may only be given to a company licensed by SML as an auxiliary mortgage loan activity company, a nonprofit organization, or a political subdivision of this state. Grant funding is not available to entities licensed by or registered with SML other than auxiliary mortgage loan activity companies and residential mortgage loan servicers that operate as a nonprofit organization.

(d) Grant Application. To be considered for the grant program, an applicant must submit a completed grant application by the deadline and in accordance with the instructions for the applicable grant cycle. Late or incomplete grant applications will not be accepted. Meeting eligibility criteria and timely submission of a grant application does not guarantee a grant award.

(e) Review and Approval. The Commissioner, after considering the recommendations of the MGAC and the Grant Coordinator, will review timely and complete applications and determine the grants awarded.

(f) Grant Agreement. To participate in the grant program, a grantee approved by the Commissioner to receive a grant must execute the grant agreement approved by the Commissioner for the applicable grant cycle and tailored to that grantee (grant agreement).

(g) Grantee Compliance. A grantee must comply with applicable financial, administrative, and programmatic terms and conditions, and exercise proper stewardship over grant funds. A grantee must use awarded funds in compliance with the following in effect for the applicable grant cycle:

(1) all applicable state laws and regulations;

(2) all applicable federal laws and regulations;

(3) the MGAM;

(4) the grant agreement signed by the Commissioner or the Commissioner's designee and the grantee;

(5) all reporting and monitoring requirements, as outlined in the grant agreement; and

(6) any other guidance documents posted on the MGF webpage for the applicable grant cycle.

(h) Reporting and Monitoring.

(1) General reporting requirements. To receive reimbursement of grant expenses a grantee must:

(A) submit periodic grant reports as provided by the grant agreement;

(B) maintain satisfactory compliance with the grant agreement including the grantee's goals approved for funding in the grant agreement; and

(C) identify, track, and report performance measures.

(2) Progress Reports. A grantee must submit progress reports that demonstrate performance outcomes over the term of the grant in accordance with and by the deadlines specified in the grant agreement.

(3) Monitoring. The Grant Coordinator may use the following methods to monitor a grantee's performance and expenditures:

(A) Audit. The Commissioner or Grant Coordinator may audit a grantee to review and compare individual source documentation and materials to summary data provided during the reporting process; or

(B) Site Visits. The Commissioner or Grant Coordinator may visit a grantee's place of business or other place where grant activities are conducted to evaluate performance and determine compliance.

(i) Reimbursement.

(1) Eligibility. To be eligible for reimbursement, a grantee must comply with the grant agreement and all other items listed in subsection (g) of this section. To ensure that grant funds are used for a public purpose as provided by Finance Code §156.556(1), grant funds will only be awarded on a cost reimbursement basis for actual, allowable, and allocable costs incurred by a grantee pursuant to the grant agreement. Expenses incurred before the beginning of or after termination of the grant agreement are not eligible for reimbursement. The Commissioner may withhold reimbursements when a grantee is not in compliance with the grant agreement or other items listed in subsection (g) of this section.

(2) Procedure. To request reimbursement, a grantee must submit a progress report and reimbursement request in accordance with and by the deadlines specified in the grant agreement. The progress report and reimbursement request must be made using the current forms prescribed by the Commissioner for the applicable grant cycle. The progress report must be detailed and include supporting documentation to justify the reimbursement request. SML will review and approve requests for reimbursement that satisfy the requirements and promptly disburse funds for approved requests.

(j) Misuse of Grant Funds. The Commissioner may require a refund of grant funds already disbursed to the grantee and may cancel the grant agreement or disqualify the grantee from receiving future grants if:

(1) grant funds are not used for a public purpose allowable under Finance Code §156.554(b)(1);

(2) grant funds are used in an illegal manner;

(3) the grantee violates the grant agreement or other items listed in subsection (g) of this section; or

(4) the Commissioner determines that the grantee made a material misrepresentation in obtaining the grant or in seeking reimbursement of grant funds.

History

• Source Note: The provisions of this §52.6 adopted to be effective July 10, 2025, 50 TexReg 3870.

Chapter 53 RECOVERY CLAIMS

7 Tex. Admin. Code § 53.1 Purpose

This chapter governs SML's administration of:

(1) Finance Code §13.016 and Chapter 156, Subchapter F, creating a recovery fund that allows for claims to compensate persons for actual, out-of-pocket damages incurred because of violations committed by an individual licensed by SML as a residential mortgage loan originator under Finance Code Chapter 157; and

(2) Finance Code §156.555, allowing for claims to be made against the Mortgage Grant Fund created under Finance Code Chapter 156, Subchapter G, to compensate persons for actual, out-of-pocket damages incurred because of fraud committed by an individual who acted as a residential mortgage loan originator but did not hold a residential mortgage loan originator license under Finance Code Chapter 157.

History

• Source Note: The provisions of this §53.1 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.2 Definitions

In this chapter, the following definitions apply, unless the context clearly indicates otherwise.

(1) "Application" means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Claimant" means a mortgage applicant making or seeking to make a claim against the recovery fund in accordance with Finance Code §156.504 or against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(3) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(4) "Consumer Responsiveness Unit" or "CRU" means the section or unit within SML that receives inquiries and complaints from consumers and investigates complaints.

(5) "Mortgage applicant" means an applicant for a residential mortgage loan or a person who is solicited (or contacts a residential mortgage loan originator in response to a solicitation) to obtain a residential mortgage loan, and includes a person who has not completed or started completing a formal loan application on the appropriate form (e.g., the Fannie Mae Form 1003 Uniform Residential Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(6) "Mortgage Grant Fund" means the fund the Commissioner administers in accordance with Finance Code Chapter 156, Subchapter G.

(7) "Recovery claim" or " claim" means a claim made against the recovery fund in accordance with Finance Code §156.504 or against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(8) "Recovery fund" means the fund the Commissioner administers in accordance with Finance Code §13.016 and Chapter 156, Subchapter F.

(9) "Residential mortgage loan" has the meaning assigned by Finance Code §180.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan which is secured by a structure that is suitable for occupancy as a dwelling, but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as residence.

(10) "Respondent" means an individual against whom a recovery claim is made.

(11) "SML" means the Department of Savings and Mortgage Lending.

History

• Source Note: The provisions of this §53.2 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.3 Submitting a Claim

(a) Application Required. A claimant submits a claim by filing a written application using the current form prescribed by the Commissioner and posted on SML's website (sml.texas.gov). The application may be sent by mail (Attn: Consumer Responsiveness Unit, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (complaintsubmission@sml.texas.gov). If sent by email, the claimant must include a quality, scanned version of the completed application, and must maintain the original application throughout the claims process and send it to SML by mail on request.

(b) Incomplete Filings; Deemed Withdrawal. An application will only be accepted for filing if it is complete. If an application is incomplete, SML will send written notice to the claimant specifying the additional information required to render the application complete. The application may be deemed withdrawn if the claimant fails to provide the additional information within 30 days after the date written notice is sent to the claimant as provided by this subsection. Among other things, the application must:

(1) be verified and sworn under oath before a notary;

(2) identify a valid respondent; and

(3) identify actual, out-of-pocket damages meeting the requirements of §53.12 of this title (relating to Recoverable Damages).

History

• Source Note: The provisions of this §53.3 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.4 Investigating the Claim

When a claim is accepted for filing, it will be assigned to an investigator within the CRU to conduct an investigation. Claims are generally investigated in the same manner as a complaint under §51.4 of this title (relating to Processing Inquiries and Complaints). If the claim relates to a pending complaint, the investigator may investigate the two simultaneously. If the claim relates to a closed complaint, the investigator may adopt the findings of that investigation instead of or in addition to investigating the claim.

History

• Source Note: The provisions of this §53.4 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.5 Resolution by Agreement

The respondent and the claimant may resolve the claim by agreement at any time. If an agreement is reached, the parties must promptly send written notice to SML by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov). If an agreement is reached, SML may, in its sole discretion, consider the claim withdrawn or hold the claim in abatement pending satisfaction of the agreement. If held in abatement, the claim is deemed withdrawn upon satisfaction of the agreement.

History

• Source Note: The provisions of this §53.5 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.6 Preliminary Determination; Requests for Appeal

(a) Preliminary Determination. After the claim is investigated, the claim will be referred to SML's legal and enforcement section to issue a preliminary determination.

(b) Requests for Appeal. The respondent or the claimant has 30 days to appeal the preliminary determination. An appeal must be in writing and received by SML within 30 days after the date the preliminary determination is issued. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(c) Effect of Not Appealing. A respondent or claimant who does not timely appeal the preliminary determination is deemed to have irrevocably waived any right they had to challenge the preliminary determination or request a hearing on the preliminary determination and is deemed not to have exhausted all administrative remedies for purposes of judicial review under Government Code §2001.171.

History

• Source Note: The provisions of this §53.6 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.7 Administrative Hearings

(a) If an appeal is requested under §53.6 of this title (relating to Preliminary Determination; Requests for Appeal), SML will cause an administrative hearing to be set. The hearing is governed by §51.100 of this title (relating to Appeals, Hearings, and Informal Settlement Conferences). At the hearing, SML will present its preliminary determination issued under §53.6 of this title. The claimant will then have the opportunity to present their claim, and the respondent will have the opportunity to contest or defend against the claim.

(b) The claimant has the burden of proving they are entitled to recovery. The burden of proof is by a preponderance of the evidence.

History

• Source Note: The provisions of this §53.7 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.8 Payment of an Approved Claim

(a) Payment of an Approved Claim. Upon approval of a claim, the Commissioner will issue an order disbursing funds from the recovery fund or the Mortgage Grant Fund, as applicable. The funds will be disbursed after the date on which the order becomes final and is not appealable for purposes of:

(1) Finance Code §156.504(d), if a hearing is not required under §53.7 of this title (relating to Administrative Hearings); or

(2) Government Code Chapter 2001, if a hearing is required under §53.7 of this title.

(b) Cooperation by Claimant Required. The claimant must comply with SML's instructions for facilitating payment of an approved claim. Among other things, the claimant must complete forms required to cause the claimant to be a valid payee for purposes of the Texas Comptroller of Public Accounts.

History

• Source Note: The provisions of this §53.8 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.9 Consequences for the Respondent

(a) Administrative Penalty. If the Commissioner approves a claim, the Commissioner may impose an administrative penalty against the respondent for the violations of law giving rise to the claim.

(b) Grounds for Denial. Failure by the respondent to pay the administrative penalty constitutes grounds for denial of an application for a residential mortgage loan originator license under Finance Code Chapter 157.

History

• Source Note: The provisions of this §53.9 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.10 Unpaid Claims

(a) No Liability. The recovery fund, Mortgage Grant Fund, the Commissioner, and SML are not liable to a claimant for a claim approved by the Commissioner if the funds in the recovery fund or Mortgage Grant Fund are insufficient to pay the claim.

(b) Payment of Unpaid Claims. If the recovery fund or Mortgage Grant Fund contains insufficient funds to pay a claim, SML will:

(1) record the date the claim was approved; and

(2) pay approved but unpaid claims for which a recordation was made under paragraph (1) of this subsection as funds in the recovery fund or Mortgage Grant Fund become available, in the order of the recorded date of such claims.

History

• Source Note: The provisions of this §53.10 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.11 Claims for Unlicensed Activity: Eligibility

(a) Purpose. Finance Code §156.555(b) adopts by reference the eligibility and procedural requirements for making a claim on the recovery fund in accordance with Finance Code Chapter 156, Subchapter F. This section clarifies how certain requirements apply to a claim made against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(b) Actions by an Unlicensed Individual Acting as an Originator. For a claimant to recover damages from the Mortgage Grant Fund, the respondent must have been acting or attempting to act in the capacity of a residential mortgage loan originator - actions for which a license under Finance Code Chapter 157 is required as provided by Finance Code §157.012 and §55.100 of this title (relating to Licensing Requirements).

(c) Fraudulent Acts. Recovery under Finance Code §156.555 is limited to acts of fraud committed by an individual who acted as a residential mortgage loan originator but did not hold the license required by Finance Code Chapter 157. Finance Code §156.501(b), applicable to claims made on the recovery fund, provides that recovery is limited to acts by a licensed residential mortgage loan originator that constitute a violation of specific, enumerated provisions of Finance Code §§157.024(a) and 156.304(b). As a result, to recover under Finance Code §156.555, a claimant must establish that the acts of the unlicensed individual would have constituted fraudulent dealings for purposes of Finance Code §157.024(a)(3), had he or she been licensed as a residential mortgage loan originator at the time of such acts.

History

• Source Note: The provisions of this §53.11 adopted to be effective July 10, 2025, 50 TexReg 3870.

7 Tex. Admin. Code § 53.12 Recoverable Damages

(a) Recoverable Damages. A claimant may only recover out-of-pocket monetary damages that reimburse the claimant for money they have actually lost (money losses). To be recoverable, the damages must be direct damages (also known as general damages) that are caused by and directly related to the respondent's actions and therefore conclusively presumed to have been foreseeable by the respondent as a usual and necessary consequence of the respondent's actions.

(1) Recoverable damages can include the following expenses typically incurred by a mortgage applicant in connection with a residential mortgage loan, if they are paid by the claimant:

(A) application fees;

(B) appraisal fees;

(C) rate lock fees;

(D) origination fees;

(E) loan processing fees; and

(F) other fees for settlement services collected from the borrower when a residential mortgage loan is closed.

(2) Recoverable damages can include the following expenses typically incurred by a mortgage applicant in a real estate transaction directly related to a residential mortgage loan, if they are paid by the claimant:

(A) option fees;

(B) earnest money;

(C) home inspection fees; and

(D) home warranty fees.

(b) Damages Not Recoverable. A claimant may not recover consequential damages (also known as special damages), future damages, or noneconomic damages.

(1) Noneconomic damages that are not recoverable include, but are not limited to:

(A) compensation for physical pain and suffering;

(B) mental or emotional pain and anguish;

(C) loss of consortium;

(D) disfigurement;

(E) physical impairment;

(F) loss of companionship and society;

(G) inconvenience;

(H) loss of enjoyment of life; and

(I) injury to reputation.

(2) The following damages are expenses that may be incurred by a mortgage applicant in connection with a real estate sales transaction related to a residential mortgage loan, but are deemed to be consequential damages that are not recoverable (list is not exhaustive):

(A) travel expenses paid in connection with the mortgage applicant shopping for real estate (e.g., fuel expenses, vehicle rental, airfare, and hotel fees);

(B) expenses related to terminating the mortgage applicant's preexisting housing arrangements (e.g., lease termination fees, cleaning fees, reletting fees, and lost security deposit);

(C) expenses paid in connection with the mortgage applicant relocating to their prospective housing arrangements (e.g., shipping fees, moving expenses, and storage fees);

(D) expenses paid in connection with securing replacement housing (e.g., rent, hotel fees, utility costs, and home furnishings); and

(E) daily living expenses (e.g., food, clothing, and personal care items).

History

• Source Note: The provisions of this §53.12 adopted to be effective July 10, 2025, 50 TexReg 3870.

Chapter 55 RESIDENTIAL MORTGAGE LOAN ORIGINATORS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 55.1 Purpose and Applicability

This chapter governs SML's administration and enforcement of Finance Code Chapter 157, the Mortgage Banker Registration and Residential Mortgage Loan Originator License Act (other than Subchapter C), and Chapter 180, the Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (Texas SAFE Act), concerning the licensing and conduct of residential mortgage loan originators. This chapter applies to individuals licensed by SML as a residential mortgage loan originator or those required to be licensed, except for individuals engaged in authorized activity subject to the authority of the regulatory official under Finance Code §180.251(c).

History

• Source Note: The provisions of this §55.1 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.2 Definitions

For purposes of this chapter, and in SML's administration and enforcement of Finance Code Chapters 157 (other than Subchapter C) and 180, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Application," as used in Finance Code §157.002(6) and §180.002(19), and paragraphs (7) and (18) of this section means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(3) "Compensation" includes salaries, bonuses, commissions, and any financial or similar incentive.

(4) "Dwelling" means a residential structure that contains one to four units and is attached to residential real estate. The term includes an individual condominium unit, cooperative unit, or manufactured home, if it is used as a residence.

(5) "E-Sign Act" refers to the federal Electronic Signature in Global and National Commerce Act (15 U.S.C. §7001 et seq.).

(6) "Making a residential mortgage loan," or any similar derivative or variation of that term, means when a person determines the credit decision to provide the residential mortgage loan, or the act of funding the residential mortgage loan or transferring money to the borrower. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the residential mortgage loan.

(7) "Mortgage applicant" means an applicant for a residential mortgage loan or a person who is solicited (or contacts an originator in response to a solicitation) to obtain a residential mortgage loan and includes a person who has not completed or started completing a formal loan application on the appropriate form (e.g., the Fannie Mae Form 1003 Uniform Residential Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(8) "Mortgage banker" has the meaning assigned by Finance Code §157.002.

(9) "Mortgage company" means, for purposes of this chapter, a "residential mortgage loan company," as defined by Finance Code §157.002.

(10) "Nationwide Multistate Licensing System" or "NMLS" has the meaning assigned by Finance Code §157.002 and §180.002 in defining "Nationwide Mortgage Licensing System and Registry."

(11) "Offers or negotiates the terms of a residential mortgage loan," as used in Finance Code §157.002(6) and §180.002(19), means, among other things, when an individual:

(A) arranges or assists a mortgage applicant or prospective mortgage applicant in obtaining or applying to obtain, or otherwise secures an extension of consumer credit for another person, in connection with obtaining or applying to obtain a residential mortgage loan;

(B) presents for consideration by a mortgage applicant or prospective mortgage applicant particular residential mortgage loan terms (including rates, fees, and other costs); or

(C) communicates directly or indirectly with a mortgage applicant or prospective mortgage applicant for the purpose of reaching a mutual understanding about particular residential mortgage loan terms.

(12) "Originator" has the meaning assigned by Finance Code §157.002 and §180.002 in defining "residential mortgage loan originator." Paragraphs (11) and (18) of this section do not affect the applicability of such statutory definition. Individuals who are specifically excluded under such statutory definition, as provided by Finance Code §180.002(19)(B), are excluded under this definition and for purposes of this chapter. Persons who are exempt from licensure as provided by Finance Code §180.003 are exempt for purposes of this chapter, except as otherwise provided by Finance Code §180.051.

(13) "Person" has the meaning assigned by Finance Code §180.002.

(14) "Residential mortgage loan" has the meaning assigned by Finance Code §157.002 and §180.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan secured by a structure that is suitable for occupancy as a dwelling but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as a residence.

(15) "Residential real estate" has the meaning assigned by Finance Code §180.002 and includes both improved or unimproved real estate or any portion of or interest in such real estate on which a dwelling is or will be constructed or situated.

(16) "SML" means the Department of Savings and Mortgage Lending.

(17) "State Examination System" or "SES" means an online, digital examination system developed by the Conference of State Bank Supervisors that securely connects regulators and regulated entities on a nationwide basis to facilitate the examination process.

(18) "Takes a residential mortgage loan application," as used in Finance Code §157.002(6) and §180.002(19) in defining "residential mortgage loan originator" means when an individual receives a residential mortgage loan application for the purpose of facilitating a decision on whether to extend an offer of residential mortgage loan terms to a mortgage applicant or prospective mortgage applicant, whether the application is received directly or indirectly from the mortgage applicant or prospective mortgage applicant, and regardless of whether or not a particular lender has been identified or selected.

(19) "Trigger Lead" means information concerning a consumer's credit worthiness (consumer report) compiled by a credit reporting agency (consumer reporting agency), obtained in accordance with the federal Fair Credit Reporting Act (15 U.S.C. §1681b(c)(1)(B)) that is not initiated by the consumer but, instead, is triggered by an inquiry to a consumer reporting agency in response to an application for credit initiated by the consumer in a separate transaction. The term does not include a consumer report obtained by a mortgage company licensed by SML or a mortgage banker registered with SML in response to an application for credit made by a consumer with that mortgage company or mortgage banker or that is otherwise authorized by the consumer.

(20) "UETA" refers to the Texas Uniform Electronic Transactions Act, Business & Commerce Code Chapter 322.

History

• Source Note: The provisions of this §55.2 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.3 Formatting Requirements for Notices

Any notice or disclosure (notice) required by Finance Code Chapters 157 or 180, or this chapter, must be easily readable. A notice is deemed to be easily readable if it is in at least 12-point font and uses a typeface specified by this section. A font point generally equates to 1/72 of an inch. If Finance Code Chapters 157 or 180, or this chapter, prescribes a form for the notice, the notice must closely follow the font types used in the form. For example, where the form uses bolded, underlined, or "all caps" font type, the notice must be made using those font types. The following typefaces are deemed to be easily readable for purposes of this section (list is not exhaustive and other typefaces may be used; provided, the typeface is easily readable):

(1) Arial;

(2) Aptos;

(3) Calibri;

(4) Century Schoolbook;

(5) Garamond;

(6) Georgia;

(7) Lucinda Sans;

(8) Times New Roman;

(9) Trebuchet; and

(10) Verdana.

History

• Source Note: The provisions of this §55.3 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.4 Electronic Delivery and Signature of Notices

Any notice or disclosure required by Finance Code Chapters 157 or 180, or this chapter, may be provided and signed in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §55.4 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.5 Computation of Time

The calculation of any time period measured in days by Finance Code Chapters 157 or 180, or this chapter, is made using calendar days, unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §55.5 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.6 Enforceability of Liens

A violation of Finance Code Chapters 157 or 180, or this chapter, does not render an otherwise lawfully taken lien invalid or unenforceable.

History

• Source Note: The provisions of this §55.6 adopted to be effective November 23, 2024, 49 TexReg 9203.

Subchapter B LICENSING

7 Tex. Admin. Code § 55.100 Licensing Requirements

License Required. An individual, unless exempt as provided by Finance Code §157.0121 or §180.003, or acting under temporary authority as provided by Finance Code §180.0511 and §55.109 of this title (relating to Temporary Authority), is required to be licensed as an originator under Finance Code Chapter 157 if the individual acts or attempts to act in the capacity of an originator concerning a loan or prospective loan secured or designed to be secured by residential real estate located in Texas, including, but not limited to:

(1) representing or holding that individual out to the public through advertising or other means of communication as a "loan officer," "mortgage consultant," "mortgage broker," "loan modification/refinance consultant," or "residential mortgage loan originator," or otherwise representing that the individual can or will perform residential mortgage loan origination services as an originator;

(2) signing a residential mortgage loan application as the originator (e.g., signing the "Loan Originator Information" section of the Fannie Mae Form 1003 Uniform Residential Loan Application; which is deemed to be a certification by the originator that he or she took the residential mortgage loan application);

(3) providing disclosures to a mortgage applicant or prospective mortgage applicant or discussing or explaining such disclosures (an individual who prepares a disclosure at the direction and under the supervision of a licensed originator who does not send the disclosure to or discuss the disclosure with the mortgage applicant or prospective mortgage applicant and does not sign the disclosure is deemed not to have provided a disclosure for purposes of this paragraph), including:

(A) the disclosures required by Finance Code §156.004 or §157.0021, and §55.200(a) of this title (relating to Required Disclosures);

(B) the good faith estimate (Regulation X, 12 C.F.R. §1024.7), integrated loan estimate disclosure (Regulation Z, 12 C.F.R. §1026.37), or similar; and

(C) the disclosure for acting in the dual capacity of an originator and real estate broker, sales agent, or attorney, as described by Finance Code §157.024(a)(10);

(4) determining the lender or investor to which the prospective residential mortgage loan will be submitted;

(5) issuing or signing a conditional pre-qualification letter or conditional approval letter, or similar, as specified by Finance Code §156.105 and §157.02012, and §55.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters); and

(6) being a loan processor or underwriter who is an independent contractor, as provided by Finance Code §180.051(b). An individual working for a mortgage company licensed by SML or a mortgage banker registered with SML, whose compensation for federal income tax purposes is not reported on a W-2 form (e.g., a self-employed worker who is issued an IRS Form 1099-NEC), that acts as a loan processor or underwriter, is deemed to be an independent contractor loan processor or underwriter for purposes of Finance Code §180.051(b) and must be licensed as an originator. All individuals working for a mortgage company that is an independent loan processor underwriter company, regardless of how their income is documented (including W-2 employees), who act as a loan processor or underwriter or otherwise perform work in connection with the provision of loan processing or underwriting services by the company, are deemed to be independent contractors for purposes of Finance Code §180.051(b) and must be licensed as an originator.

History

• Source Note: The provisions of this §55.100 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.101 Applications for Licensure

(a) NMLS. Applications for licensure must be submitted through NMLS and must be made using the current form prescribed by NMLS. SML has published application checklists on the NMLS Resource Center website (nationwidelicensingsystem.org; viewable on the "State Licensing Requirements" webpage) which outline the requirements to submit an application. Applicants must comply with requirements in the checklist in making the application.

(b) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation deemed necessary or appropriate to determine that the licensing requirements of Finance Code Chapters 157 and 180 are met.

(c) Incomplete Filings; Deemed Withdrawal. An application is complete only if all required information and supporting documentation is included and all required fees are received. If an application is incomplete, SML will send written notice to the applicant specifying the additional information, documentation, or fee required to render the application complete. The application may be deemed withdrawn and any fee paid will be forfeited if the applicant fails to provide the additional information, documentation, or fee within 30 days after the date written notice is sent to the applicant as provided by this subsection.

History

• Source Note: The provisions of this §55.101 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.102 Fees

(a) License Fees. The license fee is determined by the Commissioner in an amount not to exceed the maximum amount specified by Finance Code §157.013(b)(1), exclusive of fees charged by NMLS, as described in subsection (b) of this section, and exclusive of the recovery fund fee required by Finance Code §157.013(b)(2). The Commissioner may establish different fee amounts for a new license versus renewal of the license. The current fee is set in NMLS and posted on SML's website (sml.texas.gov). The Commissioner may change the fee at any time; provided, any fee increase is not effective until notice has been posted on SML's website for at least 30 days. The license fee must be paid in NMLS.

(b) NMLS Fees. NMLS charges various fees to process the application. Such fees are determined by NMLS and must be paid by the applicant at the time he or she files the application. The current fees are set in NMLS and posted on the NMLS Resource Center website (nationwidelicensingsystem.org). Specifically, NMLS charges the following types of fees:

(1) application processing fee;

(2) credit report fee; and

(3) criminal background check fee.

(c) All fees are nonrefundable and nontransferable.

(d) Insufficient Funds Fee. The Commissioner may collect a fee in an amount determined by the Commissioner not to exceed $50 for any returned check, credit card chargeback, or failed automated clearing house (ACH) payment. A fee assessed under this subsection will be invoiced in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §55.102 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.103 Renewal of the License

(a) A license may be renewed on:

(1) timely submission of a completed renewal application (renewal request) in NMLS together with payment of all required fees;

(2) a determination by SML that the originator continues to meet the minimum requirements for licensure, including the requirements of Finance Code §§157.012(c), 157.015(g), and 180.055; and

(3) completion of the continuing education required by Finance Code §180.060 and §55.108 of this title (relating to Required Education) as reflected in NMLS.

(b) Application of §55.101. A renewal request is a license application subject to the requirements of §55.101 of this title (relating to Applications for Licensure). A renewal request withdrawn under §55.101(c) of this title will be rejected in NMLS.

(c) Commissioner's Discretion to Approve with a Deficiency; Conditional License. The Commissioner may, in his or her sole discretion, approve a renewal request with one or more deficiencies the Commissioner deems to be relatively minor and allow the originator to continue conducting regulated activities while the originator works diligently to resolve the deficiency. A renewal request approved by the Commissioner under this subsection will be assigned the NMLS license status "Approved - Deficient." Approval under this subsection does not relieve the originator of the obligation to resolve the deficiencies. A license approved under this subsection is deemed to be a conditional license for which the originator, in order to maintain the license, must resolve the deficiencies within 30 days after the date the license is approved, unless an extension of time is granted by the Commissioner. Failure to timely resolve the deficiencies constitutes grounds for the Commissioner to suspend or revoke the license.

(d) Reinstatement. This section applies to an individual seeking reinstatement of an expired license (assigned the license status "Terminated - Failed to Renew") during the reinstatement period described by Finance Code §157.016 and must be construed accordingly. An originator license cannot be renewed beyond the reinstatement period; instead, the individual must apply for a new license and comply with all current requirements and procedures governing issuance of a new license.

History

• Source Note: The provisions of this §55.103 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.104 NMLS Records; Notices Sent to the Originator

(a) NMLS License Status. SML is required to assign a status to the license in NMLS. The license status is displayed in NMLS and on the NMLS Consumer Access website (nmlsconsumeraccess.org). SML is limited to the license status options available in NMLS. The NMLS Resource Center website (nationwidelicensingsystem.org) describes the available license status options and their meaning.

(b) Amendments to License Records Required. Unless Finance Code §157.019 applies and requires additional notice, an originator must amend his or her NMLS license records (MU4 filing) within 10 days after the date of any material change affecting any aspect of the MU4 filing, including, but not limited to:

(1) name (which must be accompanied by supporting documentation submitted to SML establishing the name change);

(2) phone number;

(3) email address (including his or her NMLS account email address, as described by subsection (d)(1) of this section);

(4) mailing address:

(5) residential history;

(6) employment history; and

(7) answers to disclosure questions (which must be accompanied by explanations for each such disclosure, together with supporting documentation concerning such disclosure).

(c) Amendments Requiring New Credit History Check. An originator amending his or her MU4 filing to make a financial disclosure is deemed to have authorized SML to retrieve a current copy of his or her credit report, as provided by Finance Code §157.0132 and §55.111 of this title (relating to Background Checks), and the originator must further amend his or her MU4 filing to formally consent to and request such credit report in NMLS, if requested by SML.

(d) Amendments Requiring New Criminal Background Check. An originator amending his or her MU4 filing to make a criminal disclosure is deemed to have authorized SML to perform an additional criminal background check in accordance with Finance Code §157.0132 and §55.111 of this title, and the originator must further amend his or her MU4 filing to formally consent to and request such criminal background check in NMLS, if requested by SML.

(e) Notices Sent to the Originator. Any correspondence, notification, alert, message, official notice, or other written communication from SML will be sent to the originator in accordance with this subsection using the originator's current contact information of record in NMLS unless another method is required by other applicable law.

(1) Service by Email. Service by email is made using the email address the originator has designated for use with his or her NMLS account (a/k/a the "NMLS account email address" or "individual account email address"). The NMLS account email address is the same email address to which NMLS-generated notifications are sent. Service by email is complete on transmission of the email to the license holder's email service provider; provided, SML does not receive a "bounce back" notification, or similar, from the email service provider indicating that delivery was not effective. An originator must monitor the email account designated as his or her NMLS account email address and ensure that emails from SML or system notifications from NMLS are not lost in a "spam folder" or similar, or undelivered due to intervention by a "spam filter" or similar. An originator is deemed to have constructive notice of any emails sent by SML to the email address described by this paragraph. An originator is further deemed to have constructive notice of any NMLS system notifications sent to him or her by email.

(2) Service by Mail. Service by mail is complete on deposit of the document, postpaid and properly addressed, in the mail or with a commercial delivery service. If service is made on the originator by mail and the document communicates a deadline by or a time during which the originator must perform some act, such deadline or time period for action is extended by 3 days. However, if service was made by another method prescribed by this subsection, such deadline or time period will be calculated based on the earliest possible deadline or shortest applicable time period.

History

• Source Note: The provisions of this §55.104 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.105 Conditional License

(a) Conditional License; Terms and Conditions. The Commissioner may, in his or her sole discretion, issue a license on a conditional basis. A conditional license will be assigned the license status "Approved - Conditional" in NMLS. Reasonable terms and conditions for a conditional license include:

(1) requiring the originator to undergo additional credit checks or provide evidence of satisfaction concerning a debt, judgment, lien, child support obligation, or other financial delinquency affecting his or her financial condition;

(2) requiring the originator to undergo additional criminal background checks or provide information on a periodic basis or upon request concerning the status of a pending criminal proceeding that might affect his or her eligibility for the license;

(3) requiring the originator to take other specific action or provide other specified information to address a known deficiency; and

(4) requiring the originator to surrender the license upon the occurrence of an event that would render the originator ineligible for the license.

(b) Probated Suspensions and Revocations. A license subject to a probated suspension or revocation is deemed to be a conditional license.

(c) Conditional License in Lieu of Denial. The Commissioner may issue a license on a conditional basis in lieu of seeking denial of the license where the Commissioner determines the individual applying for the license has the capacity to resolve the deficiency serving as grounds for the denial in a reasonable period of time. The granting of a license under this subsection is a voluntarily forbearance from seeking denial of the license and does not operate as a waiver by the Commissioner of any grounds he or she has to seek denial of the license. The Commissioner is under no obligation to continue the license on a conditional basis and may seek denial in the future based on the same or similar circumstances that existed at the time the conditional license was granted.

History

• Source Note: The provisions of this §55.105 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.106 Surrender of the License

(a) Surrender Request. An originator may seek surrender of the license by filing a license surrender request (request) in NMLS. The request must be made using the current form prescribed by NMLS. SML will review the request and determine whether to grant it. SML may not grant the request if, among other reasons:

(1) the originator is the subject of a pending or contemplated examination, inspection, investigation, or disciplinary action;

(2) the originator is in violation of an order of the Commissioner; or

(3) the originator has failed to pay any administrative penalty, fee, charge, or other indebtedness owed to SML.

(b) Inactive Status Pending Surrender. If SML does not grant the request or requires additional time to consider the request, the request will be left pending while the issue preventing SML from granting the request is resolved or lapses. During this time, the originator's license will be assigned the license status "Approved - Inactive" in NMLS.

History

• Source Note: The provisions of this §55.106 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.107 Sponsorship of Originator

(a) Sponsorship Required. In order to act in the capacity of an originator, an originator's license must be sponsored in NMLS by a mortgage company licensed by SML or a mortgage banker registered with SML. To establish sponsorship by a mortgage company or mortgage banker, the originator must amend his or her NMLS license records (MU4 filing) to reflect employment by such mortgage company or mortgage banker and grant such mortgage company or mortgage banker access to his or her license records to allow the mortgage company or mortgage banker to register a relationship with the originator in NMLS. The mortgage company or mortgage banker must make corresponding filings in NMLS to establish such sponsorship. Sponsorship is not effective until the mortgage company's or mortgage banker's sponsorship request has been reviewed and approved by SML. An originator must not act or attempt to act in the capacity of an originator on behalf of a mortgage company or mortgage banker until sponsorship with such mortgage company or mortgage banker has been established and is effective. Information about how to file for sponsorship is available on the NMLS Resource Center website (nationwidelicensingsystem.org).

(b) Number of Sponsorships. An originator may be sponsored by more than one mortgage company or mortgage banker if:

(1) the originator clearly identifies to the mortgage applicant the sponsoring entity or entities on whose behalf the originator is acting prior to taking an application;

(2) the application clearly states the sponsoring entity on whose behalf the originator is acting (e.g., in the "Loan Originator Information" section of the Fannie Mae 1003 Uniform Residential Loan Application). The mortgage applicant may apply with more than one sponsoring entity, provided, there are separate applications for each such entity that clearly identifies the sponsoring entity to which the application was submitted;

(3) the authorization forms, disclosures, loan estimates, pre-qualification letters, conditional approval letters, closing disclosures, and other materials provided to the mortgage applicant clearly identify the mortgage company or mortgage banker providing residential mortgage loan origination services in the transaction;

(4) the originator does not misrepresent or misconstrue to the mortgage applicant the mortgage company or mortgage banker providing residential mortgage loan origination services in the transaction;

(5) the originator discloses to his or her sponsoring entities the existence the originator's multiple sponsorships;

(6) the originator does not steer the mortgage applicant to a sponsoring entity offering terms less favorable to the mortgage applicant and that might have the effect of increasing the originator's compensation; and

(7) the originator is only compensated for services actually performed and does not share or split any fee.

(c) Inactive License Status Pending Sponsorship. An applicant may be issued a license in an inactive status if the applicant has met all requirements for licensure except the requirement that the originator be sponsored by an appropriate entity, as provided by Finance Code §157.012(a)(1). While in an inactive status, an originator must not act in the capacity of an originator and must continue to meet the minimum requirements for licensure. A license in an inactive status is assigned the license status "Approved - Inactive" in NMLS.

(d) Termination of Sponsorship. Sponsorship may be terminated by the mortgage company or mortgage banker, or the originator. If sponsorship is terminated, the party terminating the sponsorship must immediately notify SML of the termination by making a filing in NMLS to show the sponsorship as terminated in the system, as provided by Finance Code §156.211 and §157.019.

(e) Failure to Maintain Sponsorship; Inactive Status. If an originator's license does not maintain sponsorship by a mortgage company or mortgage banker, the license will revert to an inactive status ("Approved - Inactive") until a new sponsorship becomes effective, during which time the originator must not act or attempt to act in the capacity of an originator. An originator may voluntarily place his or her license in an inactive status by terminating all sponsorships as described by subsection (d) of this section.

History

• Source Note: The provisions of this §55.107 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.108 Required Education

(a) Pre-Licensing Education and Examination. As provided by Finance Code §180.056, an individual applying for an originator's license (applicant) must complete the pre-licensing education and coursework prescribed by the federal S.A.F.E. Mortgage Licensing Act (federal SAFE Act) and approved by NMLS. Such education and coursework must include 3 hours of instruction relating to the applicable laws, rules, and practice considerations governing residential mortgage loan origination in Texas. As provided by Finance Code §180.057, an applicant must pass a written test prescribed by the federal SAFE Act and approved by NMLS.

(b) Lapsing of Pre-Licensing Education and Examination. An applicant other than a current license holder seeking renewal under §55.103 of this title (relating to Renewal of the License; i.e., an individual seeking a new license) must have completed the required pre-licensing education and coursework described by subsection (a) within the 3 years preceding the date of application; otherwise, the applicant must take the pre-licensing education and coursework approved and offered at the time of the application. Additionally, if an applicant for a new license did not pass the National Component with Uniform State Content examination approved by NMLS on or after April 1, 2013, the applicant must pass the current pre-licensing examination approved by NMLS in order to satisfy the requirements of Finance Code §180.057 (examinations taken prior to April 1, 2013, will not satisfy such requirements).

(c) Recognition of Pre-Licensing Education Taken in Another Jurisdiction. As provided by Finance Code §180.056, SML will recognize pre-licensing education and coursework taken in another jurisdiction subject to the requirements of the federal SAFE Act; provided, it is approved by NMLS for that purpose and otherwise meets the requirements of the federal SAFE Act, and Finance Code Chapter 180. However, SML will not recognize those hours of pre-licensing education and coursework taken in another jurisdiction the content of which was specific to that jurisdiction and that comprised the 12-hour undefined electives portion of such pre-licensing education and coursework. An applicant may take coursework that is of limited duration and limited in scope to the applicable laws, rules, and practice considerations governing residential mortgage loan origination in Texas in order to supplement and remedy a shortfall in hours derived from non-recognition of pre-licensing education taken in another jurisdiction, as provided by this subsection.

(d) Continuing Education. As provided by Finance Code §180.060 and §55.103 of this title, an originator must complete, on an annual basis, continuing education and coursework approved by NMLS in order to renew the license.

History

• Source Note: The provisions of this §55.108 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.109 Temporary Authority

(a) Purpose. The purpose of this section is to specify how an originator licensed in another jurisdiction or by a different licensing authority, or who is a "registered mortgage loan originator" (as defined by Finance Code §180.002), may avail himself or herself of the ability to act in the capacity of an originator in Texas temporarily while he or she seeks licensure by SML, as provided by Finance Code §180.0511.

(b) Application Required. An individual seeking to act under temporary authority must comply with the requirements of Finance Code §180.0511. Among other requirements, Finance Code §180.0511 requires that the individual file an application with SML seeking licensure to be recognized as having temporary authority. An individual must not act or attempt to act in the capacity of an originator until the application has been filed and the individual has been assigned an NMLS license status by SML recognizing such temporary authority (see §55.104 of this title (relating to NMLS License Records; Notices Sent to the Originator)). An individual may confirm his or her temporary authority status by reviewing his or her license status in NMLS or on the NMLS Consumer Access website (nmlsconsumeraccess.org).

(c) Incomplete Applications. The requirements of §55.101(c) of this title (relating to Applications for Licensure), providing for the deemed withdrawal of an application that is not complete, do not apply to an application for which temporary authority status is conferred.

(d) Maximum Duration. Pursuant to Finance Code §180.0511, the maximum duration for temporary authority is 120 days. When an originator has received the cumulative benefit of 120 days of temporary authority, no further temporary authority is allowed. An originator acting under temporary authority who has exceeded the 120-day maximum duration will have his or license status conferring temporary authority removed. An individual making an application for licensure who previously received the benefit of 120 days of temporary authority will not be conferred temporary authority status.

History

• Source Note: The provisions of this §55.109 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.110 Licensing of Military Service Members, Military Veterans, and Military Spouses

(a) Purpose. This section specifies licensing requirements for military service members, military veterans, and military spouses, in accordance with Occupations Code Chapter 55.

(b) Definitions. In this section:

(1) The terms "military service member," "military spouse," and "military veteran" have the meanings assigned by Occupations Code §55.001.

(2) The term "in good standing" has the meaning assigned by Occupations Code §55.0042.

(c) Late Renewal (Reinstatement) for Military Service Members (Occupations Code §55.002). An individual is exempt from any increased fee or other penalty for failing to renew an originator license in a timely manner if the individual establishes to the satisfaction of SML that he or she failed to timely renew the license because the individual was serving as a military service member. A military service member who fails to timely renew his or her originator license must seek reinstatement of the license within the time period specified by Finance Code §157.016; otherwise, the individual must obtain a new license, including complying with the current requirements and procedures for obtaining an original license (see §55.103 of this title (relating to Renewal of the License)).

(d) Expedited Review and Processing (Occupations Code §55.004 and §55.005) and Recognition of an Out-of-State License (Occupations Code §55.0041).

(1) This subsection applies to a qualifying applicant who is a military service member, military veteran, or military spouse, if the applicant:

(A) holds a current license in good standing in another state that is similar in scope of practice to an originator license issued by SML; or

(B) was licensed by SML as an originator within the 5 years preceding the application date.

(2) A military service member, military veteran, or military spouse seeking expedited review under Occupations Code §55.004 and §55.005 or recognition of an out-of-state license under Occupations Code §55.0041 must apply for the license in NMLS. After applying for the license in NMLS, the applicant must make a written request for military licensing review using the current form prescribed by SML and posted on its website (sml.texas.gov), and provide the supporting documentation specified in the form to enable SML to verify the individual's military status and evaluate the individual's qualifications under this subsection.

(3) Within 10 business days after the date SML receives a complete license application and written request for military licensing review from a qualifying applicant under this subsection, SML will:

(A) approve the application and issue a license to the applicant;

(B) issue a provisional license to the applicant pending a final decision on the application; or

(C) notify the applicant that the license held by the individual in another state is not similar in scope of practice to an originator license issued by SML, if applicable.

(4) If a provisional license is issued under paragraph (3)(B) of this subsection, SML will make a final decision on the application within 120 days after the date the provisional license is issued.

(5) If the applicant holds a current license in good standing in another state that is similar in scope of practice to an originator license issued by SML, the applicant will be assigned a license status in NMLS that confers temporary authority to act as an originator in accordance with Finance Code §180.0511 and §55.109 of this title (relating to Temporary Authority), and subject to those requirements.

(e) Scope of Practice. For purposes of this section and Occupations Code Chapter 55, an originator license issued by a licensing authority in another state has a similar scope of practice to an originator license issued by if it is issued in accordance with the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (12 U.S.C. §§5501-5117). SML will verify a license issued in another jurisdiction in NMLS.

(f) Credit for Military Experience (Occupations Code §55.007). SML will credit an applicant who is a military service member or military veteran with verified military service, training, or education toward the requirements for an originator license by considering the service, training, or education as part of the applicant's employment history. The following items cannot be substituted for military service, training, or education:

(1) the pre-licensing education and coursework specified by Finance Code §180.056 and §55.108(a) of this title (relating to Required Education);

(2) the pre-licensing examination specified by Finance Code §180.057 and §55.108(a) of this title; and

(3) continuing education and coursework specified by Finance Code §180.060 and §55.108(d) of this title.

History

• Source Note: The provisions of this §55.110 adopted to be effective November 23, 2024, 49 TexReg 9203; amended to be effective November 16, 2025, 50 TexReg 7234.

7 Tex. Admin. Code § 55.111 Background Checks

(a) NMLS Background Check; Fingerprints Required. An individual applying for an originator license (applicant) must provide fingerprints as prescribed by NMLS in order to facilitate a criminal background check through the Federal Bureau of Investigation. Additionally, an applicant must amend his or her license records (MU4 filing) to provide authorization for SML to obtain the criminal background check in NMLS.

(b) Background Checks by SML. Pursuant to Finance Code §157.0132 and Government Code §411.1385, SML is authorized to conduct a criminal background check through the Texas Department of Public Safety (DPS). If requested by SML, applicant must submit to the DPS criminal background check process, including providing fingerprints and paying any applicable fees to DPS or its designated third-party fingerprint processor to complete the criminal background check process.

(c) NMLS Credit Check. An applicant must amend his or her license records (MU4 filing) to provide authorization for SML to obtain a copy of the applicant's credit report concerning the applicant's credit history from a credit reporting agency (credit bureau) in NMLS.

(d) Supplemental Information. An applicant must provide information related to any administrative, civil, or criminal findings or proceedings by a governmental jurisdiction, including any information required by §55.112 of this title (relating to Procedures for Review of Background Checks) to SML. The information must be uploaded to NMLS.

History

• Source Note: The provisions of this §55.111 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.112 Procedures for Review of Background Checks

(a) Purpose. This section establishes procedures used by SML to perform background checks and review an individual's criminal background and credit history to determine his or her fitness and eligibility for licensure in accordance with Finance Code §157.0132.

(b) Supporting Information/Documentation for Criminal Background Check. An individual applying for an originator license (applicant) with a criminal history, when requested by SML, must provide the following information concerning each conviction or other criminal proceeding identified by SML:

(1) a detailed explanation, in writing, of the events and circumstances for each conviction or other criminal proceeding required to be self-disclosed in his or her application, signed and dated by the individual seeking licensure; and

(2) copies of court records or other documentation reflecting:

(A) the nature of the criminal offense (including the statutory provisions violated, and the severity or classification of the offense);

(B) the individual's plea (including any terms or other arrangements for the plea);

(C) the conviction (judgment or court order);

(D) the sentence imposed;

(E) any probation or community supervision imposed (including evidence of compliance); and

(F) any other action in the proceeding causing final disposition of the case to be deferred.

(c) Supporting Information/Documentation for Credit History Check. An applicant, when requested by SML, must provide the following information concerning each financial disclosure made in his or her application and each credit account on his or her credit report identified by SML:

(1) a detailed explanation, in writing, of the background and circumstances surrounding each financial disclosure made or credit account identified, signed and dated by the individual seeking licensure;

(2) if a bankruptcy proceeding is disclosed, a copy of the order of discharge, or if the proceeding is ongoing, the current bankruptcy petition, and the current financial schedules filed in the proceeding;

(3) if a judgment or lien is disclosed, a copy of such judgment or lien filing; and

(4) if delinquent child support is disclosed, a copy of the most recent statement of account or other documentation reflecting the current amount due, and if the individual is in a payment plan or has otherwise entered into terms for repayment, a copy of such plan or terms.

(d) Effect of Providing Supporting Documentation. By providing documentation to SML in accordance with subsections (b) and (c) of this section, the applicant certifies that he or she has a good faith belief that such documents are true and correct copies of documents issued by the person that originally created the document that SML may rely on in making a decision on the application. By providing such supporting documentation, the applicant consents to such documentation being admissible at an adjudicative hearing if the Commissioner seeks to deny the application, resulting in a contested case, and the applicant is deemed to have waived any objections concerning the admissibility of such documentation into the administrative record at such adjudicative hearing.

(e) Certified Documents. Notwithstanding subsection (d) of this section, the applicant, at his or her own cost, must obtain and provide SML with certified or exemplified copies of any documents described in subsections (b) and (c) of this section, upon written request by SML.

History

• Source Note: The provisions of this §55.112 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.113 Criminal Conviction Guidelines

(a) Purpose. This section establishes the criteria used by SML to review an individual's criminal history to determine his or her eligibility and fitness to be licensed by SML as an originator. This section implements the requirements of Occupations Code §53.025, requiring SML to establish guidelines related to such reviews, including designating particular crimes and offenses SML considers to be directly related to the duties and responsibilities of acting as an originator and may constitute grounds for denial of licensure. The Commissioner's authority to deny an application for licensure based on an individual's criminal history under the Occupations Code is in addition to and augments that arising from the Finance Code. This section also describes the Commissioner's other statutory authority arising from the Finance Code for denial of licensure based on an individual's criminal history, including outlining certain offenses deemed by this section to be grounds for denial under the Finance Code.

(b) Ineligibility by Operation of Law. The following individuals are ineligible for licensure by operation of law due to his or her criminal history:

(1) an individual who, within the 7 years preceding the date of the application, has been convicted of, or pled guilty or nolo contendere (no contest) to, a felony in a court of this state, another state or territory of the United States, a federal court of the United States, or other foreign, or military court, in accordance with Finance Code §180.055(a); and

(2) an individual who, at any time, has been convicted of, or pled guilty or nolo contendere to, a felony offense involving an act of fraud, dishonesty, breach of trust, or money laundering, in accordance with Finance Code §180.055(a). Any felony offense listed in the schedule contained in subsection (e) of this section having a nexus to residential mortgage loan origination arising from the categories of criminal offenses related to residential mortgage loan origination under subsection (d)(1) or (2) of this section (concerning crimes involving fraud, falsification, dishonesty, deception and breach of trust, and theft or embezzlement, respectively) is deemed to constitute a crime involving an act of fraud, dishonesty, breach of trust, or money laundering for purposes of Finance Code §180.055(a).

(c) Duties and Responsibilities of a Residential Mortgage Loan Originator. An originator acts as an intermediary between the consumer seeking a residential mortgage loan and the lender or underwriter that determines whether the consumer qualifies for the loan. The originator may assist the consumer in reviewing his or her income, expenses, and credit worthiness to determine whether he or she will qualify for a loan, and on what terms he or she might qualify. The originator may assist the consumer in completing the loan application, and sometimes directs the consumer to present his or her financial information in the manner to which the lender or underwriter is accustomed. A residential mortgage loan often takes place in the context of a real estate transaction, and as a result, an originator sometimes advises the consumer of his or her financial ability to purchase residential real estate, including providing a conditional pre-qualification letter to establish the consumer's purchasing power while shopping in the marketplace. Once the loan has entered the underwriting process, the originator may assist the consumer in resolving any outstanding conditions of the underwriter to qualify for the loan and obtain approval, including addressing items of concern on a consumer's credit report, immigration/residency status, available cash-on-hand for the transaction, and income which may not be readily established by documentary evidence such as that of an independent contractor. The originator communicates to the consumer the ever-changing loan terms as interest rates in the marketplace fluctuate and is often a key figure in advising the consumer of when and how he or she may "lock" the loan in advance of closing to solidify the loan terms. The originator may serve as communications liaison between the consumer and various parties to the transaction, including the lender, the underwriting department or a third-party underwriter, real estate brokers and sales agents, appraisers, surveyors, insurance providers, closing/settlement agents, and the representatives of various taxing authorities. In performing his or her duties, an originator has access to sensitive information of the consumer, including his or her social security number, date of birth, immigration/residency status, and all the personal financial details of the consumer, including employment, income, assets, and expenses.

(d) Categories of Offenses Related to Residential Mortgage Loan Origination. The Finance Commission of Texas and the Commissioner have determined the following categories of criminal offenses are directly related to the duties and responsibilities of acting as an originator:

(1) criminal offenses involving fraud, falsification, dishonesty, deception, and breach of trust;

(2) criminal offenses involving theft or embezzlement; and

(3) criminal offenses involving intoxication by drugs or alcohol.

(e) Schedule of Criminal Offenses Determined to be Directly Related. The Finance Commission of Texas and the Commissioner have determined the criminal offenses in the following schedule meet one or more of the categories deemed to relate to residential mortgage loan origination by subsection (d) of this section and are directly related to the duties and responsibilities of an individual licensed by SML to act as an originator. The schedule includes those criminal offenses most likely to be encountered by SML and is made from the perspective of the criminal laws of the State of Texas and the United States federal government. However, the schedule is not an exhaustive review of all offenses and does not limit SML from considering a criminal offense not specifically listed in the schedule. The schedule should be construed to include any criminal offense meeting one or more of the categories deemed to relate to residential mortgage loan origination, as provided by subsection (d) of this section. The schedule should further be construed to include the substantially similar or functionally equivalent crime of any state or territory of the United States, violations of the Texas Code of Military Justice (Government Code Chapter 432), violations of the Uniform Code of Military Justice (10 U.S.C. §801 et seq.), or crimes of a foreign country or governmental subdivision thereof. In determining whether a criminal offense of another jurisdiction is substantially similar or functionally equivalent, an inquiry will be made comparing the subject offense with an offense on the schedule to determine whether the subject offense has similar elements, including intent and classification of punishment, and whether the crime would have been punishable had the acts been committed in Texas.

Attached Graphic

(f) Factors. Unless the individual is ineligible for licensure by operation of law as provided by subsection (b) of this section, in determining whether a criminal offense is directly related to the duties and responsibilities of an individual licensed by SML to act as an originator, the Commissioner will consider:

(1) the nature and seriousness of the crime;

(2) the relationship of the crime to the purposes for requiring a license to act as an originator;

(3) the extent to which an originator license might offer an opportunity for the individual to engage in further criminal activity of the same type as that in which the individual has previously been involved;

(4) the relationship of the crime to the ability, capacity, or fitness required to perform the duties and discharge the responsibilities of a licensed originator; and

(5) any correlation between the elements of the crime and the duties and responsibilities of licensed originator.

(g) In addition to the factors in subsection (f) of this section, the Commissioner, in determining whether an individual who has been convicted of a crime (as determined by Finance Code §157.0131 and subsection (h) of this section) is unfit and ineligible for licensure, will consider:

(1) the extent and nature of the individual's past criminal activity;

(2) the age of the individual when the crime was committed;

(3) the amount of time that has elapsed since the individual's criminal activity;

(4) the amount of time that has elapsed since the individual's release from incarceration;

(5) the conduct and work activity of the individual before and after the criminal activity;

(6) evidence of the individual's rehabilitation or rehabilitative efforts;

(7) letters of recommendation, signed and dated, by a current employer, if the individual is employed, or a previous employer, stating that the employer has specific and complete knowledge of the individual's criminal history and the reasons the employer is recommending that the individual be considered fit to be licensed by SML; and

(8) any other letters of recommendation, signed and dated, by an individual familiar with the applicant and his or her character and fitness, with specific and complete knowledge of the individual's criminal history, able to offer competent information about the nature and extent of the applicant's rehabilitative efforts.

(h) Convictions Considered. The determination of whether a criminal proceeding is considered to have resulted in a conviction for purposes of this section will be made in accordance with Finance Code §157.0131, which states that an individual is considered to have been convicted of a criminal offense if:

(1) a sentence is imposed on the individual;

(2) the individual received probation or community supervision, including deferred adjudication or community service; or

(3) the court deferred final disposition of the individual's case.

(i) Consideration of Disciplinary Actions. Unless the individual is ineligible for licensure by operation of law as provided by subsection (b) of this section, in addition to the individual's criminal history, SML may consider the individual's past history of disciplinary actions with SML, or another regulatory body or official of another jurisdiction regulating residential mortgage loan origination or other financial services, which may serve as separate grounds for license ineligibility, or as an aggravating factor rendering the individual ineligible for licensure.

(j) Consideration of Financial Responsibility, Character and General Fitness. Unless the individual is ineligible for licensure by operation of law as provided by subsection (b) of this section, in addition to the individual's criminal history, the Commissioner may consider the individual's financial responsibility, and other evidence of character and general fitness, which may serve as separate grounds for license ineligibility, or as an aggravating factor rendering the individual ineligible for licensure. A conviction for a criminal offense having a nexus to residential mortgage loan origination arising from the categories of criminal offenses deemed to relate to residential mortgage loan origination under subsection (d) of this section is indicative of a failure to demonstrate requisite character and general fitness to command the confidence of the community in accordance with Finance Code §180.055(a)(3), and honesty, trustworthiness and integrity in accordance with Finance Code §157.012(c)(1).

History

• Source Note: The provisions of this §55.113 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.114 Request for Criminal History Eligibility Determination

(a) Purpose and Applicability. This section establishes the procedures by which an individual may seek a preliminary review of his or her eligibility to be licensed by SML with respect to his or her criminal history prior to formally applying with SML for licensure, as authorized by Occupations Code Chapter 53. Pursuant to Occupations Code §53.102, this section applies to an individual who has reason to believe he or she is ineligible to be licensed by SML due to a conviction or deferred adjudication for a felony or misdemeanor offense, and who is enrolled or is planning to enroll in an educational program that prepares an individual to be licensed by SML. The Commissioner will not offer advisory opinions concerning criminal convictions or sentences that have not actually occurred.

(b) Request for Preliminary Eligibility Determination; Supporting Documentation. The request must be made using the current form prescribed by SML and posted on its website (sml.texas.gov). The fee to make a request under this section is determined by the Commissioner and posted on SML's website. The Commissioner may change the fee at any time; provided, any fee increase is not effective until notice has been posted on SML's website for at least 30 days.

(c) Review of Request for Preliminary Evaluation. A request made under this section will be reviewed by SML to determine the requestor's eligibility using the same procedures for review of an individual's criminal history when making an application for licensure and is subject to SML's criminal conviction guidelines in §55.113 of this title (relating to Criminal Conviction Guidelines). As a result, the requestor, in making the request, must list all offenses that actually resulted in a criminal conviction or that otherwise constitute a criminal conviction for purposes of Finance Code §157.0131 and §55.113 of this title. The requestor's incarcerated status that would render the individual ineligible for licensure pursuant to Occupations Code §53.021(b) will be disregarded; however, SML will consider the implications of the requestor's anticipated release from incarceration in making its determination.

(d) Determination of Eligibility. Within 90 days after the date the fully-completed request is received, SML will notify the requestor of his or her eligibility to receive a license issued under Finance Code Chapters 157 and 180.

(e) Effect of Determination. In the absence of new evidence known but not disclosed by the requestor, or not reasonably available to SML in consideration of the disclosures made by the requestor, the Commissioner's decision regarding eligibility of the requestor concerning his or her criminal history will be determinative for purposes of reviewing a subsequent application for licensure from the requestor. However, the Commissioner's decision regarding eligibility will not be determinative to the extent the request for preliminary eligibility determination contained fraudulent or misleading information or supporting documentation or otherwise failed to list a criminal conviction of the requestor that was not otherwise discovered by SML in investigating the request, regardless of whether or not the requestor was aware of the conviction at the time of the request, and including any subsequent conviction received by the requestor. A decision that the requestor is eligible will not be determinative if the requestor is determined to be ineligible for licensure by operation of law as provided by Finance Code §180.055(a) and §55.113 of this title.

History

• Source Note: The provisions of this §55.114 adopted to be effective November 23, 2024, 49 TexReg 9203.

Subchapter C DUTIES AND RESPONSIBILITIES

7 Tex. Admin. Code § 55.200 Required Disclosures

(a) Specific Notice to Applicant. An originator sponsored by a mortgage company licensed by SML must provide a mortgage applicant with the notice required by §56.200(b) of this title (relating to Required Disclosures). An originator sponsored by a mortgage banker registered with SML must provide a mortgage applicant with the notice required by §57.200(b) of this title (relating to Required Disclosures). The notice must be sent at the time the originator takes the initial application for a residential mortgage loan.

(b) Posted Notice on Websites. An originator sponsored by a mortgage company licensed by SML must comply with the requirements of §56.200(c) of this title. An originator sponsored by a mortgage banker registered with SML must comply with the requirements of §57.200(c) of this title.

(c) Disclosures in Correspondence. An originator must provide the following information on all correspondence sent to a mortgage applicant:

(1) the name of the mortgage company or mortgage banker sponsoring the originator and its NMLS ID;

(2) the mortgage company's or mortgage banker's website address, if it has a website; and

(3) the name of the originator and his or her NMLS ID.

History

• Source Note: The provisions of this §55.200 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.201 Conditional Pre-Qualification and Conditional Approval Letters

(a) Compliance with Mortgage Company and Mortgage Banker Rules. An originator sponsored by a mortgage company licensed by SML must comply with the requirements of §56.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters). An originator sponsored by a mortgage banker registered with SML must comply with the requirements of §57.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters).

(b) Issuance by the Originator. A conditional pre-qualification letter or conditional approval letter must be issued and signed by the originator.

(c) Duty to Issue Accurate Letters; Caution. A conditional pre-qualification letter or conditional approval letter must be accurate and reflect the actual information that the originator considered in issuing the letter. An originator is cautioned that the issuance of an inaccurate, erroneous, or a negligently-issued conditional pre-qualification letter or conditional approval letter constitutes a violation as provided by §55.202 of this title (relating to Fraudulent, Misleading, or Deceptive Practices, and Improper Dealings) and may result in disciplinary action against the originator. Additionally, if an inaccurate, erroneous, or a negligently-issued conditional pre-qualification letter or conditional approval letter is relied on by the mortgage applicant to incur out-of-pocket costs in connection with the prospective mortgage loan, it may subject the originator to a recovery claim under Finance Code Chapter 156, Subchapter F.

History

• Source Note: The provisions of this §55.201 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.202 Fraudulent, Misleading, or Deceptive Practices and Improper Dealings

(a) Fraudulent, Misleading, or Deceptive Practices. The following conduct by an originator constitutes fraudulent and dishonest dealings for purposes of Finance Code §157.024(a)(3), deceptive practices for purposes of Finance Code §180.153(2), a scheme to defraud a person for purposes of Finance Code §180.153(1), and a false or deceptive statement or representation for purposes of Finance Code §180.153(11):

(1) knowingly misrepresenting the originator's relationship to a mortgage applicant or any other party to a residential mortgage loan transaction or prospective residential mortgage loan transaction;

(2) knowingly misrepresenting or understating any cost, fee, interest rate, or other expense to a mortgage applicant or prospective mortgage applicant in connection with a residential mortgage loan;

(3) knowingly overstating, inflating, altering, amending or disparaging any source or potential source of residential mortgage loan funds in a manner which disregards the truth or makes any knowing and material misstatement or omission;

(4) knowingly misrepresenting the lien position of a residential mortgage loan or prospective residential mortgage loan;

(5) knowingly participating in or permitting the submission of false or misleading information of a material nature to any person in connection with a decision by that person whether to make or acquire a residential mortgage loan;

(6) as provided by Regulation X (12 C.F.R. §1024.14), brokering, arranging, or making a residential mortgage loan for which the originator receives compensation for services not actually performed or where the compensation received bears no reasonable relationship to the value of the services actually performed;

(7) recommending or encouraging default or delinquency or the continuation of an existing default or delinquency by a mortgage applicant on any existing indebtedness prior to closing a residential mortgage loan which refinances all or a portion of such existing indebtedness;

(8) altering any document produced or issued by SML, unless otherwise permitted by statute or a rule of SML.

(9) using a trigger lead in misleading or deceptive manner by, among other things:

(A) failing to state in the initial communication with the consumer:

(i) the originator's name and mortgage company or mortgage banker on behalf of which the originator is acting;

(ii) a brief explanation of how the originator or his or her sponsoring mortgage company or mortgage banker obtained the consumer's contact information to make the communication (i.e., an explanation of trigger leads);

(iii) that the originator and his or her sponsoring mortgage company or mortgage banker is not affiliated with the creditor to which the consumer made the credit application that resulted in the trigger lead; and

(iv) that the purpose of the communication is to solicit new business for the mortgage company or mortgage banker sponsoring the originator;

(B) contacting a consumer who has opted out of prescreened offers of credit under the federal Fair Credit Reporting Act (FCRA; 12 U.S.C. §1681b(e)); or

(C) failing in the initial communication with the consumer to make a firm offer of credit as provided by the FCRA (12 U.S.C. §1681a(l) and §1681b(c)); or

(10) engaging in any other practice which the Commissioner, by published interpretation, has determined is fraudulent, misleading, or deceptive.

(b) Improper and Unfair Dealings. The following conduct by an originator constitutes improper dealings for purposes of Finance Code §157.024(a)(3) and unfair practices for purposes of Finance Code §180.153(2):

(1) Acting negligently in performing an act requiring a license under Finance Code Chapters 157 or 180;

(2) Violating any provision of a local, State of Texas, or federal constitution, statute, rule, ordinance, regulation, or final court decision that governs the same or a closely related activity, transaction, or subject matter that is governed by the provisions of Finance Code Chapters 157 or 180, or this chapter, including, but not limited to:

(A) Consumer Credit Protection Act, Equal Credit Opportunity Act (15 U.S.C. §1691 et seq.) and Regulation B (12 C.F.R. §1002.1 et seq.);

(B) Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. §5101 et seq.) and Regulation H (12 C.F.R. §1008.1 et seq.);

(C) Regulation N (12 C.F.R. §1014.1 et seq.);

(D) Gramm-Leach-Bliley Act (GLBA; 15 U.S.C. §6801 et seq.), Regulation P (12 C.F.R. §1016.1 et seq.), and the Federal Trade Commission's (FTC) Privacy of Consumer Financial Information rules (16 C.F.R. §313.1 et seq.);

(E) Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) and Regulation V (12 C.F.R. §1022.1 et seq.);

(F) Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and Regulation X (12 C.F.R. 1024.1 et seq.);

(G) Consumer Credit Protection Act, Truth in Lending Act (15 U.S.C. §1601 et seq.) and Regulation Z (12 C.F.R. §1026.1 et seq.);

(H) the FTC's Standards for Safeguarding Customer Information rule (16 C.F.R. §314.1 et seq.);

(I) Finance Code Chapter 159 and Chapter 59 of this title; and

(J) Texas Constitution, Article XVI, §50 and Chapter 153 of this title;

(3) soliciting by phone a consumer who has placed his or her contact information on the national do-not-call registry maintained by the Federal Trade Commission (FTC), unless otherwise allowable under the FTC's Telemarketing Sales Rule (16 C.F.R. §310.4(b)(iii)(B));

(4) Issuing a conditional pre-qualification letter or conditional approval letter under §55.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters) that does not comply with the required form for the letter or is inaccurate, erroneous, or negligently-issued;

(5) Representing to a mortgage applicant that a charge or fee which is payable to the originator or the mortgage company or mortgage banker sponsoring the originator is a "discount point" or otherwise benefits the mortgage applicant unless the loan closes and:

(A) the mortgage company or mortgage banker sponsoring the originator is making the residential mortgage loan (lender); or

(B) the mortgage company or mortgage banker sponsoring the originator is not the lender but demonstrates by clear and convincing evidence that the lender charged or collected discount points or other fees which the mortgage company or mortgage banker sponsoring the originator paid to the lender on behalf of the mortgage applicant to buy down the interest rate on the residential mortgage loan;

(6) Failing to accurately respond within a reasonable time to reasonable questions from a mortgage applicant or prospective mortgage applicant concerning the scope and nature of the originator's services and any costs; or

(7) acting as an originator when the originator is licensed but not sponsored by a mortgage company or mortgage banker, or the license is otherwise in an inactive status.

(c) Related Transactions. An originator engages in fraudulent and deceptive dealings for purposes of Finance Code §157.024(a)(3), deceptive practices for purposes of Finance Code §180.153(2), and a scheme to defraud a person for purposes of Finance Code §180.153(1) when, in connection with the origination of a residential mortgage loan:

(1) the originator:

(A) offers other goods or services to a mortgage applicant in a separate but related transaction; and

(B) the originator engages in fraudulent, misleading, or deceptive acts in the related transaction; or

(2) the originator:

(A) affiliates with another person that provides goods or services to a mortgage applicant in a separate but related transaction;

(B) the affiliated person engages in fraudulent, misleading, or deceptive acts in that transaction;

(C) the originator knew or should have known of the fraudulent, misleading, or deceptive acts of the affiliated person; and

(D) the originator failed to take appropriate steps to prevent or limit the fraudulent, misleading, or deceptive acts.

(d) Sharing or Splitting Origination Fees with the Mortgage Applicant. An originator must not offer or agree to share or split any loan origination fees with a mortgage applicant, rebate all or a part of an origination fee to a mortgage applicant, reduce their established compensation to benefit a mortgage applicant, or otherwise provide money, a cash equivalent, or anything of value to a mortgage applicant in connection with performing residential mortgage loan origination services unless otherwise allowable under Regulation X (12 C.F.R. §1024.14) and Regulation Z (12 C.F.R. §1026.36(d)). An originator acting in the dual capacity of an originator and real estate sales broker or agent licensed under Occupations Code Chapter 1101 may rebate their fees legitimately earned and derived from their real estate brokerage or sales agent services to the extent allowable under applicable law governing real estate brokers or sales agents; provided, the payment or other transfer described by this subsection occurs as a part of closing and is properly reflected in the closing disclosure. If a payment or other transfer described by this subsection occurs after closing, a rebuttable presumption exists that the payment or transfer is derived from the originator's fees for residential mortgage loan origination services and constitutes an improper sharing or splitting of fees with the mortgage applicant. The rebuttable presumption may only be overcome by clear and convincing evidence established by the originator that the payment or transfer is instead derived from fees for real estate brokerage or sales agent services. A violation of this subsection is deemed to constitute improper dealings for purposes of Finance Code §157.024(a)(3) and unfair practices for purposes of Finance Code §180.153(2).

(e) Education Fraud. The following conduct in connection with the pre-licensing education or examination, or continuing education required by §55.108 of this title (relating to Required Education) constitutes a false or deceptive statement or representation for purposes of Finance Code §180.153(11) and a false statement or omission of material fact for purposes of Finance Code §180.153(12):

(1) claiming credit for a pre-licensing education course, pre-licensing examination, or continuing education course the individual did not take; or

(2) taking a pre-licensing education course, pre-licensing examination, or continuing education course on behalf of another individual.

History

• Source Note: The provisions of this §55.202 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.203 Advertising

An originator sponsored by a mortgage company licensed by SML must comply with the advertising requirements in §56.203 of this title (relating to Advertising). An originator sponsored by a mortgage banker registered with SML must comply with the advertising requirements in §57.203 of this title (relating to Advertising).

History

• Source Note: The provisions of this §55.203 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.204 Books and Records

An originator sponsored by a mortgage company licensed by SML must comply with the books and records requirements in §56.204 of this title (relating to Books and Records). An originator sponsored by a mortgage banker registered with SML must comply with the books and records requirements in §57.204 of this title (relating to Books and Records). An originator fulfills the requirements of §56.204 of this title and §57.204 of this title, as applicable, if his or her sponsoring mortgage company or mortgage banker maintains the required books and records on behalf of the originator. An originator must work diligently and cooperatively with his or her sponsoring mortgage company or mortgage banker to ensure that the records arising from the originator's work are properly maintained by the mortgage company or mortgage banker sponsoring his or her license.

History

• Source Note: The provisions of this §55.204 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.205 Mortgage Call Reports

(a) Purpose. This section clarifies and establishes requirements related to the mortgage call reports an originator is required to file under Finance Code §180.101.

(b) Fulfillment by Mortgage Company or Mortgage Banker. Mortgage companies licensed by SML and mortgage bankers registered with SML are required to file mortgage call reports. An originator is not expected to and should not attempt to file his or her own mortgage call reports. Instead, the originator's activity must be included in the mortgage call reports filed by the mortgage company or mortgage banker sponsoring the originator. An originator fulfills the requirements of Finance Code §180.101 if his or her sponsoring mortgage company or mortgage banker files mortgage call reports that include the originator's activity. An originator must work diligently and cooperatively with his or her sponsoring mortgage company or mortgage banker to ensure that the originator's activity is included in a mortgage call report filed by his or her sponsoring mortgage company or mortgage banker in compliance with §56.205 of this title (relating to Mortgage Call Reports), applicable to mortgage companies licensed by SML, and §57.205 of this title (relating to Mortgage Call Reports), applicable to mortgage bankers registered with SML.

History

• Source Note: The provisions of this §55.205 adopted to be effective November 23, 2024, 49 TexReg 9203.

Subchapter D SUPERVISION AND ENFORCEMENT

7 Tex. Admin. Code § 55.300 Examinations

(a) Purpose. This section clarifies and establishes requirements related to examinations of an originator conducted by SML under Finance Code §157.021.

(b) State Examination System (SES). Examinations are conducted in SES (stateexaminationsystem.org). The mortgage company or mortgage banker sponsoring the originator must use SES to facilitate the examination.

(c) Examinations by Other State Agencies. SML may participate in, leverage, or accept an examination conducted by another state agency or regulatory authority if that state agency's or regulatory authority's mortgage regulation program is accredited by the Conference of State Bank Supervisors.

(d) Notice of Examination. Except when SML determines that giving advance notice would impair the examination, SML will give the primary contact person of the mortgage banker or mortgage company sponsoring the originator listed in NMLS or a person designated by the primary contact person advance notice of each examination. Such notice will be sent to the primary contact person's or designated person's mailing address or email address of record with NMLS and will specify the date on which SML's examiners are scheduled to begin the examination. Failure to receive the notice will not be grounds for delay or postponement of the examination. The notice will include a list of the documents and records that must be produced or made available to facilitate the examination.

(e) Examination Scope. Examinations will be conducted to determine compliance with Finance Code Chapters 156, 157 and 180, and this chapter, and will specifically address whether:

(1) all persons are properly licensed and sponsored;

(2) all office locations are properly licensed or registered, as provided by §56.206 of this title (relating to Office Locations; Remote Work) and §57.206 of this title (relating to Office Locations; Remote Work);

(3) all required books and records are being maintained in accordance with §56.204 of this title (relating to Books and Records) and §57.204 of this title (relating to Books and Records);

(4) legal and regulatory requirements applicable to the originator and the mortgage banker or mortgage company sponsoring the originator are being properly followed (including, but not limited to, the requirements described in §55.202(b)(2) of this title (relating to Fraudulent, Misleading, or Deceptive Practices and Improper Dealings); and

(5) other matters as SML and its examiners deem necessary or advisable to carry out the purposes of Finance Code Chapters 156, 157, and 180.

(f) Loan Sample. The examiners will review a sample of residential mortgage loan files identified by the examiners from the mortgage transaction log required by §56.204(c)(1) or (d)(1) of this title, applicable to mortgage companies licensed by SML, or §57.204(c)(1) or (d)(1) of this title, applicable to mortgage bankers registered with SML. The examiner may expand the number of files to be reviewed if, in his or her discretion, conditions warrant.

(g) Failure to Cooperate; Disciplinary Action. Failure by an originator to cooperate with the examination or failure to grant the examiners access to books, records, documents, operations, and facilities may result in disciplinary action including, but not limited to, imposition of an administrative penalty.

(h) Reimbursement for Costs. The examiners may require an originator, at his or her own cost, to make copies of loan files or such other books and records as the examiners deem appropriate for the preparation of or inclusion in the examination report. When the examiners must travel outside of Texas to conduct an examination of an originator because the required records are maintained at a location outside of Texas, SML will require reimbursement for the actual costs incurred in connection with such travel including, but not limited to, transportation, lodging, meals, communications, courier service and any other reasonably related costs. Any such costs will be assessed against the originator in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §55.300 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.301 Investigations

(a) Purpose. This section clarifies and establishes requirements related to investigations of an originator conducted by SML under Finance Code §157.021.

(b) Reasonable Cause. SML will conduct an investigation if it has reasonable cause to do so. Reasonable cause is deemed to exist if SML receives or discovers information from a source SML has no reason to believe is other than creditable indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The absence of reasonable cause to initiate an investigation does not constitute grounds to challenge and does not invalidate an action taken by SML to address a violation found during the course of an investigation.

(c) Investigation Methods. Investigations will be conducted as SML deems appropriate based on the relevant facts and circumstances then known. An investigation may include:

(1) review of documentary evidence;

(2) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(3) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(4) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(5) other lawful investigative methods SML deems necessary or appropriate.

History

• Source Note: The provisions of this §55.301 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.302 Confidentiality of Examination, Investigation, and Inspection Information

(a) Purpose. This section clarifies and establishes requirements related to the confidentiality of information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §157.021.

(b) Confidential Information. All information obtained by SML during an examination, investigation, or inspection is confidential and cannot be released except as required or expressly permitted by law. The Finance Commission of Texas and the Commissioner have determined that the following information is confidential under Finance Code §156.301 (list is not exhaustive):

(1) any documents, data, data compilations, work papers, notes, memoranda, summaries, recordings, or other information, in whatever form or medium, obtained, compiled, or created during an examination, investigation, or inspection;

(2) information that is derived from or is the product of the confidential information described by paragraph (1) of this subsection, including any reports or other information chronicling or summarizing the results, conclusions, or other findings of an examination, investigation, or inspection, including assertions of any violations, deficiencies, or issues identified, or any directives, mandates, or recommendations for action by the regulated entity to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection; including, but not limited to, any corrective or remedial action directed by SML or taken by the originator entity under §55.303 of this title (relating to Corrective Action); and

(3) information that is derived from or is the product of the confidential information described by paragraphs (1) and (2) of this subsection, including any communications, documentary evidence, or other information concerning the regulated entity's compliance with any directives, mandates, or recommendations for action by the mortgage company and any corrective or remedial action taken by the regulated entity to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection.

(c) Loss of Confidentiality. Subsection (b) of this section notwithstanding, information described by that subsection is not confidential to the extent the information becomes publicly available in a disciplinary or enforcement action that is a contested case (i.e., information made part of the administrative record during an adjudicative hearing that is open to the public).

History

• Source Note: The provisions of this §55.302 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.303 Corrective Action

(a) Corrective Action, Generally; Purpose. During an examination, investigation, or inspection, SML may determine that violations, deficiencies, or compliance issues (collectively, violations) occurred. Within the confidential environment of the examination, investigation, or inspection, SML may direct the originator to voluntarily take corrective action to address the violations identified during the examination, investigation, or inspection. This section clarifies and establishes requirements related to such corrective action.

(b) Internal Reviews. If SML determines during an examination, investigation, or inspection that a violation may be systemic, SML may direct the originator to conduct his or her own review to self-identify any other violations, compile information concerning such violations, and report his or her findings to SML. SML may direct the originator to take corrective action for any violations identified

(c) Refunds to Consumers. SML may direct the originator to make refunds to consumers affected by the violation. Any refund must comply with this subsection. The Commissioner, in his or her sole discretion, may waive or modify the requirements of this subsection to achieve appropriate, practical, and workable results. A refund must be made by one of the following methods:

(1) Certified Funds. The refund may be made by certified funds (cashier's check or money order) sent to the mortgage applicant at his or her last known address. The originator must use reasonable diligence to determine the last known address of the mortgage applicant. The payment must be sent in a manner that includes tracking information and confirmation of delivery (e.g., certified mail return receipt requested, or commercial delivery service with tracking). The originator must capture and maintain records evidencing the payment, including a copy of the payment instrument, any correspondence accompanying the payment, tracking information, and delivery confirmation; or

(2) Wire Transfer or ACH. The refund may be made by wire transfer or automated clearing house (ACH) payment to the mortgage applicant's verified bank account. The originator must capture and maintain records evidencing the payment, including any transaction receipt, confirmation page, or similar, reflecting:

(A) name of the sender and any relevant contact information;

(B) sender's bank information (institution, routing number, and account number);

(C) name of the recipient and any relevant contact information;

(D) recipient's bank information (routing number and account number); and

(E) the transaction reference number or confirmation code.

History

• Source Note: The provisions of this §55.303 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.310 Appeals

(a) Purpose. Finance Code Chapter 157 provides that certain decisions of the Commissioner adverse to an originator or other individual may be appealed and offers the opportunity for an adjudicative hearing to challenge the decision. This section establishes various deadlines by which an originator or other individual must appeal the decision before it becomes final and non-appealable.

(b) The following appeal deadlines apply:

(1) License Denials. A license denial under Finance Code §157.017 must be appealed within 10 days after the date notice of the Commissioner's decision is received by the individual seeking the license.

(2) Order of Suspension for Violation of Final Order. An order of suspension issued by the Commissioner under Finance Code §157.024(h) must be appealed within 15 days after the date the order is issued.

(3) Notice of Suspension for Criminal Offense Involving Fraud, Theft, or Dishonesty. A notice of suspension issued under Finance Code §157.024(k) must be appealed within 15 days after the date the notice is issued.

(4) Notice of Disciplinary Action. A notice of disciplinary action issued under Finance Code §§ 157.023(a), 157.024(a), or 157.024(b) must be appealed within 30 days after the date the notice is issued.

(5) Order for Disciplinary Action (Order to Take Affirmative Action or Order to Cease and Desist). An order of the Commissioner issued under Finance Code §157.024(c) or §157.031(b) must be appealed within 30 days after the date the order is issued. This deadline does not apply to an order for disciplinary action issued by the Commissioner under Finance Code §§ 157.023(a), 157.024(a), or 157.024(b) that was preceded by notice issued under paragraph (4) of this subsection.

(6) Other Deadlines. Any appeal not otherwise addressed by this section must be made within 30 days after the date the notice or order is issued.

(c) Requests for Appeal. An appeal must be made in writing and received by SML on or before the appeal deadline. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(d) Effect of Not Appealing. An originator or other individual who does not timely appeal the Commissioner's decision is deemed to have irrevocably waived any right he or she had to challenge the decision or request an adjudicative hearing on the decision and is deemed not to have exhausted all administrative remedies available to him or her for purposes of judicial review of the Commissioner's decision under Government Code §2001.171. The failure to appeal an order of the Commissioner results in the order becoming final and non-appealable. The failure to appeal a notice of the Commissioner's decision means the Commissioner can issue a final, non-appealable order at any time without further notice or opportunity for a hearing to the originator.

History

• Source Note: The provisions of this §55.310 adopted to be effective November 23, 2024, 49 TexReg 9203.

7 Tex. Admin. Code § 55.311 Hearings

(a) Hearings, Generally. Adjudicative hearings conducted under Finance Code Chapters 157 and 180 are governed by the rules in Chapter 9 of this title (concerning Rules of Procedure for Contested Hearings, Appeals, and Rulemakings). Contested cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings are held in Austin, Texas. Any appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas.

(b) Hearing Costs for License Denials. Hearing costs assessed against an individual under Finance Code §157.017(f) include:

(1) filing fees;

(2) the costs of a court reporter;

(3) the costs of the administrative law judge (ALJ) or hearings officer presiding over the hearing;

(4) the expense of SML's staff to prepare for and attend the hearing or any ancillary proceedings (i.e., the hearing of motions, status conferences, etc.), and any related travel expenses;

(5) the cost of any outside counsel retained to represent SML; and

(6) the cost of any expert witness retained by SML.

(c) Determination of Hearing Costs for License Denials. Unless the ALJ makes more specific findings of fact or conclusions of law concerning the hearing costs described by subsection (b)(3) of this section, such costs are deemed to be $500. Hearing costs described by subsection (b)(4) of this section are measured based on the diversion of productivity of such staff away from their typical duties and toward the hearings process and are calculated by multiplying the number of hours spent by each staff member in furtherance of the hearings process (measured in increments of 1/10 of an hour) by their current hourly compensation rate. The Commissioner may rely on affidavit testimony of such staff members to make appropriate findings of fact and conclusions of law concerning the hearing costs described by subsection (b)(4) of this section.

History

• Source Note: The provisions of this §55.311 adopted to be effective November 23, 2024, 49 TexReg 9203.

Chapter 56 RESIDENTIAL MORTGAGE LOAN COMPANIES

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 56.1 Purpose and Applicability

This chapter governs SML's administration and enforcement of Finance Code Chapter 156, the Residential Mortgage Loan Company Licensing and Registration Act (other than Subchapters F and G), concerning the licensing, registration, and operations of mortgage companies, financial services companies, credit union subsidiary organizations, auxiliary mortgage loan activity companies, and independent contractor loan processor or underwriter companies (each a residential mortgage loan company). This chapter applies to persons licensed by SML as a residential mortgage loan company or those required to be licensed. Pursuant to Finance Code §156.2012(d) a person registered with SML as a financial services company is subject to the requirements of this chapter as if the company were licensed by SML as a residential mortgage loan company and the rules in this chapter must be construed accordingly.

History

• Source Note: The provisions of this §56.1 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.2 Definitions

For purposes of this chapter, and in SML's administration and enforcement of Finance Code Chapter 156 (other than Subchapters F and G), the following definitions apply, unless the contest clearly indicates otherwise:

(1) "Application," as used in Finance Code §156.002(14) and paragraphs (9) and (22) of this section means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(3) "Compensation" includes salaries, bonuses, commissions, and any financial or similar incentive.

(4) "Control person" means an individual that directly or indirectly exercises control over a mortgage company. Control is defined by the power, directly or indirectly, to direct the management or policies of a mortgage company, whether through ownership of securities, by contract, or otherwise. Control person includes any person that:

(A) is a director, general partner, or executive officer;

(B) directly or indirectly has the right to vote 10% or more of a class of a voting security or has the power to sell or direct the sale of 10% or more of a class of voting securities;

(C) in the case of a limited liability company, is a manager or managing member; or

(D) in the case of a partnership, has the right to receive upon dissolution, or has contributed, 10% or more of the partnership's capital assets.

(5) "Dwelling" means a residential structure that contains one to four units and is attached to residential real estate. The term includes an individual condominium unit, cooperative unit, or manufactured home, if it is used as a residence.

(6) "E-Sign Act" refers to the federal Electronic Signature in Global and National Commerce Act (15 U.S.C. §7001 et seq.).

(7) "Engage in or conduct the business of a mortgage company" or "engage in or conduct the business of residential mortgage loan origination," or any similar derivative or variation of those terms, means to contract for (as provider), provide, or offer to contract for or provide, residential mortgage loan origination services for compensation or gain or with the expectation of compensation or gain.

(8) "Making a residential mortgage loan," or any similar derivative or variation of that term, means when a person determines the credit decision to provide the residential mortgage loan, or the act of funding the residential mortgage loan or transferring money to the borrower. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the residential mortgage loan.

(9) "Mortgage applicant" has the meaning assigned by Finance Code §156.002 and includes a person who contacts a mortgage company or its sponsored originator in response to a solicitation to obtain a residential mortgage loan, and a person who has not completed or started completing a formal loan application on the appropriate form (e.g., Fannie Mae's Form 1003 Uniform Residential Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(10) "Mortgage banker" has the meaning assigned by Finance Code §156.002.

(11) "Mortgage company" means, for the purposes of this chapter, a "residential mortgage loan company" as defined by Finance Code §156.002.

(12) "Nationwide Multistate Licensing System" or "NMLS" has the meaning assigned by Finance Code §156.002 in defining "Nationwide Mortgage Licensing System and Registry."

(13) "Offers or negotiates the terms of a residential mortgage loan," as used in Finance Code §156.002(14), means, among other things, when an individual:

(A) arranges or assists a mortgage applicant or prospective mortgage applicant in obtaining or applying to obtain, or otherwise secures an extension of consumer credit for another person, in connection with obtaining or applying to obtain a residential mortgage loan;

(B) presents for consideration by a mortgage applicant or prospective mortgage applicant particular residential mortgage loan terms (including rates, fees, and other costs); or

(C) communicates directly or indirectly with a mortgage applicant or prospective mortgage applicant for the purpose of reaching a mutual understanding about particular residential mortgage loan terms.

(14) "Originator" has the meaning assigned by Finance Code §156.002 in defining "residential mortgage loan originator." Paragraphs (13) and (22) of this section do not affect the applicability of such statutory definition. Individuals who are specifically excluded under such statutory definition, as provided by Finance Code §180.002(19)(B), are excluded under this definition and for purposes of this chapter. Persons who are exempt from licensure as provided by Finance Code §180.003 are exempt for purposes of this chapter, except as otherwise provided by Finance Code §180.051.

(15) "Person" has the meaning assigned by Finance Code §180.002.

(16) "Qualified Individual" has the meaning assigned by Finance Code §156.002 in defining "qualifying individual."

(17) "Residential mortgage loan" has the meaning assigned by Finance Code §180.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan secured by a structure that is suitable for occupancy as a dwelling but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as a residence.

(18) "Residential real estate" has the meaning assigned by Finance Code §156.002 and includes both improved or unimproved real estate or any portion of or interest in such real estate on which a dwelling is or will be constructed or situated.

(19) "Social media site" means any digital platform accessible by a mortgage applicant or prospective mortgage applicant where the mortgage company or sponsored originator does not typically own the hosting platform but otherwise exerts editorial control or influence over the content within their account, profile, or other space on the digital platform, from which the mortgage company or sponsored originator posts commercial messages or other content designed to solicit business.

(20) "SML" means the Department of Savings and Mortgage Lending.

(21) "State Examination System" or "SES" means an online, digital examination system developed by the Conference of State Bank Supervisors that securely connects regulators and regulated entities on a nationwide basis to facilitate the examination process.

(22) "Takes a residential mortgage loan application," as used in Finance Code §156.002(14) in defining "residential mortgage loan originator," means when an individual receives a residential mortgage loan application for the purpose of facilitating a decision on whether to extend an offer of residential mortgage loan terms to a mortgage applicant or prospective mortgage applicant, whether the application is received directly or indirectly from the mortgage applicant or prospective mortgage applicant, and regardless of whether or not a particular lender has been identified or selected.

(23) "Trigger lead" means information concerning a consumer's credit worthiness (consumer report) compiled by a credit reporting agency (consumer reporting agency), obtained in accordance with the federal Fair Credit Reporting Act (15 U.S.C. §1681b(c)(1)(B)) that is not initiated by the consumer but, instead, is triggered by an inquiry to a consumer reporting agency in response to an application for credit initiated by the consumer in a separate transaction. The term does not include a consumer report obtained by a mortgage company licensed by SML or a mortgage banker registered with SML in response to an application for credit made by a consumer with that mortgage company or mortgage banker or that is otherwise authorized by the consumer.

(24) "UETA" refers to the Texas Uniform Electronic Transactions Act, Business & Commerce Code Chapter 322.

(25) "Wrap lender" has the meaning assigned by Finance Code §159.001.

(26) "Wrap mortgage loan" has the meaning assigned by Finance Code §159.001.

History

• Source Note: The provisions of this §56.2 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.3 Formatting Requirements for Notices

Any notice or disclosure (notice) required by Finance Code Chapter 156, or this chapter, must be easily readable. A notice is deemed to be easily readable if it is in at least 12-point font and uses a typeface specified by this section. A font point generally equates to 1/72 of an inch. If Finance Code Chapter 156, or this chapter, prescribes a form for the notice, the notice must closely follow the font types used in the form. For example, where the form uses bolded, underlined, or "all caps" font type, the notice or disclosure must be made using those font types. The following typefaces are deemed to be easily readable for purposes of this section (list is not exhaustive and other typefaces may be used; provided, the typeface is easily readable):

(1) Arial;

(2) Aptos;

(3) Calibri;

(4) Century Schoolbook;

(5) Garamond;

(6) Georgia;

(7) Lucinda Sans;

(8) Times New Roman;

(9) Trebuchet; and

(10) Verdana.

History

• Source Note: The provisions of this §56.3 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.4 Electronic Delivery and Signature of Notices

Any notice or disclosure required by Finance Code Chapter 156, or this chapter, may be provided and signed in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §56.4 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.5 Computation of Time

The calculation of any time period measured in days by Finance Code Chapter 156, or this chapter, is made using calendar days, unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §56.5 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.6 Enforceability of Liens

A violation of Finance Code Chapter 156, or this chapter, does not render an otherwise lawfully taken lien invalid or unenforceable.

History

• Source Note: The provisions of this §56.6 adopted to be effective November 23, 2024, 49 TexReg 9206.

Subchapter B LICENSING

7 Tex. Admin. Code § 56.100 Licensing Requirements

(a) License Required. A person, unless exempt as provided by Finance Code §156.202, is required to be licensed as a mortgage company under Finance Code Chapter 156 if the person engages in or conducts the business of a mortgage company or advertises or holds that person out to the public as engaging in or conducting the business of residential mortgage loan origination concerning a loan or prospective loan secured or designed to be secured by residential real estate located in Texas, including, but not limited to:

(1) representing or holding that person out to the public through advertising or other means of communication as a mortgage company; and

(2) receiving compensation for engaging in or conducting the business of residential mortgage loan origination (a person must be licensed at the time it receives compensation even if the compensation relates to services provided when the person was licensed).

(b) Branch Office License Required. A mortgage company must apply for and obtain a branch office license for each office constituting a branch office of the mortgage company for purposes of §56.206 of this title (relating to Office Locations; Remote Work).

(c) Securing the Services of an Originator. A person making a residential mortgage loan (lender), other than a wrap lender making a wrap mortgage loan, or the maker of a secondary mortgage loan subject to the requirements of Finance Code Chapter 342, is not required to be licensed as a mortgage company if the lender secures the services of a licensed mortgage company or registered mortgage banker authorized to originate the loan and that mortgage company or mortgage banker, and not the lender, fulfills the functions of origination by actually providing residential mortgage loan origination services in connection with the loan. However, if the lender owns the residential real estate securing the loan and has exceeded the limit for exempt transactions as provided by Finance Code §156.202(a-1)(3), the lender must be licensed under Finance Code Chapter 156, regardless of whether the lender has secured the services of an originator as provided by this subsection.

History

• Source Note: The provisions of this §56.100 adopted to be effective January 1, 2026, 49 TexReg 9206.

7 Tex. Admin. Code § 56.101 Applications for Licensure

(a) NMLS. Applications for licensure must be submitted through NMLS and must be made using the current form prescribed by NMLS. SML has published application checklists on the NMLS Resource Center website (nationwidelicensingsystem.org; viewable on the "State Licensing Requirements" webpage) which outline the requirements to submit an application. Applicants must comply with requirements in the checklist in making the application.

(b) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation as deemed necessary or appropriate to determine that the licensing requirements of Finance Code Chapter 156 are met.

(c) Incomplete Filings; Deemed Withdrawal. An application is complete only if all required information and supporting documentation is included and all required fees are received. If an application is incomplete, SML will send written notice to the applicant specifying the additional information, documentation, or fee required to render the application complete. The application may be deemed withdrawn and any fee paid will be forfeited if the applicant fails to provide the additional information, documentation, or fee within 30 days after the date written notice is sent to the applicant as provided by this subsection.

History

• Source Note: The provisions of this §56.101 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.102 Fees

(a) License Fees. The license fee is determined by the Commissioner in an amount not to exceed the maximum amount specified by Finance Code §156.203(b), exclusive of fees charged by NMLS, as described in subsection (b) of this section. The Commissioner may establish different fee amounts for a new license versus renewal of the license. The current fee is set in NMLS and posted on SML's website (sml.texas.gov). The Commissioner may change the fee at any time; provided, any fee increase is not effective until notice has been posted on SML's website for at least 30 days. The license fee must be paid in NMLS.

(b) NMLS Fees. NMLS charges a fee to process the application. Such fee is determined by NMLS and must be paid by the applicant at the time it files the application. The current fee is set in NMLS and posted on the NMLS Resource Center website (nationwidelicensingsystem.org).

(c) All fees are nonrefundable and nontransferable.

(d) Insufficient Funds Fee. The Commissioner may collect a fee in an amount determined by the Commissioner not to exceed $50 for any returned check, credit card chargeback, or failed automated clearinghouse (ACH) payment. A fee assessed under this subsection will be invoiced in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §56.102 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.103 Renewal of the License

(a) A license may be renewed on:

(1) timely submission of a completed renewal application (renewal request) in NMLS together with payment of all required fees; and

(2) a determination by SML that the mortgage company continues to meet the minimum requirements for licensure, including the requirements of Finance Code §§156.2041(a), 156.2042, 156.2043(a), or 156.2044(a), as applicable, and 156.208(a-1).

(b) Application of §56.101. A renewal request is a license application subject to the requirements of §56.101 of this title (relating to Applications for Licensure). A renewal request withdrawn under §56.101(c) of this title will be rejected in NMLS.

(c) Commissioner's Discretion to Approve with a Deficiency; Conditional License. The Commissioner may, in his or her sole discretion, approve a renewal request with one or more deficiencies the Commissioner deems to be relatively minor and allow the mortgage company to continue conducting regulated activities while the mortgage company works diligently to resolve the deficiencies. An application approved by the Commissioner under this subsection will be assigned the NMLS license status "Approved - Deficient." Approval under this subsection does not relieve the mortgage company of the obligation to resolve the deficiencies. A license approved under this subsection is deemed to be a conditional license for which the mortgage company, in order to maintain the license, must resolve the deficiencies within 30 days after the date the license is approved unless an extension of time is granted by the Commissioner. Failure to timely resolve the deficiencies constitutes grounds for the Commissioner to suspend or revoke the license.

(d) Reinstatement. This section applies to a person seeking reinstatement of an expired license (assigned the license status "Terminated - Failed to Renew") during the reinstatement period described by Finance Code §156.2081 and must be construed accordingly. A mortgage company license cannot be renewed beyond the reinstatement period; instead, the person must apply for a new license and comply with all current requirements and procedures governing issuance of a new license.

History

• Source Note: The provisions of this §56.103 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.104 NMLS License Records; Notices Sent to the Mortgage Company

(a) NMLS License Status. SML is required to assign a status to the license in NMLS. The license status is displayed in NMLS and on the NMLS Consumer Access website (nmlsconsumeraccess.org). SML is limited to the license status options available in NMLS. The NMLS Resource Center (nationwidelicensingsystem.org) describes the available license status options and their meaning.

(b) Amendments to NMLS Records Required. A mortgage company must amend its NMLS license records (MU1 filing) within 10 days after the date of any material change affecting any aspect of the MU1 filing, including, but not limited to:

(1) name (which must be accompanied by supporting documentation submitted to SML establishing the name change);

(2) the addition or elimination of an assumed name (a/k/a trade name or "doing business as" name; which must be accompanied by a certificate of assumed business name or other documentation establishing or abandoning the assumed name);

(3) the contact information under "Identifying Information":

(4) the contact information under "Resident/Registered Agent";

(5) the contact information under "Contact Employee Information"; and

(6) answers to disclosure questions (which must be accompanied by explanations for each such disclosure, together with supporting documentation concerning such disclosure).

(c) Amendments to MU2 Associations Required. A mortgage company must cause the individuals who are required to register an association with the mortgage company (control persons and Qualified Individuals) to make the proper filings in NMLS using the current form prescribed by NMLS (MU2 filing) and must ensure such associations are amended within 10 days after the date of any material change affecting such associations.

(d) Notices Sent to the Mortgage Company. Any correspondence, notification, alert, message, official notice or other written communication from SML will be sent to the mortgage company in accordance with this subsection using the mortgage company's current contact information of record in NMLS unless another method is required by other applicable law.

(1) Service by Email. Service by email is made using the email address the mortgage company has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by email is complete on transmission of the email to the mortgage company's email service provider; provided, SML does not receive a "bounce back" notification, or similar, from the email service provider indicating that delivery was not effective. The mortgage company must monitor such email account and ensure that emails sent by SML are not lost in a "spam folder" or similar, or undelivered due to intervention by a "spam filter" or similar. A mortgage company is deemed to have constructive notice of any emails sent by SML to the email address described by this paragraph. A mortgage company is further deemed to have constructive notice of any NMLS system notifications sent to it by email.

(2) Service by Mail. Service by mail is made using the address the mortgage company has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by mail is complete on deposit of the document, postpaid and properly addressed, in the mail or with a commercial delivery service. If service is made on the mortgage company by mail and the document communicates a deadline by or a time during which the mortgage company must perform some act, such deadline or time period for action is extended by 3 days. However, if service was made by another method prescribed by this subsection, such deadline or time period will be calculated based on the earliest possible deadline or shortest applicable time period.

History

• Source Note: The provisions of this §56.104 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.105 Conditional License

(a) Conditional License; Terms and Conditions. The Commissioner may, in his or her sole discretion, issue a license on a conditional basis. A conditional license will be assigned the license status "Approved - Conditional" in NMLS. Reasonable terms and conditions for a conditional license include:

(1) requiring the mortgage company to undergo additional credit checks or provide evidence of satisfaction concerning a debt, judgment, lien, child support obligation, or other financial delinquency affecting its financial condition;

(2) requiring the mortgage company to undergo additional criminal background checks or provide information on a periodic basis or upon request concerning the status of a pending criminal proceeding that might affect its eligibility for licensure;

(3) requiring the mortgage company to take other specific action or provide other specified information to address a known deficiency; and

(4) requiring the mortgage company to surrender the license upon the occurrence of an event that would render the mortgage company ineligible for the license.

(b) Probated Suspensions and Revocations. A license subject to a probated suspension or revocation is deemed to be a conditional license.

(c) Conditional License in Lieu of Denial. The Commissioner may issue a license on a conditional basis in lieu of seeking denial of the license where the person applying for the license has the capacity to resolve the deficiency serving as grounds for the denial in a reasonable period of time. The granting of a license under this subsection is a voluntarily forbearance from seeking denial of the license and does not operate as a waiver by the Commissioner of any grounds he or she has to seek denial of the license. The Commissioner is under no obligation to continue the license on a conditional basis and may seek denial in the future based on the same or similar circumstances that existed at the time the conditional license was granted.

History

• Source Note: The provisions of this §56.105 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.106 Surrender of the License

(a) Surrender Request. A mortgage company may seek surrender of the license by filing a license surrender request (request) in NMLS. The request must be made using the current form prescribed by NMLS. SML will review the request and determine whether to grant it. SML may not grant the request if, among other reasons:

(1) the mortgage company is the subject of a pending or contemplated examination, inspection, investigation, or disciplinary action;

(2) the mortgage company is in violation of an order of the Commissioner;

(3) the mortgage company has failed to pay any administrative penalty, fee, charge, or other indebtedness owed to SML; or

(4) the mortgage company has failed to file mortgage call reports as required by §56.205 of this title (relating to Mortgage Call Reports).

(b) Inactive Status Pending Surrender. If SML does not grant the request or requires additional time to consider the request, the request will be left pending while the issue preventing SML from granting the request is resolved or lapses. During this time, the mortgage company' s license will be assigned the license status " Approved - Inactive" in NMLS.

History

• Source Note: The provisions of this §56.106 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.107 Sponsorship of Originator; Responsibility for Originator's Actions

(a) Sponsorship Required. A mortgage company acts through one or more originators who must be sponsored by the mortgage company in NMLS. To sponsor an originator, the mortgage company must first register a relationship with the originator in NMLS. When a relationship has been registered, the mortgage company may then file a request in NMLS to establish sponsorship of the originator. An originator must make corresponding filings in NMLS to establish such sponsorship. Sponsorship is not effective until the sponsorship request has been reviewed and approved by SML. A mortgage company must not allow an individual to act on its behalf in the capacity of an originator until such sponsorship has been established and is effective. Information about how to file for sponsorship is available on the NMLS Resource Center website (nationwidelicensingsystem.org).

(b) Responsibility for Originator's Actions. By sponsoring an originator, or otherwise allowing an individual to act on its behalf in the capacity of an originator, the mortgage company and the Qualified Individual for the mortgage company each assumes responsibility for the actions of such originator or individual acting in the capacity of an originator. As provided by Finance Code §156.201, all violations of law by an originator or individual acting in the capacity of an originator are deemed to be attributable and imputed to the mortgage company sponsoring the originator or for which the individual acting as an originator was allowed to act, and the Commissioner may seek disciplinary action against the mortgage company, the Qualified Individual for the mortgage company, and the originator simultaneously for the same conduct giving rise to the violation. As a result, a mortgage company and its Qualified Individual are both charged with knowledge of and must ensure compliance by their sponsored originators with the requirements of Finance Code Chapters 157 and 180, and of SML 's rules concerning originators in Chapter 55 of this title (relating to Residential Mortgage Loan Originators).

(c) Termination of Sponsorship. Sponsorship may be terminated by the mortgage company or the sponsored originator. If sponsorship is terminated, the party terminating the sponsorship must immediately notify SML of the termination by making a filing in NMLS to show the sponsorship as terminated in the system, as provided by Finance Code §156.211 and §157.019.

(d) Failure to Maintain Sponsored Originator; Inactive Status. If a mortgage company does not have sponsored originators that are licensed, the license will revert to an inactive status ("Approved - Inactive") until a new sponsorship becomes effective, during which time the mortgage company must not conduct regulated activities.

History

• Source Note: The provisions of this §56.107 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.108 Qualified Individual

(a) Qualified Individual Required. A mortgage company must appoint at least one licensed originator to be the mortgage company's Qualified Individual. As provided by Finance Code §156.002, the Qualified Individual is a personal representative of the mortgage company and is deemed to have authority to bind the mortgage company concerning its operations in Texas. To serve as the Qualified Individual, the originator must hold his or her license in a status which enables him or her to engage in regulated activities with the license and must be sponsored by the mortgage company for which he or she serves as the Qualified Individual. The contact information for the Qualified Individual listed by the mortgage company in its license records (MU1 filing), in the "Qualifying Individuals" section, must match the principal address (main address) of the mortgage company listed in the "Identifying Information" section of the MU1 filing. A mortgage company may appoint more than one originator as Qualified Individual. If a mortgage company appoints more than one Qualified Individual, each Qualified Individual is deemed to serve concurrently and is responsible for all of the originators sponsored by the mortgage company or other individuals acting on its behalf in the capacity of an originator.

(b) Consent Required. The appointment of the Qualified Individual must be consented to by the originator. The originator must acknowledge and confirm his or her consent by making a corresponding filing in NMLS to reflect such appointment, using the current form prescribed by NMLS.

History

• Source Note: The provisions of this §56.108 adopted to be effective November 23, 2024, 49 TexReg 9206.

Subchapter C DUTIES AND RESPONSIBILITIES

7 Tex. Admin. Code § 56.200 Required Disclosures

(a) Purpose. This section clarifies and establishes requirements related to the disclosure a mortgage company is required to make under Finance Code §156.004.

(b) Specific Notice to Applicant. A mortgage company must send written notice to a mortgage applicant concerning SML's regulatory oversight. The notice must be sent at the time the mortgage company and its sponsored originator receives the initial application for a residential mortgage loan. The notice may be provided to the mortgage applicant by any means allowing for the mortgage company to capture and maintain records reflecting timely delivery, as required by §56.204(c)(2)(A)(iv) of this title (relating to Books and Records). The notice may be signed and dated by the mortgage applicant to evidence receipt. The notice must be in the form adopted by this subsection. However, the form may be modified by adding additional identifying information for the transaction (e.g., loan identification number, or the name and NMLS ID of the mortgage company or the investor); provided, any information added to the form is not misleading and does not contradict or frustrate the purpose of the disclosure:

Attached Graphic

(c) Posted Notice on Websites. A mortgage company must post a notice concerning SML's regulatory oversight on each website of the mortgage company, other than a social media site, that is accessible by a mortgage applicant or prospective mortgage applicant and either used to conduct residential mortgage loan origination business or from which the mortgage company advertises to solicit such business, as provided by §56.203 of this title (relating to Advertising). The notice must be in the current form prescribed by SML and posted on its website (sml.texas.gov). The notice must be displayed on the initial or home page of the website (typically the base-level domain name) or contained in a linked webpage with the link to such webpage displayed on the initial or home page.

(d) Disclosures in Correspondence. All correspondence sent to a mortgage applicant must include:

(1) the mortgage company' s name and NMLS ID; and

(2) the mortgage company' s website address, if it has a website.

History

• Source Note: The provisions of this §56.200 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.201 Conditional Pre-Qualification and Conditional Approval Letters

(a) Conditional Pre-Qualification Letter. Except as provided by subsection (c) of this section, when provided to a mortgage applicant or prospective mortgage applicant, written confirmation of conditional pre-qualification (conditional pre-qualification letter) must include the information in Form A, Figure: 7 TAC §56.201(a). The information must be provided using Form A or an alternate form approved by the mortgage company that includes all of the information found on Form A. There is no requirement to issue a conditional pre-qualification letter. Form A or an alternate form may be modified by adding any of the following as needed:

Attached Graphic

(1) Any additional aspects of the loan as long as not misleading;

(2) Any additional items that the originator has reviewed in determining conditional qualifications; or

(3) Any additional terms, conditions, and requirements.

(b) Conditional Approval Letter. When provided to a mortgage applicant or prospective mortgage applicant, written notification of conditional loan approval on the basis of credit worthiness, but not on the basis of collateral (conditional approval letter), must include the information in Form B, Figure: 7 TAC §56.201(b). The information must be provided using Form B or an alternate form approved by the mortgage company that includes all of the information found on Form B. There is no requirement to issue a conditional approval letter. Form B or an alternate form may be modified by adding the additional information permitted by subsection (a)(1) - (3) of this section, or a disclosure of fees charged. A disclosure of fees charged, on Form B or an alternate form, does not serve as a substitute for any fee disclosure required by state or federal laws or regulations. A conditional approval letter must not be issued unless the mortgage company or its sponsored originator has verified that, absent any material changes prior to closing, the mortgage applicant or prospective mortgage applicant has satisfied all loan requirements related to credit, income, assets, and debts. Verification may be conducted manually or by electronic means.

Attached Graphic

(c) Firm Offers of Credit. Subsection (a) of this section does not apply to "firm offers of credit," as that term is defined by 15 U.S.C. §1681a(l).

(d) Issuance by the Originator. A conditional pre-qualification letter or conditional approval letter must be issued and signed by the mortgage company's sponsored originator acting on behalf of the mortgage company to originate the prospective residential mortgage loan.

History

• Source Note: The provisions of this §56.201 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.202 Fraudulent, Misleading, or Deceptive Practices and Improper Dealings

(a) Fraudulent, Misleading, or Deceptive Practices. The following conduct by a mortgage company or its sponsored originators constitutes fraudulent and dishonest dealings for purposes of Finance Code §156.303(a)(3):

(1) knowingly misrepresenting the mortgage company's or sponsored originator's relationship to a mortgage applicant or any other party to a residential mortgage loan transaction or prospective residential mortgage loan transaction;

(2) knowingly misrepresenting or understating any cost, fee, interest rate, or other expense to a mortgage applicant or prospective mortgage applicant in connection with a residential mortgage loan;

(3) knowingly overstating, inflating, altering, amending, or disparaging any source or potential source of residential mortgage loan funds in a manner which disregards the truth or makes any knowing and material misstatement or omission;

(4) knowingly misrepresenting the lien position of a residential mortgage loan or prospective residential mortgage loan;

(5) knowingly participating in or permitting the submission of false or misleading information of a material nature to any person in connection with a decision by that person whether to make or acquire a residential mortgage loan;

(6) as provided by Regulation X (12 C.F.R. §1024.14), brokering, arranging, or making a residential mortgage loan for which the mortgage company or sponsored originator receives compensation for services not actually performed or where the compensation received bears no reasonable relationship to the value of the services actually performed;

(7) recommending or encouraging default or delinquency or the continuation of an existing default or delinquency by a mortgage applicant on any existing indebtedness prior to closing a residential mortgage loan which refinances all or a portion of such existing indebtedness;

(8) altering any document produced or issued by SML, unless otherwise permitted by statute or a rule of SML;

(9) using a trigger lead in a misleading or deceptive manner by, among other things:

(A) failing to state in the initial communication with the consumer:

(i) the mortgage company's name;

(ii) a brief explanation of how the mortgage company obtained the consumer's contact information to make the communication (i.e., an explanation of trigger leads);

(iii) that the mortgage company is not affiliated with the creditor to which the consumer made the credit application that resulted in the trigger lead; and

(iv) that the purpose of the communication is to solicit new business for the mortgage company;

(B) contacting a consumer who has opted out of prescreened offers of credit under the federal Fair Credit Reporting Act (FCRA; 12 U.S.C. §1681b(e)); or

(C) failing in the initial communication with the consumer to make a firm offer of credit as provided by the FCRA (12 U.S.C. §1681a(l) and §1681b(c)); or

(10) engaging in any other practice which the Commissioner, by published interpretation, has determined is fraudulent, misleading, or deceptive.

(b) Improper or Unfair Dealings. The following conduct by a mortgage company or its sponsored originators constitutes improper dealings for purposes of Finance Code §156.303(a)(3):

(1) acting negligently in performing an act requiring a license under Finance Code Chapters 156, 157, or 180;

(2) violating any provision of a local, State of Texas, or federal constitution, statute, rule, ordinance, regulation, or final court decision that governs the same or a closely related activity, transaction, or subject matter that is governed by the provisions of Finance Code Chapters 156, 157, or 180, including, but not limited to:

(A) Consumer Credit Protection Act, Equal Credit Opportunity Act (15 U.S.C. §1691 et seq.) and Regulation B (12 C.F.R. §1002.1 et seq.);

(B) Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. §5101 et seq.) and Regulation H (12 C.F.R. §1008.1 et seq.);

(C) Regulation N (12 C.F.R. §1014.1 et seq.);

(D) Gramm-Leach-Bliley Act (GLBA; 15 U.S.C. §6801 et seq.), Regulation P (12 C.F.R. §1016.1 et seq.), and the Federal Trade Commission's (FTC) Privacy of Consumer Financial Information rules (16 C.F.R. §313.1 et seq.);

(E) Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) and Regulation V (12 C.F.R. §1022.1 et seq.);

(F) Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and Regulation X (12 C.F.R. §1024.1 et seq.);

(G) Consumer Credit Protection Act, Truth in Lending Act (15 U.S.C. §1601 et seq.) and Regulation Z (12 C.F.R. §1026.1 et seq.);

(H) the FTC's Standards for Safeguarding Customer Information rule (16 C.F.R. §314.1 et seq.);

(I) Finance Code Chapter 159 and Chapter 59 of this title; and

(J) Texas Constitution, Article XVI, §50 and Chapter 153 of this title;

(3) soliciting by phone a consumer who has placed his or her contact information on the national do-not-call registry maintained by the Federal Trade Commission (FTC), unless otherwise allowable under the FTC's Telemarketing Sales Rule (16 C.F.R. §310.4(b)(iii)(B));

(4) Issuing a conditional pre-qualification letter or conditional approval letter under §56.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters) that does not comply with the required form for the letter or is inaccurate, erroneous, or negligently-issued;

(5) representing to a mortgage applicant that a charge or fee which is payable to the mortgage company or sponsored originator is a "discount point" or otherwise benefits the mortgage applicant unless the loan closes and:

(A) the mortgage company is making the residential mortgage loan (lender); or

(B) the mortgage company is not the lender but demonstrates by clear and convincing evidence that the lender has charged or collected discount points or other fees which the mortgage company actually paid to the lender on behalf of the mortgage applicant to buy down the interest rate on the residential mortgage loan;

(6) failing to accurately respond within a reasonable time period to reasonable questions from a mortgage applicant concerning the scope and nature of the mortgage company's services and any costs;

(7) Allowing a licensed originator to act on behalf of the mortgage company when the originator is not sponsored by the mortgage company or otherwise holds his or her license in an inactive status; or

(8) using the services of a mortgage company or mortgage banker to provide loan processing services when the mortgage company or mortgage banker providing the services holds its license or registration in an inactive status.

(c) Related Transactions. A mortgage company engages in fraudulent and dishonest dealings for purposes of Finance Code §156.303(a)(3) when, in connection with the origination of a residential mortgage loan:

(1) the mortgage company or sponsored originator:

(A) offers other goods or services to a mortgage applicant in a separate but related transaction; and

(B) the mortgage company or sponsored originator engages in fraudulent, misleading, or deceptive acts in the related transaction; or

(2) the mortgage company or sponsored originator:

(A) affiliates with another person that provides goods or services to a mortgage applicant in a separate but related transaction;

(B) the affiliated person engages in fraudulent, misleading, or deceptive acts in that transaction;

(C) the mortgage company or sponsored originator knew or should have known of the fraudulent, misleading, or deceptive acts of the affiliated person; and

(D) the mortgage company or sponsored originator failed to take appropriate steps to prevent or limit the fraudulent, misleading, or deceptive acts.

(d) Sharing or Splitting Origination Fees with the Mortgage Applicant. A mortgage company and its sponsored originators must not offer or agree to share or split any residential mortgage loan origination fees with a mortgage applicant, rebate all or part of an origination fee to a mortgage applicant, reduce their established compensation to benefit a mortgage applicant, or otherwise provide money, a cash equivalent, or anything of value to a mortgage applicant in connection with providing residential mortgage loan origination services unless otherwise allowable under Regulation X (12 C.F.R. §1024.14) and Regulation Z (12 C.F.R. §1026.36(d)). A sponsored originator acting in the dual capacity of an originator and real estate broker or sales agent licensed under Occupations Code Chapter 1101 may rebate their fees legitimately earned and derived from their real estate brokerage or sales agent services to the extent allowable under applicable law governing real estate brokers or sales agents; provided, the payment or other transfer described by this subsection occurs as a part of closing and is properly reflected in the closing disclosure. If a payment or other transfer described by this subsection occurs after closing, a rebuttable presumption exists that the payment or transfer is derived from the originator's fees for residential mortgage loan origination services and constitutes an improper sharing or splitting of fees with the mortgage applicant. The rebuttable presumption may only be overcome by clear and convincing evidence established by the mortgage company or sponsored originator that the payment or transfer is instead derived from fees for real estate brokerage or sales agent services. A violation of this subsection is deemed to constitute improper dealings for purposes of Finance Code §156.303(a)(3).

History

• Source Note: The provisions of this §56.202 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.203 Advertising

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Advertisement" means a commercial message in any medium that promotes, directly or indirectly, a residential mortgage loan transaction or is otherwise designed to solicit residential mortgage loan origination business for the mortgage company or its sponsored originators. The term includes "flyers," business cards, or other handouts, and messages or posts made on a social media site. The term does not include:

(A) any advertisement which indirectly promotes a residential mortgage loan transaction and contains only the name of the mortgage company or sponsored originator and not any contact information with the exception of a website address, such as on cups, pens or pencils, shirts or other clothing (including company uniforms and sponsored youth league jerseys), or other promotional items of nominal value;

(B) any rate sheet, pricing sheet, or similar proprietary information provided to realtors, builders, and other commercial entities that is not intended for distribution to consumers; or

(C) signs located on or adjacent to the mortgage company's licensed office as provided by §56.206 of this title (relating to Office Locations; Remote Work).

(2) "Team logo" means a logo, symbol, or other graphic used to identify the group using a team name.

(3) "Team name" means a name other than the mortgage company's legal name or a properly registered assumed name typically used by a geographically or administratively distinct group of employees working for the mortgage company as a division or team within the larger organization (e.g., the employees of a branch office).

(b) Compliance with Federal Law. A mortgage company or sponsored originator that advertises rates, terms, or conditions must comply with the requirements of Regulation N (12 C.F.R. §1014.1 et seq.), and Regulation Z (12 C.F.R. §1026.24).

(c) Required Content. Except as provided by subsections (d) and (e) of this section, an advertisement must contain:

(1) the mortgage company's name and NMLS ID;

(2) the mortgage company's website address, if it has a website; and

(3) the sponsored originator's name and NMLS ID.

(d) Advertising Directly by a Mortgage Company. A mortgage company may advertise directly to the public and is not required to advertise through a sponsored originator. The requirements of subsection (c)(3) of this section do not apply to an advertisement made directly by a mortgage company.

(e) Advertising on Social Media Sites. If the mortgage company or sponsored originator advertises on a social media site, the requirements of subsection (c) of this section may be met by prominently displaying the required information on the home page, profile page, or similar, on such social media site so that the viewer can quickly discern the information without reviewing various historical content posted by the mortgage company or sponsored originator on the social media site.

(f) Use of Team Names and Team Logos. A mortgage company and its sponsored originators may use team names and team logos in advertisements if the following requirements are met:

(1) Team names and team logos are permitted for advertising purposes only. A team name or team logo may not be used to conduct residential mortgage loan origination business. For clarity, a team name or team logo may not appear on any documentation sent to the mortgage applicant in connection with a residential mortgage loan or on any documentation in the residential mortgage loan file a mortgage company is required to maintain under §56.204(c)(2) of this title (relating to Books and Records).

(2) The mortgage company's legal name or an assumed name of the mortgage company and its NMLS ID must be used with the team name or team logo, in substantially equivalent prominence, and must be connected with an explanatory word or phrase that clearly links the two (e.g., "(team name) of (mortgage company name and NMLS ID)" or "(team name) powered by (mortgage company name and NMLS ID")). The information must be presented in a manner that makes it readily apparent to the viewer what mortgage company is making the advertisement. The mortgage company may not obscure the information by, among other things, using graphics, shading, or coloration to deemphasize or mask the appearance of the mortgage company's name and NMLS ID. If the advertisement is made on a social media site, the requirements of this paragraph may be met by prominently displaying the information on the home page, profile page, or similar, on such social media site so that the viewer can quickly discern the information without reviewing various historical content posted by the mortgage company or sponsored originator on the social media site.

(3) If a team logo is used, it must be used with the team name, unless the team name is contained in the team logo, and if so, the team logo may be used without the team name.

History

• Source Note: The provisions of this §56.203 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.204 Books and Records

(a) Purpose and Applicability. This section clarifies and establishes requirements related to the books and records a mortgage company and its sponsored originators are required to keep under Finance Code §156.301. Subsection (c) of this section applies to a mortgage company and its sponsored originators in connection with the origination of residential mortgage loans. Subsection (d) of this section applies to a mortgage company and its sponsored originators in connection with the provision of third-party loan processing or underwriting services (including independent loan processor or underwriter companies).

(b) Maintenance of Records, Generally. In order to ensure a mortgage company and its sponsored originators have all records necessary to facilitate an inspection (including an examination) by SML of the mortgage company and its sponsored originators, enable SML to investigate complaints against a mortgage company or its sponsored originators, and otherwise ensure compliance with the requirements of Finance Code Chapter 156, and this chapter, a mortgage company and its sponsored originators must maintain records as prescribed by this section.

(1) Format. The records required by this section may be maintained using a physical, electronic, or digitally-imaged recordkeeping system, or a combination thereof. The records must be accurate, complete, current, legible, and readily accessible and sortable.

(2) Location. A mortgage company and its sponsored originators must ensure the records required by this section (or true and correct copies thereof) are maintained at or are otherwise readily accessible from either the main office of the mortgage company or the location the mortgage company has designated in its MU1 filing under "Books and Records Information" in NMLS. (For purposes of this section "main office" has the meaning assigned by §56.206 of this title (relating to Office Locations; Remote Work.)

(3) Production of Records; Disciplinary Action. All records required by this section must be maintained in good order and produced to SML upon request. Failure by a mortgage company or its sponsored originators to produce records upon request after a reasonable time for compliance may result in disciplinary action against the mortgage company or its sponsored originators, including, but not limited to, suspension or revocation of the mortgage company's or sponsored originator's license.

(4) Retention Period. All records required by this section must be maintained for 3 years or such longer period as may be required by other applicable law. If a mortgage company terminates operations, the mortgage company must, within 10 days after the date the mortgage company terminates operations, provide SML with written notice of where the records required by this section will be maintained for the required period. If such records are transferred to another mortgage company licensed by SML, the transferee must provide SML with written notice within 10 days after the date it receives such records.

(5) Maintenance by the Mortgage Company. A mortgage company is required to maintain records on behalf of the originators it sponsors in connection with work performed by the originator for that mortgage company.

(6) Conflicting Law. If the requirements of other applicable law governing recordkeeping by the mortgage company or its sponsored originators differ from the requirements of this section, such other applicable law prevails only to the extent this section conflicts with the requirements of this section.

(c) Required Records (Origination). A mortgage company and its sponsored originators must maintain the following items in connection with the origination of residential mortgage loans by the mortgage company:

(1) Mortgage Transaction Log. A mortgage transaction log maintained on a current basis (meaning all entries must be made within 7 days after the date on which the events they relate to occurred, and updated as the information changes) setting forth, at a minimum (the log may include additional information, provided, the information is readily sortable as required by subsection (b)(1) of this section):

(A) full name of each mortgage applicant (last name, first name);

(B) application/loan identification number assigned by the mortgage company;

(C) loan identification number assigned by the lender, if different than subparagraph (B) of this paragraph;

(D) date of the initial loan application;

(E) address of the subject property (street address, city, state, zip code);

(F) interest rate;

(G) description of the purpose for the loan (e.g., purchase, refinance, construction, home equity, home improvement, land lot loan, wrap mortgage loan, etc.);

(H) loan product (conventional, FHA, VA, reverse, etc.);

(I) full name of the lender that initially funded or acquired the loan and their NMLS ID, if applicable;

(J) full name of the originator who took the initial loan application and his or her NMLS ID;

(K) closing date;

(L) lien position (e.g., first lien, second lien, or wrap mortgage);

(M) description of the owner's or prospective owner's intended occupancy of the real estate secured or designed to be secured by the loan (e.g., primary residence (including real estate (land lot) or a dwelling not suitable for occupancy at the time the loan is consummated but that the owner intends to occupy as their primary residence after consummation of the loan), secondary residence, or investment property (no intent to occupy as their residence)); and

(N) description of the current status or disposition of the loan application (e.g., in-process, withdrawn, closed, or denied);

(2) Residential Mortgage Loan File. For each residential mortgage loan transaction or prospective residential mortgage loan transaction, a residential mortgage loan file containing, at a minimum:

(A) All Transactions. For all transactions, the following records:

(i) the initial and any final loan application (including any attachments, supplements, or addendum thereto), signed and dated by each mortgage applicant and the sponsored originator, and any other written or recorded information used in evaluating the application, as required by Regulation B (12 C.F.R. §1002.4(c));

(ii) the initial and any revised good faith estimate (Regulation X, 12 C.F.R. §1024.7), integrated loan estimate disclosure (Regulation Z, 12 C.F.R. §1026.37), or similar, provided to the mortgage applicant;

(iii) the final settlement statement (Regulation X, 12 C.F.R §1024.8), closing statement, or integrated closing disclosure (Regulation Z, 12 C.F.R. §1026.19(f) and §1026.38);

(iv) the disclosure required by Finance Code §156.004 and §56.200(b) of this title (relating to Required Disclosures), and records reflecting timely delivery of the disclosure to the mortgage applicant;

(v) if provided to a mortgage applicant or prospective mortgage applicant, the conditional pre-qualification letter, or similar, as specified by Finance Code §156.105 and §56.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters);

(vi) if provided to a mortgage applicant or prospective mortgage applicant, the conditional approval letter, or similar, as specified by Finance Code §156.105 and §56.201 of this title;

(vii) each item of correspondence, all evidence of any contractual agreement or understanding, and all notes and memoranda of conversations or meetings with a mortgage applicant or any other party in connection with the loan application or its ultimate disposition (e.g., fee agreements, rate lock agreements, or similar documents);

(viii) if the loan is a "home loan" as defined by Finance Code §343.001, the notice of penalties for making a false or misleading written statement required by Finance Code §343.105, signed at closing by each mortgage applicant;

(ix) if the transaction is a purchase money or wrap mortgage loan transaction, the real estate sales contract or real estate purchase agreement for the sale of the residential real estate;

(x) consumer reports or credit reports obtained in connection with the residential mortgage loan or prospective residential mortgage loan, and if a fee is paid by or imposed on the mortgage applicant for such consumer report or credit report, invoices and proof of payment for the purchase of the consumer report or credit report;

(xi) appraisal reports or written valuation reports used to determine the value of the residential real estate secured or designed to be secured by the loan, and if a fee is paid by or imposed on the mortgage applicant for such appraisal report or written valuation report, invoices and proof of payment for the appraisal report or written valuation report;

(xii) invoices and proof of payment for any third-party fees paid by or imposed on the mortgage applicant;

(xiii) refund checks issued to the mortgage applicant;

(xiv) if applicable, the risk-based pricing notice required by Regulation V (12 C.F.R. §1022.72);

(xv) if applicable, invoices for independent loan processors or underwriters;

(xvi) if the mortgage company or sponsored originator acts in a dual capacity as the loan originator and real estate broker, sales agent, or attorney in the transaction, the disclosure of multiple roles in a consumer real estate transaction, signed and dated by each mortgage applicant, as required by Finance Code §156.303(a)(13) and §157.024(a)(10);

(xvii) the initial privacy notice required by Regulation P (12 C.F.R. §1016.4) or the Federal Trade Commission's Privacy of Consumer Financial Information rules (16 C.F.R. §313.4);

(xviii) the mortgage applicant's written authorization to receive electronic documents, as required by the E-Sign Act and Regulation Z (12 C.F.R. §1026.17(a)(1));

(xix) records reflecting compensation paid to employees or independent contractors in connection with the transaction;

(xx) any other agreements, notices, disclosures, or affidavits required by federal or state law in connection with the transaction; and

(xxi) any written agreements or other records governing the origination of the residential mortgage loan or prospective residential mortgage loan;

(B) Lender Transactions. For transactions where the mortgage company made the loan (lender), the following records:

(i) the promissory note, loan agreement, or repayment agreement, signed by the borrower (mortgage applicant);

(ii) the recorded deed of trust, contract, security deed, security instrument, or other lien transfer document, signed by the borrower (mortgage applicant);

(iii) any verifications of income, employment, or deposits obtained in connection with the loan;

(iv) copies of any title insurance policies with endorsements or title search reports obtained in connection with the loan, and if a fee is paid by or imposed on the mortgage applicant for such title insurance policies or title search reports, invoices and proof of payment for the title insurance policy or title search report; and

(v) if applicable, the flood determination certificate obtained in connection with the loan, and if a fee is paid by or imposed on the mortgage applicant for such flood certificate, invoices and proof of payment for the flood determination certificate;

(C) Truth in Lending Act (TILA). For transactions that are subject to the requirements of TILA (15 U.S.C. §1601 et seq.) and Regulation Z (12 C.F.R. §1026.1 et seq.), the following records:

(i) the initial Truth-in-Lending statement for home equity line of credit and reverse mortgage transactions required by Regulation Z (12 C.F.R. §1026.19);

(ii) if the transaction is an adjustable rate mortgage transaction, the adjustable rate mortgage program disclosures;

(iii) records relating to the mortgage applicant's ability to repay the loan, as required by Regulation Z (12 C.F.R. §1026.43(c));

(iv) if the mortgage applicant is permitted to shop for a settlement service, the written list of providers required by Regulation Z (12 C.F.R. §1026.19(e)(1)(vi)(C));

(v) the notice of intent to proceed with the transaction required by Regulation Z (12 C.F.R. §1026.19(e)(2)(i)(A));

(vi) if applicable, records related to a changed circumstance required by Regulation Z (12 C.F.R. §1026.19(e)(3)(iv));

(vii) the notice of right to rescission required by Regulation Z (12 C.F.R. §1026.15 or §1026.23);

(viii) for high-cost mortgage loans, the disclosures required by Regulation Z (12 C.F.R. §1026.32(c));

(ix) for high-cost mortgage loans, the certification of counseling required by Regulation Z (12 C.F.R. §1026.34(a)(5)(i));

(x) for home equity line of credit transactions:

(I) the account-opening disclosure required by Regulation Z (12 C.F.R. §1026.6(a));

(II) the early disclosure statement required by Regulation Z (12 C.F.R. §1026.40(d));

(III) the Home Equity Line of Credit Brochure required by Regulation Z (12 C.F.R. §1026.40(e)); and

(xi) any other notice or disclosure required by TILA or Regulation Z;

(D) Real Estate Settlement Procedures Act (RESPA). For transactions that are subject to the requirements of RESPA (12 U.S.C. §2601 et seq.) and Regulation X (12 C.F.R. §1024.1 et seq.), the following records:

(i) records reflecting delivery of the special information booklet required by Regulation X (12 C.F.R. §1024.6);

(ii) any affiliated business arrangement disclosure statement provided to the mortgage applicant in accordance with Regulation X (12 C.F.R. §1024.15);

(iii) records reflecting delivery of the list of homeownership counseling organizations required by Regulation X (12 C.F.R. §1024.20); and

(iv) any other notice or disclosure required by RESPA or Regulation X;

(E) Equal Credit Opportunity Act - Transactions Not Resulting in Approval. For residential mortgage loan applications where a notice of incompleteness is issued, a counteroffer is made, or adverse action is taken, as provided by Regulation B (12 C.F.R. §1002.1 et seq.), the following records, as applicable:

(i) the notice of incompleteness required by Regulation B (12 C.F.R. §1002.9(c)(2));

(ii) the counteroffer letter sent to the mortgage applicant in accordance with Regulation B (12 C.F.R. §1002.9); and

(iii) the adverse action notification (a/k/a turndown letter) required by Regulation B (12 C.F.R. §1002.9(a));

(F) Home Equity Transactions. For home equity loan transactions or home equity line of credit transactions, the following records (references in this subparagraph to Section 50 refer to Article XVI, Section 50, Texas Constitution; see also subparagraph (C)(x) of this paragraph):

(i) the preclosing disclosures required by Section 50(a)(6)(M)(ii) and §153.13 of this title (relating to Preclosing Disclosures: Section 50(a)(6)(M)(ii); as provided by such section, the closing disclosure or account-opening disclosures required by Regulation Z fulfills this requirement);

(ii) the consumer disclosure required by Section 50(g) and §153.51 of this tile (relating to Consumer Disclosure: Section 50(g));

(iii) if an attorney-in-fact executes the closing documents on behalf of the owner or owner's spouse, a copy of the executed power of attorney and any other documents evidencing execution of such power of attorney at the permanent physical address of an office of the lender, an attorney at law, or a title company, as required by §153.15 of this title (relating to Location of Closing: Section 50(a)(6)(N));

(iv) if the borrower (mortgage applicant) uses the proceeds of the loan to pay off a non-homestead debt with the same lender, a written statement, signed by the mortgage applicant, indicating the proceeds of the home equity loan were voluntarily used to pay such debt (see Section 50(a)(6)(Q)(i));

(v) notice of the right of rescission, as required by Section 50(a)(6)(Q)(viii) (as provided by §153.25 of this title (relating to Right of Rescission: Section 50(a)(6)(Q)(viii)), the notice of right of rescission required by TILA and Regulation Z fulfills this requirement);

(vi) the written acknowledgement as to the fair market value of the homestead property, as required by Section 50(a)(6)(Q)(ix) and §153.26 of this title (relating to Acknowledgement of Fair Market Value: Section 50(a)(6)(Q)(ix));

(vii) any discount point acknowledgement form used by the lender to substantiate that the discount points are bona fide as required by §153.5 of this title (relating to Two Percent Fee Limitation: Section 50(a)(6)(E));

(viii) the Texas Home Equity Affidavit and Agreement (Fannie Mae Form 3185), or similar;

(ix) for home equity line of credit transactions, the Texas Home Equity Line of Credit Agreement or repayment agreement;

(x) if the home equity loan is refinanced into a non-home equity loan, the Texas Notice Concerning Refinance of Existing Home Equity to Non-Home Equity Loan, as required by Section 50(f)(2)(D) and §153.45 of this title (relating to Refinance of an Equity Loan: Section 50(f));

(G) Wrap Mortgage Loans. For wrap mortgage loan transactions subject to the requirements of Finance Code Chapter 159, the following records:

(i) the disclosure statement required by Finance Code §159.101 and §78.101 of this title (relating to Required Disclosure), signed and dated by each mortgage applicant, and any foreign language disclosure statement required by Finance Code §159.102;

(ii) the disclosure statement required by Property Code §5.016, provided to each existing lienholder (the disclosure statement required by Finance Code §159.101 and §78.101 of this title (relating to Required Disclosure) referenced in clause (i) of this subparagraph fulfills this requirement if it was provided to each existing lienholder); and

(iii) documents evidencing that the wrap mortgage loan was closed by an attorney or a title company, as required by Finance Code §159.105;

(H) Home Improvement Loans. For home improvement transactions (including repair, renovation, and new construction), the following records:

(i) the mechanic's lien contract;

(ii) documents evidencing the transfer of lien from the contractor to the lender;

(iii) the residential construction contract;

(iv) notice of the right of rescission required by Section 50(a)(5)(C) (the notice of right of rescission required by TILA and Regulation Z fulfills this requirement); and

(v) any other notice or disclosure required by Texas Property Code Chapter 53;

(I) Reverse Mortgages. For reverse mortgage transactions, the following records:

(i) the disclosure required by Section 50(k)(9);

(ii) the certificate of counseling required by Section 50(k)(8);

(iii) the servicing disclosure statement required by Regulation X (12 C.F.R. §1024.33(a));

(iv) the disclosures required by Regulation Z (12 C.F.R. §1026.33(b)); and

(v) any other notice or disclosure required by federal or state law to originate a reverse mortgage.

(d) Required Records (Loan Processing and Underwriting). A mortgage company and its sponsored originators must maintain the following items in connection with the provision of third-party loan processing and underwriting services by the mortgage company to a mortgage company licensed by SML or a mortgage banker registered with SML: Loan Processing and Underwriting Log. A loan processing and underwriting log, maintained on a current basis (meaning all entries must be made within 7 days after the date on which the events they relate to occurred and updated as the information changes) that sets forth, at a minimum (the log may include additional information, provided, the information is readily sortable as required by subsection (b)(1) of this section):

(1) full name of each mortgage applicant (last name, first name);

(2) application/loan identification number assigned by the mortgage company;

(3) application/loan identification number assigned by the mortgage company or mortgage banker to which the mortgage company is providing loan processing or underwriting services, if different than paragraph (2) of this subsection;

(4) loan identification number assigned by the lender, if different than paragraphs (2) or (3) of this subsection;

(5) address of the subject property (street address, city, state, zip code);

(6) full name and NMLS ID of the mortgage company or mortgage banker to which the mortgage company is providing loan processing or underwriting services;

(7) the name, NMLS ID, and employment status (e.g., W-2 or 1099) of each individual loan processor or underwriter performing loan processing or underwriting services on behalf of the mortgage company;

(8) closing date;

(9) description of the owner's or prospective owner's intended occupancy of the real estate secured or designed to be secured by the loan (e.g., primary residence (including real estate (land lot) or a dwelling not suitable for occupancy at the time the loan is consummated but that the owner intends to occupy as their primary residence after consummation of the loan), secondary residence, or investment property (no intent to occupy as their residence));

(10) description of the current status or disposition of the loan application (e.g., in-process, withdrawn, closed, or denied);

(11) dollar amount invoiced, assessed, charged, collected, and/or paid by the mortgage applicant for the loan processing or underwriting services provided by the mortgage company; and

(12) description of whether the fee for the loan processing or underwriting services was included on the Closing Disclosure as a fee paid directly to the mortgage company at closing (e.g., on CD, or not on CD).

(e) Other Records Required by Federal Law. A mortgage company and its sponsored originators must maintain such other books and records as may be required to evidence compliance with applicable federal laws and regulations, including, but not limited to:

(1) the Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) and Regulation V (12 C.F.R. §1022.1 et seq.);

(2) the Gramm-Leach-Bliley Act (15 U.S.C. §6801 et seq.) and Regulation P (12 C.F.R. §1016.1 et seq.), and the Federal Trade Commission's (FTC) Privacy of Consumer Financial Information rules (16 C.F.R. §313.1 et seq.);

(3) the Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. §5101 et seq.) and Regulation H (12 C.F.R. §1008.1 et seq.);

(4) Regulation N (12 C.F.R. §1014.1 et seq.), and

(5) the FTC's Standards for Safeguarding Customer Information rule (16 C.F.R. §314.1 et. Seq.)

(f) General Business Records. A mortgage company and its sponsored originators must capture and maintain the following records generated in the normal course of doing business:

(1) all checkbooks, check registers, bank statements, deposit slips, withdrawal slips, and cancelled checks (or copies thereof) relating to residential mortgage loan origination business;

(2) complete records (including invoices and supporting documentation) for all expenses and fees paid on behalf of a mortgage applicant, including a record of the date and amount of all such payments actually made by each mortgage applicant;

(3) all federal tax withholding forms, reports of income for federal taxation, and evidence of payments to all mortgage company employees, independent contractors and all others compensated by the mortgage company in connection with residential mortgage loan origination business;

(4) all written complaints or inquiries (or summaries of any verbal complaints or inquiries) along with any correspondence, notes, responses, and documentation relating thereto and the disposition thereof;

(5) all contractual agreements or understandings with third parties in any way relating to a residential mortgage loan transaction including, but not limited to, any delegations of underwriting authority, any agreements for pricing of goods or services, investor contracts, or employment agreements;

(6) all reports of audits, examinations, inspections, reviews, investigations, or similar, performed by any third party, including any regulatory or supervisory authorities;

(7) all advertisements in the medium (e.g., recorded audio, video, Internet or social media site posting, or print) in which they were published or distributed; and

(8) policies and procedures related to the origination of residential mortgage loans by the mortgage company and its sponsored originators, including, but not limited to:

(A) identity theft prevention program (red flags rule; 16 C.F.R. §681.1(d));

(B) anti-money laundering program (31 C.F.R. §1029.210);

(C) information security program (16 C.F.R. §314.3(a));

(D) ability-to-repay underwriting policies, if any, under Regulation Z (12 C.F.R. §1026.43(c));

(E) quality control policy, if any;

(F) compliance manual, if any; and

(G) personnel administration/employee policies, if any;

(g) Records Concerning Administrative Offices. A mortgage company must maintain a list reflecting any office constituting an "administrative office" of the mortgage company for purposes of §56.206 of this title (relating to Office Locations; Remote Work);

(h) Records Concerning Remote Work. A mortgage company must maintain records reflecting its compliance with the requirements for remote work, as provided by §56.206 of this title;

(i) Records Concerning Corrective Action. A mortgage company must maintain records showing compliance with §56.304 of this title (relating to Corrective Action);

(j) Records Concerning Unclaimed Funds. A mortgage company must maintain records showing compliance with §56.305 of this title (relating to Unclaimed Funds); and

(k) Other Records Designated by SML. A mortgage company and its sponsored originators must maintain such other books and records as SML may, from time to time, specify in writing.

History

• Source Note: The provisions of this §56.204 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.205 Mortgage Call Reports

(a) Purpose. This section clarifies and establishes requirements related to the mortgage call reports a mortgage company is required to file under Finance Code §156.213.

(b) NMLS Filing Requirements. Mortgage call reports must be filed in NMLS by the deadlines established by NMLS. The mortgage call report must be filed using the current form prescribed by NMLS. Information about how to file the mortgage call report and applicable filing deadlines is available on the NMLS Resource Center website (nationwidelicensingsystem.org).

(c) Components. The mortgage call report consists of three components, all of which must be completed:

(1) Residential Mortgage Loan Activity (RMLA);

(2) State-Specific Supplemental Form (SSSF); and

(3) Statement of Financial Condition.

(d) Partial Reporting Periods; Periods of Inactivity. A mortgage call report must be filed for all reporting periods during which the mortgage company is licensed, including partial periods, and periods during which the mortgage company has no reportable activity.

(e) Extensions of Time. The Commissioner, in his or her sole discretion, may grant an extension of time to file the mortgage call report. A request for an extension of time must be made in writing and approved by the Commissioner.

(f) Duty to File Complete and Accurate Reports. The mortgage call report must contain complete and accurate information at the time it is filed. A mortgage call report containing incomplete or inaccurate information is deemed to be a failure to file the report. A mortgage company must act diligently to compile the information necessary to complete the mortgage call report in advance of the deadline to file the mortgage call report. For clarity, the filing of incomplete or inaccurate information, even on a temporary basis with the intent to amend the filing with complete and accurate information, constitutes a violation of Finance Code §156.213, and this section, and may result in disciplinary action as described by subsection (g) of this section.

(g) Failure to File; Disciplinary Action. Failure to file a mortgage call report may result in disciplinary action, including, but not limited to, denial, suspension, or revocation of the license, or the imposition of an administrative penalty.

History

• Source Note: The provisions of this §56.205 adopted to be effective January 1, 2026, 49 TexReg 9206.

7 Tex. Admin. Code § 56.206 Office Locations; Remote Work

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Administrative office" means any office of a mortgage company that is separate and distinct from its main office or a branch office, whether located in Texas or not, at which the mortgage company conducts residential mortgage loan business in Texas. The term does not include a "remote location" as defined by this section. The term includes:

(A) an office or location at which the employees of the mortgage company act solely in the capacity of a "loan processor or underwriter," as that term is defined by Finance Code §180.002;

(B) an office or location at which the employees of the mortgage company perform solely administrative or clerical tasks on behalf of an individual licensed as an originator, as provided by Finance Code §180.002(19)(B)(i); or

(C) an office or location which conducts any combination of activities described by subparagraphs (A) or (B) of this paragraph.

(2) "Branch office" means any office a mortgage company maintains that is separate and distinct from its main office, whether located in Texas or not, at which it conducts residential mortgage loan origination business with mortgage applicants or prospective mortgage applicants in Texas or concerning residential real estate located in Texas. The term does not include:

(A) an office or location at which the employees of the mortgage company act solely in the capacity of a "loan processor or underwriter," as that term is defined by Finance Code §180.002;

(B) an office or location at which the employees of the mortgage company perform solely administrative or clerical tasks on behalf of an individual licensed as an originator, as provided by Finance Code §180.002(19)(B)(i);

(C) an office or location which conducts any combination of the activities described by subparagraphs (A) and (B) of this paragraph; or

(D) a "remote location" as defined by this section.

(3) "Licensed office" means a physical office of the mortgage company that is licensed by SML as its main office or a branch office.

(4) "Main office" means the office the mortgage company has listed in its NMLS license records (MU1 filing) as its "main address" (principal address) under "identifying information," and is therefore licensed by SML through the mortgage company's license.

(5) "Remote location" means a location other than a licensed office or an administrative office of the mortgage company from which the employees or sponsored originators of the mortgage company conduct residential mortgage loan business as provided by subsection (c) of this section.

(b) Office Requirements. A mortgage company must obtain a license for any office constituting the main office or a branch office of the mortgage company. A mortgage company must also obtain a license for any office or location it advertises or promotes to the general public as an office or location at which the mortgage company's sponsored originators meet in-person with mortgage applicants or prospective mortgage applicants. A licensed office must be a physical office and have a permanent physical or street address (a post office box or other similar arrangement is not sufficient). The main office or a branch office must be established by the mortgage company. A sponsored originator cannot establish his or her own office other than an office or location from which he or she performs remote work as provided by subsection (c) of this section. A branch office must be licensed by SML prior to conducting operations. A mortgage company must amend its MU3 filing to surrender the branch office license within 10 days after the date the branch office closes.

(c) Authorization for Remote Work. The employees of a mortgage company and its sponsored originators may conduct business and work from a remote location to the same extent as if such employees or originators were physically present at a licensed office of the mortgage company; provided, the mortgage company:

(1) maintains appropriate safeguards for the mortgage company and its consumer data, information, and records, including the use of secure virtual private networks and data storage encryption (including cloud storage) where appropriate;

(2) employs appropriate risk-based monitoring and oversight processes for work performed from a remote location and maintains records of those processes;

(3) ensures that physical records containing consumer information are not maintained at a remote location (as defined by this section) and any electronic records containing consumer information located at or accessible from the remote location are secured;

(4) ensures that consumer information and records of the mortgage company, including written procedures and training for work from remote locations authorized under this section, are accessible and available to SML on request;

(5) provides appropriate training to its employees and sponsored originators to ensure that remote employees or sponsored originators work in an environment conducive and appropriate to consumer privacy; and

(6) adopts, maintains, and follows written procedures to ensure that:

(A) the mortgage company and its employees and sponsored originators comply with this section; and

(B) the employees and sponsored originators do not perform an activity from a remote location that would be prohibited at a licensed office or administrative office of the mortgage company.

History

• Source Note: The provisions of this §56.206 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.210 Reportable Incidents

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Catastrophic event" means an event, other than a security event, that is unforeseen and results in extraordinary levels of damage or disruption to operations (e.g., the destruction of a principal office or data center).

(2) "Reportable incident" means an incident or situation that presents a material risk, financial or otherwise, to a mortgage company's operations or its customers. A reportable incident includes the following items, provided, it presents a material risk:

(A) a "catastrophic event" as defined by this subsection; or

(B) a "security event" as defined by this subsection.

(3) "Root cause analysis report" means a written report concerning the results or findings of an audit or investigation to determine the origin or root cause of a security event, identify strategic measures to effectively contain and limit the impact of a security event, and to prevent a future security event.

(4) "Security event" means an event resulting in unauthorized access to, or disruption or misuse of, an information system, information stored on such information system, or customer information held in physical form. It includes information that is encrypted, if the person with unauthorized access to the information can decrypt the data.

(b) Incident Report. Except as provided by subsection (c) of this section, a mortgage company must submit a written report to SML concerning any reportable incident within 30 days after the date the mortgage company becomes aware of the reportable incident. The report must include:

(1) a detailed description of the nature and circumstances of the reportable incident;

(2) the number of Texas residents affected or potentially affected by the reportable incident;

(3) the measures taken by the mortgage company to resolve or address the reportable incident;

(4) the measures the mortgage company plans to take to resolve or address the reportable incident; and

(5) the point of contact designated by the mortgage company for inquires by SML about the reportable incident.

(c) Incidents Reported to Other Agencies. A mortgage company must provide SML with a copy of the following notifications sent to other agencies at the time it makes the notification. Except as provided by subsection (d) of this section, a notification provided to SML under this subsection satisfies the requirement to file a report under subsection (b) of this section:

(1) the notification to the Federal Trade Commission (FTC) required by Section 314.4(j) of the FTC's Standards for Safeguarding Customer Information rules (16 C.F.R. §314.4(j)); and

(2) the notification to the Office of the Attorney General of Texas required by Business and Commerce Code §521.053(i).

(d) Root Cause Analysis for Security Events. For any security event triggering a notification described by subsection (c) of this section, the mortgage company must provide SML with a root cause analysis report within 120 days after the date the mortgage company becomes aware that the security event occurred.

(e) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation related to a reportable incident as SML deems necessary or appropriate.

(f) Confidentiality. Information reported under this section is deemed to be confidential information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §156.301 and §56.302 of this title (relating to Confidentiality of Examination, Investigation, and Inspection Information).

History

• Source Note: The provisions of this §56.210 adopted to be effective November 23, 2024, 49 TexReg 9206.

Subchapter D SUPERVISION AND ENFORCEMENT

7 Tex. Admin. Code § 56.300 Examinations

(a) Purpose. This section clarifies and establishes requirements related to examinations of a mortgage company and its sponsored originators conducted by SML under Finance Code §156.301.

(b) State Examination System (SES). Examinations are conducted in SES (stateexaminationsystem.org). A mortgage company must use SES to facilitate the examination.

(c) Examinations by Other State Agencies. SML may participate in, leverage, or accept an examination conducted by another state agency or regulatory authority if that state agency's or regulatory authority's mortgage regulation program is accredited by the Conference of State Bank Supervisors.

(d) Notice of Examination. Except when SML determines that giving advance notice would impair the examination, SML will give the primary contact person of the mortgage company listed in NMLS or a person designated by the primary contact person advance notice of each examination. Such notice will be sent to the primary contact person's or designated person's mailing address or email address of record with NMLS and will specify the date on which SML's examiners are scheduled to begin the examination. Failure to receive the notice will not be grounds for delay or postponement of the examination. The notice will include a list of the documents and records that must be produced or made available to facilitate the examination.

(e) Examination Scope. Examinations will be conducted to determine compliance with Finance Code Chapters 156, 157, and 180, and this chapter, and will specifically address whether:

(1) all persons are properly licensed and sponsored;

(2) all office locations are properly licensed, as provided by §56.206 of this title (relating to Office Locations; Remote Work);

(3) all required books and records are being maintained in accordance with §56.204 of this title (relating to Books and Records);

(4) legal and regulatory requirements applicable to the mortgage company and its sponsored originators are being properly followed (including, but not limited to, the requirements described in §56.202(b)(2) of this title (relating to Fraudulent, Misleading, or Deceptive Practices and Improper Dealings)); and

(5) other matters as SML and its examiners deem necessary or advisable to carry out the purposes of Finance Code Chapters 156, 157, and 180.

(f) Loan Sample. The examiners will review a sample of residential mortgage loan files identified by the examiners from the mortgage company's mortgage transaction log required by §56.204(c)(1) of this title or the loan processing or underwriting log required by §56.204(d) of this title. The examiner may expand the number of files to be reviewed if, in his or her discretion, conditions warrant.

(g) Failure to Cooperate; Disciplinary Action. Failure by a mortgage company or sponsored originator to cooperate with the examination or failure to grant the examiners access to books, records, documents, operations, and facilities may result in disciplinary action including, but not limited to, imposition of an administrative penalty.

(h) Reimbursement for Costs. The examiners may require a mortgage company, at its own cost, to make copies of loan files or such other books and records as the examiners deem appropriate. When SML must travel outside of Texas to conduct an examination of a mortgage company or its sponsored originators because the required records are maintained at a location outside of Texas, SML will require reimbursement for the actual costs incurred in connection with such travel including, but not limited to, transportation, lodging, meals, communications, courier service and any other reasonably related costs. Costs assessed under this subsection will be invoiced in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §56.300 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.301 Investigations

(a) Purpose. This section clarifies and establishes requirements related to investigations of a mortgage company and its sponsored originators conducted by SML under Finance Code §156.301.

(b) Reasonable Cause. SML will conduct an investigation if it has reasonable cause to do so. Reasonable cause is deemed to exist if SML receives or discovers information from a source SML has no reason to believe is other than credible indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The absence of reasonable cause to initiate an investigation does not constitute grounds to challenge and does not invalidate action taken by SML to address a violation found during the course of an investigation.

(c) Investigation Methods. Investigations will be conducted as SML deems appropriate based on the relevant facts and circumstances then known. An investigation may include:

(1) review of documentary evidence;

(2) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(3) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(4) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(5) other lawful investigative methods SML deems necessary or appropriate.

History

• Source Note: The provisions of this §56.301 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.302 Confidentiality of Examination, Investigation, and Inspection Information

(a) Purpose. This section clarifies and establishes requirements related to the confidentiality of information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §156.301.

(b) Confidential Information. All information obtained by SML during an examination, investigation, or inspection is confidential and cannot be released except as required or expressly permitted by law. The Finance Commission of Texas and the Commissioner have determined that the following information is confidential under Finance Code §156.301 (list is not exhaustive):

(1) any documents, data, data compilations, work papers, notes, memoranda, summaries, recordings, or other information, in whatever form or medium, obtained, compiled, or created during an examination, investigation, or inspection;

(2) information that is derived from or is the product of the confidential information described by paragraph (1) of this subsection, including any reports or other information chronicling or summarizing the results, conclusions, or other findings of an examination, investigation, or inspection, including assertions of any violations, deficiencies, or issues identified, or any directives, mandates, or recommendations for action by the regulated entity to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection; including, but not limited to, any corrective or remedial action directed by SML or taken by the regulated entity under §56.303 of this title (relating to Corrective Action); and

(3) information that is derived from or is the product of the confidential information described by paragraphs (1) and (2) of this subsection, including any communications, documentary evidence, or other information concerning the regulated entity' s compliance with any directives, mandates, or recommendations for action by the mortgage company and any corrective or remedial action taken by the regulated entity to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection.

(c) Loss of Confidentiality. Subsection (b) of this section notwithstanding, information described by that subsection is not confidential to the extent the information becomes publicly available in a disciplinary or enforcement action that is a contested case (i.e., information made part of the administrative record during an adjudicative hearing that is open to the public).

History

• Source Note: The provisions of this §56.302 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.303 Corrective Action

(a) Corrective Action, Generally; Purpose. During an examination, investigation, or inspection, SML may determine that violations, deficiencies, or compliance issues (collectively, violations) occurred. Within the confidential environment of the examination, investigation, or inspection, SML may direct the mortgage company to voluntarily take corrective action to address the violations identified during the examination, investigation, or inspection. This section clarifies and establishes requirements related to such corrective action.

(b) Internal Reviews. If SML determines during an examination, investigation, or inspection that a violation may be systemic, SML may direct the mortgage company to conduct its own internal review to self-identify any other violations, compile information concerning such violations, and report its findings to SML. SML may direct the mortgage company to take corrective action for any violations identified during the review.

(c) Policies and Procedures and Internal Controls. SML may direct the mortgage company to develop and adopt policies and procedures and institutional controls designed to prevent or mitigate future violations.

(d) Refunds to Consumers. SML may direct the mortgage company to make refunds to consumers affected by the violation. Any refund must comply with this subsection. The Commissioner, in his or her sole discretion, may waive or modify the requirements of this subsection to achieve appropriate, practical, and workable results. A refund must be made by one of the following methods:

(1) Certified Funds. The refund may be made by certified funds (cashier's check or money order) sent to the mortgage applicant at his or her last known address. The mortgage company must use reasonable diligence to determine the last known address of the mortgage applicant. The payment must be sent in a manner that includes tracking information and confirmation of delivery (e.g., certified mail return receipt requested, or commercial delivery service with tracking). The mortgage company must capture and maintain records evidencing the payment, including a copy of the payment instrument, any correspondence accompanying the payment, tracking information, and delivery confirmation;

(2) Corporate Check. The refund may be made by issuing a check to the mortgage applicant. The check must be drawn on a bank account owned by the mortgage company. The check must be sent to the mortgage applicant at his or her last known address. The mortgage company must use reasonable diligence to determine the last known address of the mortgage applicant. The mortgage company must capture and maintain records evidencing the payment, including a copy of the check, any correspondence accompanying the check, and evidence that the check was successfully negotiated (i.e., cancelled check). If the mortgage applicant fails to cash the check, the mortgage company must comply with requirements of §56.304 of this title (relating to Unclaimed Funds);

(3) Wire Transfer or ACH. The refund may be made by wire transfer or automated clearing house (ACH) payment to the mortgage applicant's verified bank account. The mortgage company must capture and maintain records evidencing the payment, including any transaction receipt, confirmation page, or similar, reflecting:

(A) name of the sender and any relevant contact information;

(B) sender's bank information (institution, routing number, and account number);

(C) name of the recipient and any relevant contact information;

(D) recipient's bank information (routing number and account number); and

(E) the transaction reference number or confirmation code; or

(4) Credit Against Indebtedness. If the mortgage company is the lender or holds the mortgage servicing rights to the residential mortgage loan related to the refund, the mortgage company may issue a credit against the indebtedness equal to the refund; however, if the refund is related to an improper charge or proceeds improperly held by the mortgage company on which interest was charged, the credit must be applied to the unpaid principal balance as of the date of such improper charge or the date the mortgage company began improperly holding the proceeds (typically inception of the residential mortgage loan). The mortgage company must capture and maintain records evidencing application of the credit, including the payment history reflecting application of the credit and any subsequent adjustments to principal and interest as a result of the credit being applied.

History

• Source Note: The provisions of this §56.303 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.304 Unclaimed Funds

(a) Escheat Suspense Account; Escheat Log. Funds owed to or held for the benefit of a mortgage applicant or other customer of the mortgage company for more than one year (i.e., unclaimed funds) must be transferred to an escheat suspense account. The mortgage company must maintain a log of all transfers made to the escheat suspense account, including, at a minimum:

(1) date of transfer to the escheat suspense account;

(2) date the obligation to pay the funds arose;

(3) full name and last known contact information of the mortgage applicant or other customer to whom funds are owed; and

(4) amount of unclaimed funds.

(b) Required Records. The mortgage company must maintain records reflecting bona fide attempts to pay the funds to the mortgage applicant or customer.

(c) Escheat to State. At the end of three years, the unclaimed funds must be paid to the Texas Comptroller of Public Accounts as provided by Property Code §72.101, or as provided by such other state law governing the unclaimed funds.

(d) Records Retention. Records required by this section must be retained for 10 years beginning on the date the obligation to pay the unclaimed funds arose.

History

• Source Note: The provisions of this §56.304 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.310 Appeals

(a) Purpose. Finance Code Chapter 156 provides that certain decisions of the Commissioner adverse to a mortgage company or other person may be appealed and offers the opportunity for an adjudicative hearing to challenge the decision. This section establishes various deadlines by which a mortgage company or other person must appeal the decision before it becomes final and non-appealable.

(b) The following appeal deadlines apply:

(1) License Denials. A license denial under Finance Code §156.209 must be appealed within 10 days after the date notice of the Commissioner's decision is received by the person seeking the license.

(2) Notice of Administrative Penalty for Violation of Final Cease and Desist Order. A notice of administrative penalty issued under Finance Code §156.303(e) must be appealed within 10 days after the date the notice is issued.

(3) Order of Suspension for Violation of Final Order. An order of suspension issued by the Commissioner under Finance Code §156.303(g) must be appealed within 15 days after the date the order is issued.

(4) Order of Suspension for Criminal Offense Involving Fraud, Theft, or Dishonesty. An order of suspension issued by the Commissioner under Finance Code §156.303(j) must be appealed within 15 days after the date the order is issued.

(5) Notice of Disciplinary Action. A notice of disciplinary action issued under Finance Code §§ 156.302(a), 156.303(a), or 156.303(a-1) must be appealed within 30 days after the date the notice is issued.

(6) Order for Disciplinary Action (Order to Take Affirmative Action or Order to Cease and Desist). An order of the Commissioner issued under Finance Code §156.303(b) or §156.406(c) must be appealed within 30 days after the date the order is issued. This deadline does not apply to an order for disciplinary action issued by the Commissioner under Finance Code §§ 156.302(a), 156.303(a), or 156.303(a-1) that was preceded by notice issued under paragraph (5) of this subsection.

(7) Other Deadlines. Any appeal not otherwise addressed by this section must be made within 30 days after the date notice or order is issued.

(c) Requests for Appeal. An appeal must be made in writing and received by SML on or before the appeal deadline. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(d) Effect of Not Appealing. A mortgage company or other person that does not timely appeal the Commissioner 's decision is deemed to have irrevocably waived any right it had to challenge the decision or request an adjudicative hearing on the decision and is deemed not to have exhausted all administrative remedies available to it for purposes of judicial review of the Commissioner 's decision under Government Code §2001.171. The failure to appeal an order of the Commissioner results in the order becoming final and non-appealable. The failure to appeal a notice of the Commissioner's decision means the Commissioner can issue a final, non-appealable order at any time without further notice or opportunity for a hearing to the mortgage company or other person.

History

• Source Note: The provisions of this §56.310 adopted to be effective November 23, 2024, 49 TexReg 9206.

7 Tex. Admin. Code § 56.311 Hearings

(a) Adjudicative hearings conducted under Finance Code Chapter 156 are governed by the rules in Chapter 9 of this title (concerning Rules of Procedure for Contested Hearings, Appeals, and Rulemakings). Contested cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings are held in Austin, Texas. Any appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas.

(b) Hearing Costs for License Denials. Hearing costs assessed against a person under Finance Code §156.209(f) include:

(1) filing fees;

(2) the costs of a court reporter;

(3) the costs of the administrative law judge (ALJ) or hearings officer presiding over the hearing and any ancillary proceedings;

(4) the expense of SML's staff to prepare for and attend the hearing or any ancillary proceedings, and any related travel expenses;

(5) the cost of any outside counsel retained to represent SML; and

(6) the cost of any expert witness retained by SML.

(c) Determination of Hearing Costs for License Denials. Unless the ALJ makes more specific findings of fact or conclusions of law concerning the hearing costs described by subsection (b)(3) of this section, such costs are deemed to be $500. Hearing costs described by subsection (b)(4) of this section are measured based on the diversion of productivity of such staff away from their normal duties and toward the hearings process and are calculated by multiplying the number of hours spent by each staff member in furtherance of the hearings process (measured in increments of 1/10 of an hour) by their current hourly compensation rate. The Commissioner may rely on affidavit testimony of such staff members to make appropriate findings of fact and conclusions of law concerning the hearing costs described by subsection (b)(4) of this section.

History

• Source Note: The provisions of this §56.311 adopted to be effective November 23, 2024, 49 TexReg 9206.

Chapter 57 MORTGAGE BANKERS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 57.1 Purpose and Applicability

This chapter governs SML's administration and enforcement of Finance Code Chapter 157, the Mortgage Banker Registration and Residential Mortgage Loan Originator License Act, concerning the registration and operations of mortgage bankers. This chapter applies to persons registered with SML as a mortgage banker or those required to be registered.

History

• Source Note: The provisions of this §57.1 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.2 Definitions

For purposes of this chapter, and in SML's administration and enforcement of Finance Code Chapter 157 (other than Subchapter D), the following definitions apply, unless the context clearly indicates otherwise:

(1) "Application," as used in Finance Code §157.002(6) and paragraphs (8) and (20) of this section means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(3) "Compensation" includes salaries, bonuses, commissions, and any financial or similar incentive.

(4) "Control person" means an individual that directly or indirectly exercises control over a mortgage banker. Control is defined by the power, directly or indirectly, to direct the management or policies of a mortgage banker, whether through ownership of securities, by contract, or otherwise. Control person includes any person that:

(A) is a director, general partner, or executive officer;

(B) directly or indirectly has the right to vote 10% or more of a class of a voting security or has the power to sell or direct the sale of 10% or more of a class of voting securities;

(C) in the case of a limited liability company, is a manager or managing member; or

(D) in the case of a partnership, has the right to receive upon dissolution, or has contributed, 10% or more of the partnership's capital assets.

(5) "Dwelling" means a residential structure that contains one to four units and is attached to residential real estate. The term includes an individual condominium unit, cooperative unit, or manufactured home, if it is used as a residence.

(6) "E-Sign Act" refers to the federal Electronic Signature in Global and National Commerce Act (15 U.S.C. §7001 et seq.).

(7) "Making a residential mortgage loan," or any similar derivative or variation of that term, means when a person determines the credit decision to provide the residential mortgage loan, or the act of funding the residential mortgage loan or transferring money to the borrower. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the residential mortgage loan.

(8) "Mortgage applicant" means an applicant for a residential mortgage loan or a person who is solicited (or contacts a mortgage banker or originator in response to a solicitation) to obtain a residential mortgage loan, and includes a person who has not completed or started completing a formal loan application on the appropriate form (e.g., Fannie Mae's Form 1003 Uniform Residential Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(9) "Mortgage banker" has the meaning assigned by Finance Code §157.002.

(10) "Mortgage company" means, for the purposes of this chapter, a "residential mortgage loan company" as defined by Finance Code §157.002.

(11) "Nationwide Multistate Licensing System" or "NMLS" has the meaning assigned by Finance Code §157.002 in defining "Nationwide Mortgage Licensing System and Registry."

(12) "Offers or negotiates the terms of a residential mortgage loan," as used in Finance Code §157.002(6) means, among other things, when an individual:

(A) arranges or assists a mortgage applicant or prospective mortgage applicant in obtaining or applying to obtain, or otherwise secures an extension of consumer credit for another person, in connection with obtaining or applying to obtain a residential mortgage loan;

(B) presents for consideration by a mortgage applicant or prospective mortgage applicant particular residential mortgage loan terms (including rates, fees and other costs); or

(C) communicates directly or indirectly with a mortgage applicant or prospective mortgage applicant for the purpose of reaching a mutual understanding about particular residential mortgage loan terms.

(13) "Originator" has the meaning assigned by Finance Code §157.002 in defining "residential mortgage loan originator." Paragraphs (12) and (20) of this section do not affect the applicability of such statutory definition. Individuals who are specifically excluded under such statutory definition, as provided by Finance Code §180.002(19)(B), are excluded under this definition and for purposes of this chapter. Persons who are exempt from licensure as provided by Finance Code §180.003 are exempt for purposes of this chapter, except as otherwise provided by Finance Code §180.051.

(14) "Person" has the meaning assigned by Finance Code §180.002.

(15) "Residential mortgage loan" has the meaning assigned by Finance Code §157.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan secured by a structure that is suitable for occupancy as a dwelling but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as a residence.

(16) "Residential real estate" has the meaning assigned by Finance Code §180.002 and includes both improved or unimproved real estate or any portion of or interest in such real estate on which a dwelling is or will be constructed or situated.

(17) "Social media site" means any digital platform accessible by a mortgage applicant or prospective mortgage applicant where the mortgage banker or sponsored originator does not typically own the hosting platform but otherwise exerts editorial control or influence over the content within their account, profile, or other space on the digital platform, from which the mortgage banker or sponsored originator posts commercial messages or other content designed to solicit business.

(18) "SML" means the Department of Savings and Mortgage Lending.

(19) "State Examination System" or "SES" means an online, digital examination system developed by the Conference of State Bank Supervisors that securely connects regulators and regulated entities on a nationwide basis to facilitate the examination process.

(20) "Takes a residential mortgage loan application," as used in Finance Code §157.002(6) in defining "residential mortgage loan originator" means when an individual receives a residential mortgage loan application for the purpose of facilitating a decision on whether to extend an offer of residential mortgage loan terms to a mortgage applicant or prospective mortgage applicant, whether the application is received directly or indirectly from the mortgage applicant or prospective mortgage applicant, and regardless of whether or not a particular lender has been identified or selected.

(21) "Trigger Lead" means information concerning a consumer's credit worthiness (consumer report) compiled by a credit reporting agency (consumer reporting agency), obtained in accordance with the federal Fair Credit Reporting Act (15 U.S.C. §1681b(c)(1)(B)), that is not initiated by the consumer but, instead, instead triggered by an inquiry to a consumer reporting agency in response to an application for credit initiated by the consumer in a separate transaction. The term does not include a consumer report obtained by a mortgage company licensed by SML or a mortgage banker registered with SML in response to an application for credit made by a consumer with that mortgage company or mortgage banker or that is otherwise authorized by the consumer.

(22) "UETA" refers to the Texas Uniform Electronic Transactions Act, Business & Commerce Code Chapter 322.

(23) "Wrap lender" has the meaning assigned by Finance Code §159.001.

(24) "Wrap mortgage loan" has the meaning assigned by Finance Code §159.001.

History

• Source Note: The provisions of this §57.2 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.3 Formatting Requirements for Notices

Any notice or disclosure (notice) required by Finance Code Chapter 157, or this chapter, must be easily readable. A notice is deemed to be easily readable if it is in at least 12-point font and uses a typeface specified by this section. A font point generally equates to 1/72 of an inch. If Finance Code Chapter 157 or this chapter prescribes a form for the notice, the notice must closely follow the font types used in the form. For example, where the form uses bolded, underlined, or "all caps" font type, the notice must be made using those font types. The following typefaces are deemed to be easily readable for purposes of this section (list is not exhaustive and other typefaces may be used; provided, the typeface is easily readable):

(1) Arial;

(2) Aptos;

(3) Calibri;

(4) Century Schoolbook;

(5) Garamond;

(6) Georgia;

(7) Lucinda Sans;

(8) Times New Roman;

(9) Trebuchet; and

(10) Verdana.

History

• Source Note: The provisions of this §57.3 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.4 Electronic Delivery and Signature of Notices

Any notice or disclosure required by Finance Code Chapter 157, or this chapter, may be provided and signed in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §57.4 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.5 Computation of Time

The calculation of any time period measured in days by Finance Code Chapter 157, or this chapter, is made using calendar days, unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §57.5 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.6 Enforceability of Liens

A violation of Finance Code Chapter 157, or this chapter, does not render an otherwise lawfully taken lien invalid or unenforceable.

History

• Source Note: The provisions of this §57.6 adopted to be effective November 23, 2024, 49 TexReg 9211.

Subchapter B REGISTRATION

7 Tex. Admin. Code § 57.100 Registration Requirements

(a) Registration Required. A person, unless exempt as provided by Finance Code §157.004, is required to be registered with SML as a mortgage banker under Finance Code Chapter 157 if the person engages in or conducts the business of a mortgage banker or advertises or holds that person out to the public as engaging in or conducting the business of a mortgage banker concerning a loan or prospective loan secured or designed to be secured by residential real estate located in Texas, including, but not limited to:

(1) representing or holding that person out to the public through advertising or other means of communication as a mortgage banker; and

(2) receiving compensation for engaging in or conducting the business of a mortgage banker (a person must be registered at the time it receives compensation even if the compensation relates to services provided when the person was registered).

(b) Branch Office Registration Required. A mortgage banker must register each office constituting a branch office of the mortgage banker for purposes of §57.206 of this title (relating to Office Locations; Remote Work).

History

• Source Note: The provisions of this §57.100 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.101 Applications for Registration

(a) NMLS. Applications for registration must be submitted through NMLS and must be made using the current form prescribed by NMLS. SML has published application checklists on the NMLS Resource Center website (nationwidelicensingsystem.org; viewable on the "State Licensing Requirements" webpage) which outline the requirements to submit an application. Applicants must comply with requirements in the checklist in making the application.

(b) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation deemed necessary or appropriate to determine that the registration requirements of Finance Code Chapter 157 are met.

(c) Incomplete Filings; Deemed Withdrawal. An application is complete only if all required information and supporting documentation is included and all required fees are received. If an application is incomplete, SML will send written notice to the applicant specifying the additional information, documentation, or fee required to render the application complete. The application may be deemed withdrawn and any fee paid will be forfeited if the applicant fails to provide the additional information, documentation, or fee within 30 days after the date written notice is sent to the applicant as provided by this subsection.

History

• Source Note: The provisions of this §57.101 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.102 Fees

(a) Registration Fees. The registration fee is determined by the Commissioner in an amount not to exceed the maximum amount specified by Finance Code §157.006, exclusive of fees charged by NMLS, as described in subsection (b) of this section. The Commissioner may establish different fee amounts for a new registration versus renewal of the registration versus reinstatement of the registration. The current fee is set in NMLS and posted on SML's website (sml.texas.gov). The Commissioner may change the fee at any time; provided, any fee increase is not effective until notice has been posted on SML's website for at least 30 days. The registration fee must be paid in NMLS.

(b) NMLS Fees. NMLS charges a separate fee to process the application. Such fee is determined by NMLS and must be paid by the applicant at the time it files the application. The current fee is set in NMLS and posted on the NMLS website (nationwidelicensingsystem.org).

(c) All fees are nonrefundable and nontransferable.

History

• Source Note: The provisions of this §57.102 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.103 Renewal of the Registration

(a) A registration may be renewed on:

(1) timely submission of a completed renewal application (renewal request) in NMLS together with payment of all required fees; and

(2) a determination by SML that the mortgage banker continues to meet the minimum requirements for registration, including the requirements of Finance Code §157.003(b).

(b) Commissioner's Discretion to Approve with a Deficiency. The Commissioner may, in her or her sole discretion, approve a renewal request with one or more deficiencies the Commissioner deems to be relatively minor and allow the mortgage banker to continue conducting regulated activities while the mortgage banker works diligently to resolve the deficiencies. A renewal request approved by the Commissioner under this subsection will be assigned the NMLS license status "Approved - Deficient." Approval under this subsection does not relieve the mortgage banker of the obligation to resolve the deficiencies. A mortgage banker approved under this subsection must resolve the deficiencies within 30 days after the date the license is approved, unless an extension of time is granted by the Commissioner. Failure to timely resolve the deficiencies constitutes grounds for the Commissioner to suspend or revoke the registration.

(c) Reinstatement. This section applies to a person seeking reinstatement of an expired registration (bearing the registration status "Terminated - Failed to Renew") described by Finance Code §157.0062 and must be construed accordingly. A mortgage banker registration cannot be renewed beyond the reinstatement period; instead, the person must apply for a new registration and comply with all current requirements and procedures governing issuance of a new registration.

History

• Source Note: The provisions of this §57.103 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.104 NMLS Records; Notices Sent to the Mortgage Banker

(a) NMLS Registration Status. SML is required to assign a status to the registration in NMLS. The registration status is displayed in NMLS and on the NMLS Consumer Access website (nmlsconsumeraccess.org). SML is limited to the registration status options available in NMLS. The NMLS Resource Center website (nationwidelicensingsystem.org) describes the available registration status options and their meaning.

(b) Amendments to NMLS Records Required. A mortgage banker must amend its NMLS registration records (MU1 filing) within 10 days after the date of any material change affecting any aspect of the MU1 filing, including, but not limited to:

(1) name (which must be accompanied by supporting documentation submitted to SML establishing the name change);

(2) the addition or elimination of an assumed name (also known as a trade name or "doing business as" name; which must be accompanied by a certificate of assumed business name or other documentation establishing or abandoning the assumed name);

(3) the contact information under "Identifying Information":

(4) the contact information under "Resident/Registered Agent";

(5) the contact information under "Contact Employee Information"; and

(6) answers to disclosure questions (which must be accompanied by explanations for each such disclosure, together with supporting documentation concerning such disclosure).

(c) Amendments to MU2 Associations Required. A mortgage banker must cause the individuals who are required to register an association with the mortgage banker (control persons) to make the proper filings in NMLS using the current form prescribed by NMLS (MU2 filing) and must ensure such associations are amended within 10 days after the date of any material change affecting such associations.

(d) Notices Sent to the Mortgage Banker. Any correspondence, notification, alert, message, official notice or other written communication from SML will be sent to the mortgage banker in accordance with this subsection using the mortgage banker's current contact information of record in NMLS unless another method is required by other applicable law.

(1) Service by Email. Service by email is made using the email address the mortgage banker has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by email is complete on transmission of the email to mortgage banker's email service provider; provided, SML does not receive a "bounce back" notification, or similar, from the email service provider indicating that delivery was not effective. A mortgage banker must monitor such email account and ensure that emails sent by SML are not lost in a "spam" or similar folder, or undelivered due to intervention by a "spam filter" or similar service. A mortgage banker is deemed to have constructive notice of any emails sent by SML to the email address described by this paragraph. A mortgage banker is further deemed to have constructive notice of any NMLS system notifications sent to it by email.

(2) Service by Mail. Service by mail is made using the address the mortgage banker has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by mail is made using the address the mortgage banker has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by mail is complete on deposit of the document, postpaid and properly addressed, in the mail or with a commercial delivery service. If service is made on the mortgage banker by mail and the document communicates a deadline by or a time during which the mortgage banker must perform some act, such deadline or time period for action is extended by 3 days. However, if service was made by another method prescribed by this subsection, such deadline or time period will be calculated based on the earliest possible deadline or shortest applicable time period.

History

• Source Note: The provisions of this §57.104 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.106 Surrender of the Registration

(a) Surrender Request. A mortgage banker may seek surrender of the registration by filing a registration surrender request (request) in NMLS. The request must be made using the current form prescribed by NMLS. SML will review the request and determine whether to grant it. SML may not grant the request if, among other reasons:

(1) the mortgage banker is the subject of a pending or contemplated investigation or enforcement action;

(2) the mortgage banker is in violation of an order of the Commissioner;

(3) the mortgage banker has failed to pay any fee, charge, or other indebtedness owed to SML; or

(4) the mortgage banker has failed to file mortgage call reports required by §57.205 of this title (relating to Mortgage Call Reports).

(b) Inactive Status Pending Surrender. If SML does not grant the request or requires additional time to consider the request, the request will be left pending while the issue preventing SML from granting the request is resolved or lapses. During this time, the mortgage banker's registration will be assigned the license status "Approved - Inactive" in NMLS.

History

• Source Note: The provisions of this §57.106 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.107 Sponsorship of Originator; Responsibility for Originator's Actions

(a) Sponsorship Required. A mortgage banker conducts origination activity through one or more originators who must be sponsored by the mortgage banker in NMLS. To sponsor an originator, the mortgage banker must first register a relationship with the originator in NMLS. When a relationship has been registered, the mortgage banker may then file a request in NMLS to establish sponsorship of the originator. An originator must make filings in NMLS to establish such sponsorship. Sponsorship is not effective until the sponsorship request has been reviewed and approved by SML. A mortgage banker must not allow an individual to act on its behalf in the capacity of an originator until such sponsorship has been established and is effective. Information about how to file for sponsorship is available on the NMLS Resource Center website (nationwidelicensingsystem.org).

(b) Responsibility for Originator's Actions. By sponsoring an originator, or otherwise allowing an individual to act on its behalf in the capacity of an originator, the mortgage banker assumes responsibility for the actions of such originator or individual acting in the capacity of an originator. All violations of law by an originator or individual acting in the capacity of an originator are deemed to be attributable and imputed to the mortgage banker sponsoring the originator or for which the individual acting as an originator was allowed to act, and the Commissioner may take action against the mortgage banker under Finance Code §157.009 and seek disciplinary action against the originator simultaneously for the same conduct giving rise to the violation. As a result, a mortgage banker is charged with knowledge of and must ensure compliance by their sponsored originators with the requirements of Finance Code Chapters 157 and 180, and of SML's rules in Chapter 55 of this title (relating to Residential Mortgage Loan Originators).

(c) Termination of Sponsorship. Sponsorship may be terminated by either the sponsoring mortgage banker or the sponsored originator. If sponsorship is terminated, the party terminating the sponsorship must immediately notify SML of the termination by making a filing in NMLS to terminate the sponsorship, as provided by Finance Code §157.019.

(d) Failure to Maintain Sponsored Originator; Inactive Status. If a mortgage banker does not have any licensed and sponsored originators, the license will be assigned the status "Approved - Inactive," during which time the mortgage banker must not conduct regulated activities.

History

• Source Note: The provisions of this §57.107 adopted to be effective November 23, 2024, 49 TexReg 9211.

Subchapter C DUTIES AND RESPONSIBILITIES

7 Tex. Admin. Code § 57.200 Required Disclosures

(a) Purpose. This section clarifies and establishes requirements related to the disclosures a mortgage banker is required to make under Finance Code §157.0021.

(b) Specific Notice to Applicant (Origination Notice). A mortgage banker must send written notice to a mortgage applicant concerning SML's regulatory oversight. The notice must be sent at the time the mortgage banker and its sponsored originator receives the initial application for a residential mortgage loan. The notice may be provided to the mortgage applicant by any means allowing for the mortgage banker to capture and maintain records reflecting timely delivery, as required by §57.204(c)(2)(A)(iv) of this title (relating to Books and Records). The notice may be signed and dated by the mortgage applicant to evidence receipt. The notice must be in the form adopted by this subsection. However, the form may be modified by adding other identifying information for the transaction (e.g., loan identification number, or the name and NMLS ID of the mortgage banker or the investor); provided, any information added to the form is not misleading and does not contradict or frustrate the purpose of the disclosure.

Attached Graphic

(c) Posted Notice on Websites. A mortgage banker must post a notice concerning SML's regulatory oversight on each website of the mortgage banker, other than a social media site, that is accessible by a mortgage applicant or prospective mortgage applicant and either used to conduct residential mortgage loan origination business or from which the mortgage banker advertises to solicit such business, as provided by §57.203 of this title (relating to Advertising). The notice must be in the current form prescribed by SML and posted on its website (sml.texas.gov). The notice must be displayed on the initial or home page of the website (typically the base-level domain name) or contained in a linked webpage with the link to such webpage displayed on the initial or home page.

(d) Disclosures in Correspondence. All correspondence sent to a mortgage applicant or borrower must include:

(1) the mortgage banker's name and NMLS ID; and

(2) the mortgage banker's website address, if it has a website.

(e) Specific Notice to Borrower (Servicing Notice). A mortgage banker that acts as a residential mortgage loan servicer must send written notice to the borrower concerning SML's regulatory oversight within 30 days after the date it begins servicing a residential mortgage loan. The notice must be in the current form prescribed by the SML and posted on its website. The notice must be included in the first notice sent to the borrower that notifies the borrower of the mortgage banker's role in servicing the loan, including any notice required by Regulation X (12 C.F.R. §1024.33(b)). This subsection applies to the servicing of residential mortgage loans secured by real property located in Texas. Mortgage bankers servicing a residential mortgage loan not secured by real property located in Texas must not provide the notice described by this subsection.

History

• Source Note: The provisions of this §57.200 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.201 Conditional Pre-Qualification and Conditional Approval Letters

(a) Conditional Pre-Qualification Letter. Except as provided by subsection (c) of this section, when provided to a mortgage applicant or prospective mortgage applicant, written confirmation of conditional pre-qualification (conditional pre-qualification letter) must include the information in Form A, Figure: 7 TAC §57.201(a). The information must be provided using Form A or an alternate form approved by the mortgage banker that includes all of the information found on Form A. There is no requirement to issue a conditional pre-qualification letter. Form A or an alternate form may be modified by adding any of the following as needed:

Attached Graphic

(1) Any additional aspects of the loan as long as not misleading;

(2) Any additional items that the originator has reviewed in determining conditional qualifications; or

(3) Any additional terms, conditions, and requirements.

(b) Conditional Approval Letter. When provided to a mortgage applicant or prospective mortgage applicant, written notification of conditional loan approval on the basis of credit worthiness, but not on the basis of collateral (conditional approval letter), must include the information in Form B, Figure 7: TAC §57.201(b). The information can be provided using Form B or an alternate form approved by the mortgage banker that includes all of the information found on Form B. There is no requirement to issue a conditional approval letter. Form B or an alternate form may be modified by adding the additional information permitted by subsection (a)(1) - (3) of this section, or a disclosure of fees charged. A disclosure of fees charged, on Form B or an alternate form, does not serve as a substitute for any fee disclosure required by state or federal laws or regulations. A conditional approval letter must not be issued unless the mortgage banker or its sponsored originator has verified that, absent any material changes prior to closing, the mortgage applicant or prospective mortgage applicant has satisfied all loan requirements related to credit, income, assets, and debts. Verification may be conducted manually or by electronic means.

Attached Graphic

(c) Firm Offers of Credit. Subsection (a) of this section does not apply to "firm offers of credit," as defined by 15 U.S.C. §1681a(l).

(d) Issuance by the Originator. A conditional pre-qualification letter or conditional approval letter must be issued and signed by the mortgage banker's sponsored originator acting on behalf of the mortgage banker to originate the prospective residential mortgage loan.

History

• Source Note: The provisions of this §57.201 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.202 Fraudulent, Misleading, or Deceptive Practices and Improper Dealings

(a) Fraudulent, Misleading, or Deceptive Practices. The following conduct by a mortgage banker or its sponsored originators constitutes fraudulent and dishonest dealings for purposes of Finance Code §157.009(d):

(1) knowingly misrepresenting the mortgage banker's or sponsored originator's relationship to a mortgage applicant or any other party to a residential mortgage loan transaction or prospective residential mortgage loan transaction;

(2) knowingly misrepresenting or understating any cost, fee, interest rate, or other expense to a mortgage applicant or prospective mortgage applicant in connection with a residential mortgage loan;

(3) knowingly overstating, inflating, altering, amending or disparaging any source or potential source of residential mortgage loan funds in a manner which disregards the truth or makes any knowing and material misstatement or omission;

(4) knowingly misrepresenting the lien position of a residential mortgage loan or prospective residential mortgage loan;

(5) knowingly participating in or permitting the submission of false or misleading information of a material nature to any person in connection with a decision by that person whether to make or acquire a residential mortgage loan;

(6) as provided by Regulation X (12 C.F.R. §1024.14), brokering, arranging, or making a residential mortgage loan for which the mortgage banker or sponsored originator receives compensation for services not actually performed or where the compensation received bears no reasonable relationship to the value of the services actually performed;

(7) recommending or encouraging default or delinquency or the continuation of an existing default or delinquency by a mortgage applicant on any existing indebtedness prior to closing a residential mortgage loan which refinances all or a portion of such existing indebtedness;

(8) altering any document produced or issued by SML, unless otherwise permitted by statute or a rule of SML;

(9) using a trigger lead in misleading or deceptive manner by, among other things:

(A) failing to state in the initial communication with the consumer:

(i) the mortgage banker's name;

(ii) a brief explanation of how the mortgage banker obtained the consumer's contact information to make the communication (i.e., an explanation of trigger leads);

(iii) that the mortgage banker is not affiliated with the creditor to which the consumer made the credit application that resulted in the trigger lead; and

(iv) that the purpose of the communication is to solicit new business for the mortgage banker;

(B) contacting a consumer who has opted out of prescreened offers of credit under the federal Fair Credit Reporting Act (FCRA; 12 U.S.C. §1681b(e)); or

(C) failing in the initial communication with the consumer to make a firm offer of credit as provided by the FCRA (12 U.S.C. §1681a(l) and §1681b(c)); or

(10) engaging in any other practice which the Commissioner, by published interpretation, has determined is fraudulent, misleading, or deceptive.

(b) Improper or Unfair Dealings. The following conduct by a mortgage banker or its sponsored originators constitutes improper dealings for purposes of Finance Code §157.009(d):

(1) acting negligently in performing an act requiring a registration under Finance Code Chapter 157 or a license under Finance Code Chapters 157 and 180;

(2) violating any provision of a local, State of Texas, or federal constitution, statute, rule, ordinance, regulation, or final court decision that governs the same or a closely related activity, transaction, or subject matter that is governed by the provisions of Finance Code Chapters 156, 157 or 180, including, but not limited to:

(A) Consumer Credit Protection Act, Equal Credit Opportunity Act (15 U.S.C. §1691 et seq.) and Regulation B (12 C.F.R. §1002.1 et seq.);

(B) Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. §5101 et seq.) and Regulation H (12 C.F.R. §1008.1 et seq.);

(C) Regulation N (12 C.F.R. §1014.1 et seq.);

(D) Gramm-Leach-Bliley Act (GLBA; 15 U.S.C. §6801 et seq.), Regulation P (12 C.F.R. §1016.1 et seq.), and the Federal Trade Commission's (FTC) Privacy of Consumer Financial Information rules (16 C.F.R. §313.1 et seq.);

(E) Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) and Regulation V (12 C.F.R. §1022.1 et seq.);

(F) Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and Regulation X (12 C.F.R. 1024.1 et seq.);

(G) Consumer Credit Protection Act, Truth in Lending Act (15 U.S.C. §1601 et seq.) and Regulation Z (12 C.F.R. §1026.1 et seq.);

(H) the FTC's Standards for Safeguarding Customer Information rule (16 C.F.R. §314.1 et seq.);

(I) Finance Code Chapter 159 and Chapter 59 of this title; and

(J) Texas Constitution, Article XVI, §50 and Chapter 153 of this title;

(3) soliciting by phone a consumer who has placed his or her contact information on the national do-not-call registry maintained by the Federal Trade Commission (FTC), unless otherwise allowable under the FTC's Telemarketing Sales Rule (16 C.F.R. §310.4(b)(iii)(B));

(4) Issuing a conditional pre-qualification letter or conditional approval letter under §57.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters) that does not comply with the required form for the letter or is inaccurate, erroneous, or negligently-issued;

(5) Representing to a mortgage applicant that a charge or fee which is payable to the mortgage banker or sponsored originator is a "discount point" or otherwise benefits the mortgage applicant unless the loan closes and:

(A) the mortgage banker is making the residential mortgage loan (lender); or

(B) the mortgage banker is not the lender but demonstrates by clear and convincing evidence that the lender has charged or collected discount points or other fees which the mortgage banker has actually paid to the lender on behalf of the mortgage applicant to buy down the interest rate on the residential mortgage loan.

(6) Failing to accurately respond within a reasonable time period to reasonable questions from a mortgage applicant concerning the scope and nature of the mortgage banker's services and any costs.

(7) allowing a licensed originator to act on behalf of the mortgage banker when the originator is not sponsored by the mortgage banker or otherwise holds his or her license in an inactive status; or

(8) using the services of mortgage company or mortgage banker to provide loan processing services when the mortgage company or mortgage banker providing the services holds its license or registration in an inactive status.

(c) Related Transactions. A mortgage banker engages in fraudulent and dishonest dealings for purposes of Finance Code §157.009(d) when, in connection with the origination of a residential mortgage loan:

(1) The mortgage banker or sponsored originator:

(A) offers other goods or services to a mortgage applicant in a separate but related transaction; and

(B) the mortgage banker or sponsored originator engages in fraudulent, misleading, or deceptive acts in the related transaction; or

(2) The mortgage banker or sponsored originator:

(A) affiliates with another person that provides goods or services to a mortgage applicant in a separate but related transaction;

(B) the affiliated person engages in fraudulent, misleading, or deceptive acts in that transaction;

(C) the mortgage banker or sponsored originator knew or should have known of the fraudulent, misleading, or deceptive acts of the affiliated person; and

(D) the mortgage banker or sponsored originator failed to take appropriate steps to prevent or limit the fraudulent, misleading, or deceptive acts.

(d) Sharing or Splitting Origination Fees with the Mortgage Applicant. A mortgage banker and its sponsored originators must not offer or agree to share or split any loan origination fees with a mortgage applicant, rebate all or a part of an origination fee to a mortgage applicant, reduce their established compensation to benefit a mortgage applicant, or otherwise provide money, a cash equivalent, or anything of value to a mortgage applicant in connection with providing residential mortgage loan origination services unless otherwise allowable under Regulation X (12 C.F.R. §1024.14) and Regulation Z (12 C.F.R. §1026.36(d)). A sponsored originator acting in the dual capacity of an originator and real estate broker or sales agent licensed under Occupations Code Chapter 1101 may rebate their fees legitimately earned and derived from their real estate brokerage or sales agent services to the extent allowable under applicable law governing real estate brokers or sales agents; provided, the payment or other transfer described by this subsection occurs as a part of closing and is properly reflected in the closing disclosure. If a payment or other transfer described by this subsection occurs after closing, a rebuttable presumption exists that the payment or transfer is derived from the originator's fees for residential mortgage loan origination services and constitutes an improper sharing or splitting of fees with the mortgage applicant. The rebuttable presumption may only be overcome by clear and convincing evidence established by the mortgage banker or sponsored originator that the payment or transfer is instead derived from fees for real estate brokerage or sales agent services. A violation of this subsection is deemed to constitute improper dealings for purposes of Finance Code §157.009(d).

History

• Source Note: The provisions of this §57.202 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.203 Advertising

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Advertisement" means a commercial message in any medium that promotes, directly or indirectly, a residential mortgage loan transaction or is otherwise designed to solicit residential mortgage loan origination business for the mortgage banker or its sponsored originators. The term includes "flyers," business cards, or other handouts, and messages or posts made on a social media site. The term does not include:

(A) any advertisement which indirectly promotes a residential mortgage loan transaction and contains only the name of the mortgage banker or sponsored originator and not any contact information with the exception of a website address, such as on cups, pens or pencils, shirts or other clothing (including company uniforms and sponsored youth league jerseys), or other promotional items of nominal value;

(B) any rate sheet, pricing sheet, or similar proprietary information provided to realtors, builders, and other commercial entities that is not intended for distribution to consumers; or

(C) signs located on or adjacent to the mortgage banker's registered office as provided by §57.206 of this title (relating to Office Locations; Remote Work).

(2) "Team logo" means a logo, symbol, or other graphic used to identify the group using a team name.

(3) "Team name" means a name other than the mortgage banker's legal name or a properly registered assumed name typically used by a geographically or administratively distinct group of employees working for the mortgage banker as a division or team within the larger organization (e.g., the employees of a branch office).

(b) Compliance with Federal Law. A mortgage banker or sponsored originator that advertises rates, terms, or conditions must comply with the requirements of Regulation N (12 C.F.R. §1014.1 et seq.) and Regulation Z (12 C.F.R. §1026.24).

(c) Required Content. Except as provided by subsections (d) and (e) of this section, an advertisement must contain:

(1) the mortgage banker's name and NMLS ID;

(2) the mortgage banker's website address, if it has a website; and

(3) the sponsored originator's name and NMLS ID.

(d) Advertising Directly by a Mortgage Banker. A mortgage banker may advertise directly to the public and is not required to advertise through a sponsored originator. The requirements of subsection (c)(3) of this section do not apply to an advertisement made directly by a mortgage banker.

(e) Advertising on Social Media Sites. If the mortgage banker or sponsored originator advertises on a social media site, the requirements of subsection (c) of this section may be met by prominently displaying the required information on the home page, profile page, or similar, on such social media site so that the viewer can quickly discern the information without reviewing various historical content posted by the mortgage banker or sponsored originator on the social media site.

(f) Use of Team Names and Team Logos. A mortgage banker and its sponsored originators may use team names and team logos in advertisements if the following requirements are met:

(1) Team names and team logos are permitted for advertising purposes only. A team name or team logo may not be used to conduct residential mortgage loan origination business. For clarity, a team name or team logo may not appear on any documentation sent to the mortgage applicant in connection with a residential mortgage loan or on any documentation in the residential mortgage loan file a mortgage banker is required to maintain under §57.204(c)(2) of this title (relating to Books and Records).

(2) The mortgage banker's legal name or an assumed name of the mortgage banker and its NMLS ID must be used with the team name or team logo, in substantially equivalent prominence, and must be connected with an explanatory word or phrase that clearly links the two (e.g., "(team name) of (mortgage banker name and NMLS ID)" or "(team name) powered by (mortgage banker name and NMLS ID"). The information must be presented in a manner that makes it readily apparent to the viewer what mortgage banker is making the advertisement. The mortgage banker may not obscure the information by, among other things, using graphics, shading, or coloration to deemphasize or mask the appearance of the mortgage banker's name and NMLS ID. If the advertisement is made on a social media site, the requirements of this paragraph may be met by prominently displaying the information on the home page, profile page, or similar, on such social media site so that the viewer can quickly discern the information without reviewing various historical content posted by the mortgage banker or sponsored originator on the social media site.

(3) If a team logo is used, it must be used with the team name, unless the team name is contained in the team logo, and if so, the team logo may be used without the team name.

History

• Source Note: The provisions of this §57.203 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.204 Books and Records

(a) Purpose and Applicability. This section clarifies and establishes requirements related to the books and records a mortgage banker and its sponsored originators are required to keep under Finance Code §157.021. Subsection (c) of this section applies to a mortgage banker and its sponsored originators in connection with the origination of residential mortgage loans. Subsection (d) of this section applies to a mortgage banker and its sponsored originators in connection with the provision of third-party loan processing or underwriting services.

(b) Maintenance of Records, Generally. In order to ensure a mortgage banker and its sponsored originators have all records necessary to facilitate an inspection (including an examination) by SML of the mortgage banker's sponsored originators, enable SML to investigate complaints against a mortgage banker or its sponsored originators, and otherwise ensure compliance with the requirements of Finance Code Chapter 157, and this chapter, a mortgage banker and its sponsored originators must maintain records as prescribed by this section in connection with the mortgage banker's origination of residential mortgage loans or the provision of third-party loan processing or underwriting services by the mortgage banker.

(1) Format. The records required by this section may be maintained using a physical, electronic, or digitally-imaged recordkeeping system, or a combination thereof. The records must be accurate, complete, current, legible, and readily accessible and sortable.

(2) Location. A mortgage banker and its sponsored originators must ensure the records required by this section (or true and correct copies thereof) are maintained at or are otherwise readily accessible from either the main office of the mortgage banker or the location the mortgage banker has designated in its MU1 filing under "Books and Records Information" in NMLS. (For purposes of this section "main office" has the meaning assigned by §57.206 of this title (relating to Office Locations; Remote Work.)

(3) Production of Records; Disciplinary Action. All records required by this section must be maintained in good order and produced to SML upon request. Failure by a mortgage banker's sponsored originator to produce records upon request after a reasonable time for compliance may result in disciplinary action against the originator, including, but not limited to, suspension or revocation of the originator's license. Failure by a mortgage banker to produce records upon request after a reasonable time for compliance in response to a complaint investigation conducted by SML may be treated as a failure by the mortgage banker to provide evidence in violation of the requirements of Finance Code §157.0022(b).

(4) Retention Period. All records required by this section must be maintained for 3 years or such longer period as may be required by other applicable law. If a mortgage banker terminates operations, the mortgage banker, within 10 days after the date the mortgage banker terminates operations, must provide SML with written notice of where the records required by this section will be maintained for the required period. If such records are transferred to another mortgage banker registered with SML, the transferee must provide SML with written notice within 10 days after the date it receives such records.

(5) Maintenance by the Mortgage Banker. A mortgage banker is required to maintain records on behalf of the originators it sponsors in connection with work performed by the originator for that mortgage banker.

(6) Conflicting Law. If the requirements of other applicable law governing recordkeeping by the mortgage banker or its sponsored originators differ from the requirements of this section, such other applicable law prevails only to the extent this section conflicts with the requirements of this section.

(c) Required Records (Origination). A mortgage banker and its sponsored originators are required to maintain the following items in connection with the origination of residential mortgage loans by the mortgage banker:

(1) Mortgage Transaction Log. A mortgage transaction log maintained on a current basis (meaning all entries must be made within 7 days after the date on which the events they relate to occurred, and updated as the information changes) setting forth, at a minimum (the log may include additional information, provided, the information is readily sortable as required by subsection (b)(1) of this section):

(A) full name of each mortgage applicant (last name, first name);

(B) application/loan identification number assigned by the mortgage banker;

(C) loan identification number assigned by the lender, if different than subparagraph (B) of this paragraph;

(D) date of the initial loan application;

(E) address of the subject property (street address, city, state, zip code);

(F) interest rate;

(G) description of the purpose for the loan (e.g., purchase, refinance, construction, home equity, home improvement, land lot loan, wrap mortgage loan, etc.);

(H) loan product (conventional, FHA, VA, reverse, etc.);

(I) full name of the lender that initially funded or acquired the loan and their NMLS ID, if applicable;

(J) full name of the originator who took the initial loan application and his or her NMLS ID;

(K) closing date;

(L) lien position (e.g., first lien, second lien, or wrap mortgage);

(M) description of the owner's or prospective owner's intended occupancy of the real estate secured or designed to be secured by the loan (e.g., primary residence (including real estate (land lot) or a dwelling not suitable for occupancy at the time the loan is consummated but that the owner intends to occupy as their primary residence after consummation of the loan), secondary residence, or investment property (no intent to occupy as their residence)); and

(N) description of the current status or disposition of the loan application (e.g., in-process, withdrawn, closed, or denied);

(2) Residential Mortgage Loan File. For each residential mortgage loan transaction or prospective residential mortgage loan transaction, a residential mortgage loan file containing, at a minimum:

(A) All Transactions. For all transactions, the following records:

(i) the initial and any final loan application (including any attachments, supplements, or addendum thereto), signed and dated by each mortgage applicant and the sponsored originator, and any other written or recorded information used in evaluating the application, as required by Regulation B (12 C.F.R. §1002.4(c));

(ii) the initial and any revised good faith estimate (Regulation X, 12 C.F.R. §1024.7), integrated loan estimate disclosure (Regulation Z, 12 C.F.R. §1026.37), or similar, provided to the mortgage applicant;

(iii) the final settlement statement (Regulation X, 12 C.F.R §1024.8), closing statement, or integrated closing disclosure (Regulation Z, 12 C.F.R. §1026.19(f) and §1026.38);

(iv) the disclosure required by Finance Code §157.0021 and §57.200(b) of this title (relating to Required Disclosures), and records reflecting timely delivery of the disclosure to the mortgage applicant;

(v) if provided to a mortgage applicant or prospective mortgage applicant, the conditional pre-qualification letter, or similar, as specified by Finance Code §157.02012 and §57.201 of this title (relating to Conditional Pre-Qualification and Conditional Approval Letters);

(vi) if provided to a mortgage applicant or prospective mortgage applicant, the conditional approval letter, or similar, as specified by Finance Code §157.02012 and §57.201 of this title;

(vii) each item of correspondence, all evidence of any contractual agreement or understanding, and all notes and memoranda of conversations or meetings with a mortgage applicant or any other party in connection with the loan application or its ultimate disposition (e.g., fee agreements, rate lock agreements, or similar documents);

(viii) if the loan is a "home loan" as defined by Finance Code §343.001, the notice of penalties for making a false or misleading written statement required by Finance Code §343.105, signed at closing by each mortgage applicant;

(ix) if the transaction is a purchase money or wrap mortgage loan transaction, the real estate sales contract or real estate purchase agreement for the sale of the residential real estate;

(x) consumer reports or credit reports obtained in connection with the residential mortgage loan or prospective residential mortgage loan, and if a fee is paid by or imposed on the mortgage applicant for such consumer report or credit report, invoices and proof of payment for the purchase of the consumer report or credit report;

(xi) appraisal reports or written valuation reports used to determine the value of the residential real estate secured or designed to be secured by the loan, and if a fee is paid by or imposed on the mortgage applicant for such appraisal report or written valuation report, invoices and proof of payment for the appraisal report or written valuation report;

(xii) invoices and proof of payment for any third-party fees paid by or imposed on the mortgage applicant;

(xiii) refund checks issued to the mortgage applicant;

(xiv) if applicable, the risk-based pricing notice required by Regulation V (12 C.F.R. §1022.72);

(xv) if applicable, invoices for independent loan processors or underwriters;

(xvi) if the mortgage banker or sponsored originator acts in a dual capacity as the loan originator and real estate broker, sales agent, or attorney in the transaction, the disclosure of multiple roles in a consumer real estate transaction, signed and dated by each mortgage applicant, as required by Finance Code §157.024(a)(10);

(xvii) the initial privacy notice required by Regulation P (12 C.F.R. §1016.4) or the Federal Trade Commission's Privacy of Consumer Financial Information rules (16 C.F.R. §313.4);

(xviii) the mortgage applicant's written authorization to receive electronic documents as required by the E-Sign Act and Regulation Z (12 C.F.R. §1026.17(a)(1));

(xix) records reflecting compensation paid to employees or independent contractors in connection with the transaction;

(xx) any other agreements, notices, disclosures, or affidavits required by federal or state law in connection with the transaction; and

(xxi) any written agreements or other records governing the origination of the residential mortgage loan or prospective residential mortgage loan;

(B) Lender Transactions. For transactions where the mortgage banker made the loan (lender), the following records:

(i) the promissory note, loan agreement, or repayment agreement, signed by the borrower (mortgage applicant);

(ii) the recorded deed of trust, contract, security deed, security instrument, or other lien transfer document, signed by the borrower (mortgage applicant);

(iii) any verifications of income, employment, or deposits obtained in connection with the loan;

(iv) copies of any title insurance policies with endorsements or title search reports obtained in connection with the loan, and if a fee is paid by or imposed on the mortgage applicant for such title insurance policies or title search reports, invoices and proof of payment for the title insurance policy or title search report; and

(v) if applicable, the flood determination certificate obtained in connection with the loan, and if a fee is paid by or imposed on the mortgage applicant for such flood certificate, invoices and proof of payment for the flood determination certificate;

(C) Truth in Lending Act (TILA). For transactions that are subject to the requirements of TILA (15 U.S.C. §1601 et seq.) and Regulation Z (12 C.F.R. §1026.1 et seq.), the following records:

(i) the initial Truth-in-Lending statement for home equity line of credit and reverse mortgage transactions required by Regulation Z (12 C.F.R. §1026.19);

(ii) if the transaction is an adjustable rate mortgage transaction, the adjustable rate mortgage program disclosures;

(iii) records relating to the mortgage applicant's ability to repay the loan, as required by Regulation Z (12 C.F.R. §1026.43(c));

(iv) if the mortgage applicant is permitted to shop for a settlement service, the written list of providers required by Regulation Z (12 C.F.R. §1026.19(e)(1)(vi)(C));

(v) the notice of intent to proceed with the transaction required by Regulation Z (12 C.F.R. §1026.19(e)(2)(i)(A));

(vi) if applicable, records related to a changed circumstance required by Regulation Z (12 C.F.R. §1026.19(e)(3)(iv));

(vii) the notice of right to rescission required by Regulation Z (12 C.F.R. §1026.15 or §1026.23);

(viii) for high-cost mortgage loans, the disclosures required by Regulation Z (12 C.F.R. §1026.32(c));

(ix) for high-cost mortgage loans, the certification of counseling required by Regulation Z (12 C.F.R. §1026.34(a)(5)(i));

(x) for home equity line of credit transactions:

(I) the account-opening disclosure required by Regulation Z (12 C.F.R. §1026.6(a));

(II) the early disclosure statement required by Regulation Z (12 C.F.R. §1026.40(d));

(III) the Home Equity Line of Credit Brochure required by Regulation Z (12 C.F.R. §1026.40(e)); and

(xi) any other notice or disclosure required by TILA or Regulation Z;

(D) Real Estate Settlement Procedures Act (RESPA). For transactions that are subject to the requirements of RESPA (12 U.S.C. §2601 et seq.) and Regulation X (12 C.F.R. §1024.1 et seq.), the following records:

(i) records reflecting delivery of the special information booklet required by Regulation X (12 C.F.R. §1024.6);

(ii) any affiliated business arrangement disclosure statement provided to the mortgage applicant in accordance with Regulation X (12 C.F.R. §1024.15);

(iii) records reflecting delivery of the list of homeownership counseling organizations required by Regulation X (12 C.F.R. §1024.20); and

(iv) any other notice or disclosure required by RESPA or Regulation X;

(E) Equal Credit Opportunity Act - Transactions Not Resulting in Approval. For residential mortgage loan applications where a notice of incompleteness is issued, a counteroffer is made, or adverse action is taken, as provided by Regulation B (12 C.F.R. §1002.1 et seq.), the following records, as applicable:

(i) the notice of incompleteness required by Regulation B (12 C.F.R. §1002.9(c)(2));

(ii) the counteroffer letter sent to the mortgage applicant in accordance with Regulation B (12 C.F.R. §1002.9); and

(iii) the adverse action notification (a/k/a turndown letter) required by Regulation B (12 C.F.R. §1002.9(a));

(F) Home Equity Transactions. For home equity loan transactions or home equity line of credit transactions, the following records (references in this subparagraph to Section 50 refer to Article XVI, Section 50, Texas Constitution; see also subparagraph (C)(x) of this paragraph):

(i) the preclosing disclosures required by Section 50(a)(6)(M)(ii) and §153.13 of this title (relating to Preclosing Disclosures: Section 50(a)(6)(M)(ii); as provided by such section, the closing disclosure or account-opening disclosures required by Regulation Z fulfills this requirement);

(ii) the consumer disclosure required by Section 50(g) and §153.51 of this tile (relating to Consumer Disclosure: Section 50(g));

(iii) if an attorney-in-fact executes the closing documents on behalf of the owner or owner's spouse, a copy of the executed power of attorney and any other documents evidencing execution of such power of attorney at the permanent physical address of an office of the lender, an attorney at law, or a title company, as required by §153.15 of this title (relating to Location of Closing: Section 50(a)(6)(N));

(iv) if the borrower (mortgage applicant) uses the proceeds of the loan to pay off a non-homestead debt with the same lender, a written statement, signed by the mortgage applicant, indicating the proceeds of the home equity loan were voluntarily used to pay such debt (see Section 50(a)(6)(Q)(i));

(v) notice of the right of rescission, as required by Section 50(a)(6)(Q)(viii) (as provided by §153.25 of this title (relating to Right of Rescission: Section 50(a)(6)(Q)(viii)), the notice of right of rescission required by TILA and Regulation Z fulfills this requirement);

(vi) the written acknowledgement as to the fair market value of the homestead property, as required by Section 50(a)(6)(Q)(ix) and §153.26 of this title (relating to Acknowledgement of Fair Market Value: Section 50(a)(6)(Q)(ix));

(vii) any discount point acknowledgement form used by the lender to substantiate that the discount points are bona fide as required by §153.5 of this title (relating to Two Percent Fee Limitation: Section 50(a)(6)(E));

(viii) the Texas Home Equity Affidavit and Agreement (Fannie Mae Form 3185), or similar;

(ix) for home equity line of credit transactions, the Texas Home Equity Line of Credit Agreement or repayment agreement;

(x) if the home equity loan is refinanced into a non-home equity loan, the Texas Notice Concerning Refinance of Existing Home Equity to Non-Home Equity Loan, as required by Section 50(f)(2)(D) and §153.45 of this title (relating to Refinance of an Equity Loan: Section 50(f));

(G) Wrap Mortgage Loans. For wrap mortgage loan transactions subject to the requirements of Finance Code Chapter 159, the following records:

(i) the disclosure statement required by Finance Code §159.101 and §78.101 of this title (relating to Required Disclosure), signed and dated by each mortgage applicant, and any foreign language disclosure statement required by Finance Code §159.102;

(ii) the disclosure statement required by Property Code §5.016 provided to each existing lienholder (the disclosure statement required by Finance Code §159.101 and §78.101 of this title (relating to Required Disclosure) referenced in clause (i) of this subparagraph fulfills this requirement if it was provided to each existing lienholder); and

(iii) documents evidencing that the wrap mortgage loan was closed by an attorney or a title company, as required by Finance Code §159.105;

(H) Home Improvement Loans. For home improvement transactions (including repair, renovation, and new construction), the following records:

(i) the mechanic's lien contract;

(ii) documents evidencing the transfer of lien from the contractor to the lender;

(iii) the residential construction contract;

(iv) notice of the right of rescission required by Section 50(a)(5)(C) (the notice of right of rescission required by TILA and Regulation Z fulfills this requirement); and

(v) any other notice or disclosure required by Property Code Chapter 53;

(I) Reverse Mortgages. For reverse mortgage transactions, the following records:

(i) the disclosure required by Section 50(k)(9);

(ii) the certificate of counseling required by Section 50(k)(8);

(iii) the servicing disclosure statement required by Regulation X (12 C.F.R. §1024.33(a));

(iv) the disclosures required by Regulation Z (12 C.F.R. §1026.33(b)); and

(v) any other notice or disclosure required by federal or state law to originate a reverse mortgage;

(d) Required Records (Loan Processing and Underwriting). A mortgage banker and its sponsored originators must maintain the following items in connection with the provision of third-party loan processing and underwriting services by the mortgage banker to a mortgage company licensed by SML or a mortgage banker registered with SML: Loan Processing and Underwriting Log. A loan processing and underwriting log, maintained on a current basis (meaning all entries must be made within 7 days after the date on which the events they relate to occurred and updated as the information changes) that sets forth, at a minimum (the log may include additional information, provided, the information is readily sortable as required by subsection (b)(1) of this section):

(1) full name of each mortgage applicant (last name, first name);

(2) application/loan identification number assigned by the mortgage banker;

(3) application/loan identification number assigned by the mortgage company or mortgage banker to which the mortgage banker is providing loan processing or underwriting services, if different than paragraph (2) of this subsection;

(4) loan identification number assigned by the lender, if different than paragraphs (2) or (3) of this subsection;

(5) address of the subject property (street address, city, state, zip code);

(6) full name and NMLS ID of the mortgage company or mortgage banker to which the mortgage banker is providing loan processing or underwriting services;

(7) the name, NMLS ID, and employment status (e.g., W-2 or 1099) of each individual loan processor or underwriter performing loan processing or underwriting services on behalf of the mortgage banker;

(8) closing date;

(9) description of the owner's or prospective owner's intended occupancy of the real estate secured or designed to be secured by the loan (e.g., primary residence (including real estate (land lot) or a dwelling not suitable for occupancy at the time the loan is consummated but that the owner intends to occupy as their primary residence after consummation of the loan), secondary residence, or investment property (no intent to occupy as their residence));

(10) description of the current status or disposition of the loan application (e.g., in-process, withdrawn, closed, or denied);

(11) dollar amount invoiced, assessed, charged, collected, or paid for the loan processing or underwriting services provided by the mortgage banker; and

(12) description of whether the fee for the loan processing or underwriting services was included on the Closing Disclosure as a fee paid directly to the mortgage banker at closing (e.g., on CD, or not on CD).

(e) Other Records Required by Federal Law. A mortgage banker and its sponsored originators must maintain such other books and records as may be required to evidence compliance with applicable federal laws and regulations, including, but not limited to:

(1) Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) and Regulation V (12 C.F.R. §1022.1 et seq.);

(2) Gramm-Leach-Bliley Act (15 U.S.C. §6801 et seq.) and Regulation P (12 C.F.R. §1016.1 et seq.), and the regulations of the Federal Trade Commission (16 C.F.R. §313.1 et seq.);

(3) Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. §5101 et seq.) and Regulation H (12 C.F.R. §1008.1 et seq.);

(4) Regulation N (12 C.F.R. §1014.1 et seq.); and

(5) the FTC's Standards for Safeguarding Customer Information Rule (16 C.F.R. §314.1 et seq.).

(f) General Business Records. A mortgage banker and its sponsored originators must capture and maintain the following records generated in the normal course of doing business:

(1) all checkbooks, check registers, bank statements, deposit slips, withdrawal slips, and cancelled checks (or copies thereof) relating to residential mortgage loan origination business;

(2) complete records (including invoices and supporting documentation) for all expenses and fees paid on behalf of a mortgage applicant, including a record of the date and amount of all such payments actually made by each mortgage applicant;

(3) all federal tax withholding forms, reports of income for federal taxation, and evidence of payments to all mortgage banker employees, independent contractors, and all others compensated by the mortgage banker in connection with residential mortgage loan origination business;

(4) all written complaints or inquiries (or summaries of any verbal complaints or inquiries) along with any correspondence, notes, responses, and documentation relating thereto and the disposition thereof;

(5) all contractual agreements or understandings with third parties in any way relating to a residential mortgage loan transaction including, but not limited to, any delegations of underwriting authority, any agreements for pricing of goods or services, investor contracts, or employment agreements;

(6) all reports of audits, examinations, inspections, reviews, investigations, or similar, performed by any third party, including any regulatory or supervisory authorities;

(7) all advertisements in the medium (e.g., recorded audio, video, Internet or social media site posting, or print) in which they were published or distributed; and

(8) policies and procedures related to the origination of residential mortgage loans by the mortgage banker and its sponsored originators, including, but not limited to:

(A) identity theft prevention program (red flags rule; 16 C.F.R. §681.1(d));

(B) anti-money laundering program (31 C.F.R. §1029.210);

(C) information security program (16 C.F.R. §314.3(a));

(D) ability-to-repay underwriting policies, if any, under Regulation Z (12 C.F.R. §1026.43(c));

(E) quality control policy, if any;

(F) compliance manual, if any; and

(G) personnel administration/employee policies, if any;

(g) Records Concerning Administrative Offices. A mortgage banker must maintain a list reflecting any office constituting an "administrative office" of the mortgage banker for purposes of §57.206 of this title (relating to Office Locations; Remote Work);

(h) Records Concerning Remote Work. A mortgage banker must maintain records reflecting its compliance with the requirements for remote work, as provided by §57.206 of this title;

(i) Records Concerning Voluntary Corrective Action. A mortgage banker must maintain records showing compliance with §57.303 of this title (relating to Corrective Action);

(j) Records Concerning Unclaimed Funds. A mortgage banker must maintain records showing compliance with §57.304 of this title (relating to Unclaimed Funds);

(k) Other Records Designated by SML. A mortgage banker and its sponsored originators must maintain such other books and records as SML may, from time to time, specify in writing.

History

• Source Note: The provisions of this §57.204 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.205 Mortgage Call Reports

(a) Purpose. This section clarifies and establishes requirements related to the mortgage call reports a mortgage banker is required to file under Finance Code §157.020.

(b) NMLS Filing Requirements. Mortgage call reports must be filed in NMLS by the deadlines established by NMLS. The mortgage call report must be filed using the current form prescribed by NMLS. Information about how to file the mortgage call report and applicable filing deadlines is available on the NMLS Resource Center website (nationwidelicensingsystem.org).

(c) Components. The mortgage call report consists of three components, all of which must be completed:

(1) Residential Mortgage Loan Activity (RMLA);

(2) State-Specific Supplemental Form (SSSF); and

(3) Statement of Financial Condition.

(d) Partial Reporting Periods; Periods of Inactivity. A mortgage call report must be filed for all reporting periods during which the mortgage banker is registered, including partial periods, and periods during which the mortgage banker has no reportable activity.

(e) Extensions of Time. The Commissioner, in his or her sole discretion, may grant an extension of time to file the mortgage call report. A request for an extension of time must be made in writing and approved by the Commissioner.

(f) Duty to File Complete and Accurate Reports. The mortgage call report must contain complete and accurate information at the time it is filed. A mortgage call report containing incomplete or inaccurate information is deemed to be a failure to file the report. A mortgage banker must act diligently to compile the information necessary to complete the mortgage call report in advance of the deadline to file the mortgage call report. For clarity, the filing of incomplete or inaccurate information, even on a temporary basis with the intent to amend the filing with complete and accurate information, constitutes a violation of Finance Code §157.020, and this section, and may result in disciplinary action as described by subsection (g) of this section.

(g) Failure to File; Disciplinary Action. Failure to file a mortgage call report may result in disciplinary action, including, but not limited to, denial, suspension, or revocation of the registration, or the imposition of an administrative penalty.

History

• Source Note: The provisions of this §57.205 adopted to be effective January 1, 2026, 49 TexReg 9211.

7 Tex. Admin. Code § 57.206 Office Locations; Remote Work

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Administrative office" means any office of a mortgage banker that is separate and distinct from its main office or a branch office, whether located in Texas or not, at which the mortgage banker conducts residential mortgage loan business in Texas. The term does not include a "remote location" as defined by this section. The term includes:

(A) an office or location at which the employees of the mortgage banker act solely in the capacity of a "loan processor or underwriter," as that term is defined by Finance Code §180.002;

(B) an office or location at which the employees of the mortgage banker perform solely administrative or clerical tasks on behalf of an individual licensed as an originator, as provided by Finance Code §180.002(19)(B)(i);

(C) with respect to a mortgage banker whose registration under Finance Code Chapter 157 reflects it acts as a servicer of residential mortgage loans, an office or location at which a mortgage banker or its employees solely perform activities relating to residential mortgage loan servicing, including:

(i) collection of the residential mortgage loan;

(ii) the administration of escrow accounts;

(iii) loss mitigation;

(iv) administering or enforcing the terms of a residential mortgage loan; or

(v) administering the terms of an investor servicing agreement for a residential mortgage loan; or

(D) an office or location which conducts any combination of activities described by subparagraphs (A) - (C) of this paragraph.

(2) "Branch office" means any office a mortgage banker maintains that is separate and distinct from its main office, whether located in Texas or not, at which it conducts residential mortgage loan origination business with mortgage applicants or prospective mortgage applicants in Texas or concerning residential real estate located in Texas. The term does not include:

(A) an office or location at which the employees of the mortgage banker act solely in the capacity of a "loan processor or underwriter," as that term is defined by Finance Code §180.002;

(B) an office or location at which the employees of the mortgage banker perform solely administrative or clerical tasks on behalf of an individual licensed as an originator, as provided by Finance Code §180.002(19)(B)(i);

(C) with respect to a mortgage banker whose registration under Finance Code Chapter 157 reflects it acts as a servicer of residential mortgage loans, an office or location at which a mortgage banker or its employees solely perform activities relating to residential mortgage loan servicing, including:

(i) collection of the residential mortgage loan;

(ii) the administration of escrow accounts;

(iii) loss mitigation;

(iv) administering or enforcing the terms of a residential mortgage loan; or

(v) administering the terms of an investor servicing agreement for a residential mortgage loan;

(D) an office or location which conducts any combination of activities described by subparagraphs (A) - (C) of this paragraph; or

(E) a "remote location" as defined by this section.

(3) "Main office" means the office the mortgage banker has listed in its NMLS registration (MU1 filing) as its "main address" (principal address) under "identifying information," and is therefore registered with SML.

(4) "Registered office" means a physical office of the mortgage banker that is registered with SML as its main office or a branch office.

(5) "Remote location" means a location other than a registered office or an administrative office of the mortgage banker from which the employees or sponsored originators of the mortgage banker conduct residential mortgage loan business as provided by subsection (c) of this section.

(b) Office Requirements. A mortgage banker must register any office constituting the main office or a branch office of the mortgage banker. A mortgage banker must also register any office or location it advertises or promotes to the general public as an office or location at which the mortgage banker's sponsored originators meet in-person with mortgage applicants or prospective mortgage applicants. A registered office must be a physical office and have a permanent physical or street address (a post office box or other similar arrangement is not sufficient). The main office or a branch office must be established by the mortgage banker. A sponsored originator cannot establish his or her own office other than an office or location from which he or she performs remote work as provided by subsection (c) of this section. A branch office must be registered with SML prior to conducting operations.

(c) Authorization for Remote Work. The employees of a mortgage banker and its sponsored originators may conduct business and work from a remote location to the same extent as if such employee or originators were physically present at a licensed or registered office of the mortgage banker; provided, the mortgage banker:

(1) maintains appropriate safeguards for the mortgage banker and its consumer data, information, and records, including the use of secure virtual private networks and data storage encryption (including cloud storage) where appropriate;

(2) employs appropriate risk-based monitoring and oversight processes for work performed from a remote location and maintains records of those processes;

(3) ensures that physical records containing consumer information are not maintained at a remote location (as defined by this section) and any electronic records containing consumer information located at or accessible from the remote location are secured;

(4) ensures that consumer information and records of the mortgage banker, including written procedures and training for work from remote locations authorized under this section, are accessible and available to SML on request;

(5) provides appropriate training to its employees and sponsored originators to ensure that remote employees or sponsored originators work in an environment conducive and appropriate to consumer privacy; and

(6) adopts, maintains, and follows written procedures to ensure that:

(A) the mortgage banker and its employees and sponsored originators comply with this section; and

(B) the employees and sponsored originators do not perform an activity from a remote location that would be prohibited at a registered office or administrative office of the mortgage banker.

History

• Source Note: The provisions of this §57.206 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.207 Periodic Statements

A mortgage banker that acts a residential mortgage loan servicer and services a loan secured by a dwelling must comply with the requirements of Section 1026.41 of Regulation Z (12 C.F.R. §1026.41), governing the issuance, content, form, and layout of periodic statements sent to the borrower.

History

• Source Note: The provisions of this §57.207 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.210 Reportable Incidents

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Catastrophic event" means an event, other than a security event, that is unforeseen and results in extraordinary levels of damage or disruption to operations (e.g., the destruction of a principal office or data center).

(2) "Reportable incident" means an incident or situation that presents a material risk, financial or otherwise, to a mortgage banker's operations or its customers. A reportable incident includes the following items, provided, it presents a material risk:

(A) a "catastrophic event" as defined by this subsection; or

(B) a "security event" as defined by this subsection.

(3) "Root cause analysis report" means a written report concerning the results or findings of an audit or investigation to determine the origin or root cause of a security event, identify strategic measures to effectively contain and limit the impact of a security event, and to prevent a future security event.

(4) "Security event" means an event resulting in unauthorized access to, or disruption or misuse of, an information system, information stored on such information system, or customer information held in physical form. It includes information that is encrypted, if the person with unauthorized access to the information can decrypt the data.

(b) Incident Report. Except as provided by subsection (c) of this section, a mortgage banker must submit a written report to SML concerning any reportable incident within 30 days after the date the mortgage banker becomes aware of the reportable incident. The report must include:

(1) a detailed description of the nature and circumstances of the reportable incident;

(2) the number of Texas residents affected or potentially affected by the reportable incident;

(3) the measures taken by the mortgage banker to resolve or address the reportable incident;

(4) the measures the mortgage banker plans to take to resolve or address the reportable incident; and

(5) the point of contact designated by the mortgage banker for inquires by SML about the reportable incident.

(c) Incidents Reported to Other Agencies. A mortgage banker must provide SML with a copy of the following notifications sent to other agencies at the time it makes the notification. Except as provided by subsection (d) of this section, a notification provided to SML under this subsection satisfies the requirement to file a report under subsection (b) of this section:

(1) the notification to the Federal Trade Commission (FTC) required by Section 314.4(j) of the FTC's Standards for Safeguarding Customer Information rules (16 C.F.R. §314.4(j)); and

(2) the notification to the Office of the Attorney General of Texas required by Business and Commerce Code §521.053(i).

(d) Root Cause Analysis for Security Events. For any security event triggering a notification described by subsection (c) of this section, the mortgage banker must provide SML with a root cause analysis report within 120 days after the date the mortgage banker becomes aware that the security event occurred.

(e) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation related to a reportable incident as SML deems necessary or appropriate.

(f) Confidentiality. Information reported under this section is deemed to be confidential information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §157.021 and §57.302 of this title (relating to Confidentiality of Examination, Investigation, and Inspection Information).

History

• Source Note: The provisions of this §57.210 adopted to be effective November 23, 2024, 49 TexReg 9211.

Subchapter D SUPERVISION AND ENFORCEMENT

7 Tex. Admin. Code § 57.300 Examinations

(a) Purpose. This section clarifies and establishes requirements related to examinations of a mortgage banker's sponsored originators conducted by SML under Finance Code §157.021.

(b) State Examination System (SES). Examinations are conducted in SES. A mortgage banker must use SES to facilitate the examination.

(c) Examinations by Other State Agencies. SML may participate in, leverage, or accept an examination conducted by another state agency or regulatory authority if that state agency's or regulatory authority's mortgage regulation program is accredited by the Conference of State Bank Supervisors.

(d) Notice of Examination. Except when SML determines that giving advance notice would impair the examination, SML will give the primary contact person of the mortgage banker sponsoring the originator listed in NMLS or a person designated by the primary contact person advance notice of each examination. Such notice will be sent to the primary contact person's or designated person's mailing address or email address of record with NMLS and will specify the date on which SML's examiners are scheduled to begin the examination. Failure to receive the notice will not be grounds for delay or postponement of the examination. The notice will include a list of the documents and records that must be produced or made available to facilitate the examination.

(e) Examination Scope. Examinations will be conducted to determine compliance with Finance Code Chapters 157 and 180, and this chapter, and will specifically address whether:

(1) all persons are properly licensed and sponsored;

(2) all office locations are properly registered, as provided by §57.206 of this title (relating to Office Locations; Remote Work);

(3) all required books and records are being maintained in accordance with §57.204 of this title (relating to Books and Records);

(4) legal and regulatory requirements applicable to the mortgage banker and its sponsored originators are being properly followed (including, but not limited to, the requirements described in §57.202(b)(2) of this title (relating to Fraudulent, Misleading, or Deceptive Practices and Improper Dealings)); and

(5) other matters SML and its examiners deem necessary or advisable to carry out the purposes of Finance Code Chapters 157 and 180.

(f) Loan Sample. The examiners will review a sample of residential mortgage loan files identified by the examiners from the mortgage banker's mortgage transaction log required by §57.204(c)(1) of this title or the loan processing or underwriting log required by §57.204(d) of this title. The examiner may expand the number of files to be reviewed if, in his or her discretion, conditions warrant.

(g) Failure to Cooperate; Disciplinary Action. Failure by a mortgage banker or sponsored originator to cooperate with the examination or failure to grant the examiners access to books, records, documents, operations, and facilities may result in action against the mortgage banker under Finance Code §157.009 and disciplinary action against the originator including, but not limited to, imposition of an administrative penalty.

(h) Reimbursement for Costs. The examiners may require a mortgage banker, at its own cost, to make copies of loan files or such other books and records as the examiners deem appropriate. When SML must travel outside of Texas to conduct an examination of a mortgage banker's sponsored originators because the required records are maintained at a location outside of Texas, SML will require reimbursement for the actual costs incurred by SML in connection with such travel including, but not limited to, transportation, lodging, meals, communications, courier service and any other reasonably related costs. Costs assessed under this subsection will be invoiced in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §57.300 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.301 Investigations

(a) Purpose. This section clarifies and establishes requirements related to investigations SML conducts of a mortgage banker and its sponsored originators under Finance Code §157.009 and §157.021.

(b) Reasonable Cause. SML will conduct an investigation if it has reasonable cause to do so. Reasonable cause is deemed to exist if SML receives or discovers information from a source SML has not reason to believe is other than credible indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The absence of reasonable cause to initiate an investigation does not constitute grounds to challenge and does not invalidate an action taken by SML to address a violation found during the course of an investigation.

(c) Investigation Methods. Investigations will be conducted as SML deems appropriate based on the relevant facts and circumstances then known. An investigation may include:

(1) review of documentary evidence;

(2) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(3) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(4) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(5) other lawful investigative methods SML deems necessary or appropriate.

History

• Source Note: The provisions of this §57.301 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.302 Confidentiality of Examination, Investigation, and Inspection Information

(a) Purpose. This section clarifies and establishes requirements related to the confidentiality of information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §157.021.

(b) Confidential Information. All information obtained by SML during an examination, investigation, or inspection is confidential and cannot be released except as required or expressly permitted by law. The Finance Commission of Texas and the Commissioner have determined that the following information is confidential under Finance Code §157.021 (list is not exhaustive):

(1) any documents, data, data compilations, work papers, notes, memoranda, summaries, recordings, or other information, in whatever form or medium, obtained, compiled, or created during an examination, investigation, or inspection;

(2) information that is derived from or is the product of the confidential information described by paragraph (1) of this subsection, including any reports or other information chronicling or summarizing the results, conclusions, or other findings of an examination, investigation, or inspection, including assertions of an actual or apparent violation of law or any directives, mandates, or recommendations for action by the mortgage banker to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection; including, but not limited to, any corrective or remedial action directed by SML or taken by the mortgage banker under §57.303 of this title (relating to Corrective Action); and

(3) information that is derived from or is the product of the confidential information described by paragraphs (1) and (2) of this subsection, including any communications, documentary evidence, or other information concerning the mortgage banker's compliance with any directives, mandates, or recommendations for action by the mortgage banker and any corrective or remedial action taken by the mortgage banker to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the examination, investigation, or inspection.

(c) Loss of Confidentiality. Subsection (b) of this section notwithstanding, information described by that subsection is not confidential to the extent the information becomes publicly available in a disciplinary or enforcement action that is a contested case (i.e., information made part of the administrative record during an adjudicative hearing that is open to the public).

History

• Source Note: The provisions of this §57.302 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.303 Corrective Action

(a) Corrective Action, Generally; Purpose. During an examination, investigation, or inspection, SML may determine that violations, deficiencies, or compliance issues (collectively, violations) occurred. Within the confidential environment of the examination, investigation, or inspection, SML may direct the mortgage banker to voluntarily take corrective action to address the violations identified during the examination, investigation, or inspection. This section clarifies and establishes requirements related to such corrective action.

(b) Internal Reviews. If SML determines during an examination, investigation, or inspection that a violation may be systemic, SML may direct the mortgage banker to conduct its own internal review to self-identify any other violations, compile information concerning such violations, and report its findings to SML. SML may direct the mortgage banker to take corrective action for any violations identified during the review.

(c) Policies and Procedures and Internal Controls. SML may direct the mortgage banker to develop and adopt policies and procedures and institutional controls designed to prevent or mitigate future violations.

(d) Refunds to Consumers. SML may direct the mortgage banker to make refunds to consumers affected by the violation. Any refund must comply with this subsection. The Commissioner, in his or her sole discretion, may waive or modify the requirements of this subsection to achieve appropriate, practical, and workable results. A refund must be made by one of the following methods:

(1) Certified Funds. The refund may be made by certified funds (cashier's check or money order) sent to the mortgage applicant or borrower at his or her last known address. The mortgage banker must use reasonable diligence to determine the last known address of the mortgage applicant or borrower. The payment must be sent in a manner that includes tracking information and confirmation of delivery (e.g., certified mail return receipt requested, or commercial delivery service with tracking). The mortgage banker must capture and maintain records evidencing the payment, including a copy of the payment instrument, any correspondence accompanying the payment, tracking information, and delivery confirmation;

(2) Corporate Check. The refund may be made by issuing a check to the mortgage applicant or borrower. The check must be drawn on a bank account owned by the mortgage banker. The check must be sent to the mortgage applicant or borrower at his or her last known address. The mortgage banker must use reasonable diligence to determine the last known address of the mortgage applicant or borrower. The mortgage banker must capture and maintain records evidencing the payment, including a copy of the check, any correspondence accompanying the check, and evidence that the check was successfully negotiated (i.e., cancelled check). If the mortgage applicant or borrower fails to cash the check, the mortgage banker must comply with requirements of §57.304 of this title (relating to Unclaimed Funds);

(3) Wire Transfer or ACH. The refund may be made by wire transfer or automated clearing house (ACH) payment to the mortgage applicant's or borrower's verified bank account. The mortgage banker must capture and maintain records evidencing the payment, including any transaction receipt, confirmation page, or similar, reflecting:

(A) name of the sender and any relevant contact information;

(B) sender's bank information (institution, routing number, and account number);

(C) name of the recipient and any relevant contact information;

(D) recipient's bank information (routing number and account number); and

(E) the transaction reference number or confirmation code; or

(4) Credit Against Indebtedness. If the mortgage banker is the lender or holds the mortgage servicing rights to the residential mortgage loan related to the refund, the mortgage banker may issue a credit against the indebtedness equal to the refund; however, if the refund is related to an improper charge or proceeds improperly held by the mortgage banker on which interest was charged, the credit must be applied to the unpaid principal balance as of the date of such improper charge or the date the mortgage banker began improperly holding the proceeds. The mortgage banker must capture and maintain records evidencing application of the credit, including the payment history reflecting application of the credit and any subsequent adjustments to principal and interest payments as a result of the credit being applied.

History

• Source Note: The provisions of this §57.303 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.304 Unclaimed Funds

(a) Escheat Suspense Account; Escheat Log. Funds owed to or held for the benefit of a mortgage applicant, borrower, or other customer of the mortgage banker for more than one year (i.e., unclaimed funds) must be transferred to an escheat suspense account. The mortgage banker must maintain a log of all transfers made to the escheat suspense account, including, at a minimum:

(1) date of transfer to the escheat suspense account;

(2) date the obligation to pay the funds arose;

(3) full name and last known contact information of the mortgage applicant, borrower, or other customer to whom funds are owed; and

(4) amount of unclaimed funds.

(b) Required Records. The mortgage banker must maintain records reflecting bona fide attempts to pay the funds to the mortgage applicant, borrower, or customer.

(c) Escheat to State. At the end of three years, the unclaimed funds must be paid to the Texas Comptroller of Public Accounts as provided by Property Code §72.101, or as provided by such other state law governing the unclaimed funds.

(d) Records Retention. Records required by this section must be retained for 10 years beginning on the date the obligation to pay the unclaimed funds arose.

History

• Source Note: The provisions of this §57.304 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.310 Appeals

(a) Purpose. Finance Code Chapter 157 provides that certain decisions of the Commissioner adverse to the mortgage banker or other person may be appealed and offers the opportunity for an adjudicative hearing to challenge the decision. This section establishes various deadlines by which a mortgage banker or other person must appeal the decision before it becomes final and non-appealable.

(b) The following appeal deadlines apply:

(1) Registration Denials. A registration denial under Finance Code §157.003(e) must be appealed within 10 days after the date notice of the Commissioner's decision is received by the person seeking the registration.

(2) Notice of Revocation. A notice of revocation issued under Finance Code §157.009 must be appealed within 30 days after the date the notice is issued.

(3) Other Deadlines. Any appeal not otherwise addressed by this section must be made within 30 days after the date notice or order is issued.

(c) Requests for Appeal. An appeal must be made in writing and received by SML on or before the appeal deadline. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(d) Effect of Not Appealing. A mortgage banker or other person that does not timely appeal the Commissioner's decision is deemed to have irrevocably waived any right it had to challenge the decision or request an adjudicative hearing on the decision and is deemed not to have exhausted all administrative remedies available to it for purposes of judicial review of the Commissioner's decision under Government Code §2001.171. The failure to appeal an order of the Commissioner results in the order becoming final and non-appealable. The failure to appeal a notice of the Commissioner's decision means the Commissioner can issue a final, non-appealable order at any time without further notice or opportunity for a hearing to the mortgage banker or other person.

History

• Source Note: The provisions of this §57.310 adopted to be effective November 23, 2024, 49 TexReg 9211.

7 Tex. Admin. Code § 57.311 Hearings

Adjudicative hearings conducted under Finance Code Chapter 157 are governed by the rules in Chapter 9 of this title (concerning Rules of Procedure for Contested Hearings, Appeals, and Rulemakings). Contested cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings will be held in Austin, Texas. Any appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas.

History

• Source Note: The provisions of this §57.311 adopted to be effective November 23, 2024, 49 TexReg 9211.

Chapter 58 RESIDENTIAL MORTGAGE LOAN SERVICERS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 58.1 Purpose and Applicability

This chapter governs SML's administration and enforcement of Finance Code Chapter 158, the Residential Mortgage Loan Servicer Registration Act, concerning the registration and operations of residential mortgage loan servicers. This chapter applies to persons registered with SML as a residential mortgage loan servicer or those required to be registered.

History

• Source Note: The provisions of this §58.1 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.2 Definitions

For purposes of this chapter, and in SML's administration and enforcement of Finance Code Chapter 158, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(2) "Control person" means an individual that directly or indirectly exercises control over a mortgage servicer. Control is defined by the power, directly or indirectly, to direct the management or policies of a mortgage servicer, whether through ownership of securities, by contract, or otherwise. Control person includes any person that:

(A) is a director, general partner or executive officer;

(B) directly or indirectly has the right to vote 10% or more of a class of a voting security or has the power to sell or direct the sale of 10% or more of a class of voting securities;

(C) in the case of a limited liability company, is a manager or managing member; or

(D) in the case of a partnership, has the right to receive upon dissolution, or has contributed, 10% or more of the partnership's capital assets.

(3) "Dwelling" means a residential structure that contains one to four units and is attached to residential real estate. The term includes an individual condominium unit, cooperative unit, or a manufactured home, if it is used as a residence.

(4) "E-Sign Act" refers to the federal Electronic Signature in Global and National Commerce Act (15 U.S.C. §7001 et seq.).

(5) "Mortgage servicer" has the meaning assigned by Finance Code §158.002 in defining "residential mortgage loan servicer."

(6) "Mortgage servicing rights" means the contractual obligation to service a mortgage loan and the right to receive compensation for such services in accordance with the contract.

(7) "Nationwide Multistate Licensing System" or "NMLS" has the meaning assigned by Finance Code §180.002 in defining "Nationwide Mortgage Licensing System and Registry."

(8) "Person" has the meaning assigned by Finance Code §158.002.

(9) "Residential mortgage loan" has the meaning assigned by Finance Code §158.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan which is secured by a structure that is suitable for occupancy as a dwelling but used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as a residence.

(10) "Residential real estate" has the meaning assigned by Finance Code §158.002 and includes improved or unimproved real estate or any portion of or interest in such real estate on which a dwelling is or will be constructed or situated.

(11) "SML" means the Department of Savings and Mortgage Lending.

(12) "UETA" refers to the Texas Uniform Electronic Transactions Act, Business & Commerce Code Chapter 322.

History

• Source Note: The provisions of this §58.2 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.3 Formatting Requirements for Notices

Any notice or disclosure (notice) required by Finance Code Chapter 158, or this chapter, must be easily readable. A notice is deemed to be easily readable if it is in at least 12-point font and uses a typeface specified by this section. A font point generally equates to 1/72 of an inch. If Finance Code Chapter 158, or this chapter, prescribes a form for the notice, the notice must closely follow the font types used in the form. For example, where the form uses bolded, underlined, or "all caps" font type, the notice must be made using those font types. The following typefaces are deemed to be easily readable for purposes of this section (this list is not exhaustive and other typefaces may be used; provided, the typeface is easily readable):

(1) Arial;

(2) Aptos;

(3) Calibri;

(4) Century Schoolbook;

(5) Garamond;

(6) Georgia;

(7) Lucinda Sans;

(8) Times New Roman;

(9) Trebuchet; and

(10) Verdana.

History

• Source Note: The provisions of this §58.3 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.4 Electronic Delivery and Signature of Notices

Any notice or disclosure required by Finance Code Chapters 158, or this chapter, may be provided and signed in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §58.4 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.5 Computation of Time

The calculation of any time period measured in days by Finance Code Chapter 158, or this chapter, is made using calendar days, unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §58.5 adopted to be effective November 23, 2024, 49 TexReg 9215.

Subchapter B REGISTRATION

7 Tex. Admin. Code § 58.100 Registration Requirements

(a) Registration Required. A person, unless exempt as provided by Finance Code §158.052, is required to be registered with SML as a mortgage servicer under Finance Code Chapter 158 if the person:

(1) acts as a mortgage servicer or engages in or conducts the business of a mortgage servicer, concerning a residential mortgage loan secured by residential real estate in Texas; or

(2) advertises or holds that person out to the public as engaging in or conducting the business of a mortgage servicer in Texas.

(b) Wrap Mortgage Servicing. A "wrap lender," as defined by Finance Code §158.001, that holds the mortgage servicing rights for a wrap mortgage loan must be registered under Finance Code Chapter 158 and comply with the requirements of Finance Code Chapter 159, Subchapter F and Chapter 58 of this title (relating to Wrap Mortgage Loans).

(c) Master Servicers and Subservicers. With respect to a residential mortgage loan for which the mortgage servicing rights are held by a person who is not the owner of the note (a/k/a "master servicer"), the holder of the mortgage servicing rights must be registered under Finance Code Chapter 158 even if that person does not actually receive any payments from the borrower but, instead, contracts with another person to service the loan (a/k/a "subservicer").

History

• Source Note: The provisions of this §58.100 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.101 Applications for Registration

(a) NMLS. Applications for registration must be submitted through NMLS and must be made using the current form prescribed by NMLS. SML has published application checklists on the NMLS Resource Center website (nationwidelicensingsystem.org; viewable on the "State Licensing Requirements" webpage) which outline the requirements to submit an application. Applicants must comply with requirements in the checklist in making the application.

(b) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation deemed necessary or appropriate to determine that the registration requirements of Finance Code Chapter 158 are met.

(c) Incomplete Filings; Deemed Withdrawal. An application is complete only if all required information and supporting documentation is included and all required fees are received. If an application is incomplete, SML will send written notice to the applicant specifying the additional information, documentation, or fee required to render the application complete. The application may be deemed withdrawn and any fee paid will be forfeited if the applicant fails to provide the additional information, documentation, or fee within 30 days after the date written notice is sent to the applicant as provided by this subsection.

History

• Source Note: The provisions of this §58.101 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.102 Fees

(a) Registration Fees. The registration fee is determined by the Commissioner in an amount not to exceed the maximum amount specified by Finance Code §158.053(b), exclusive of fees charged by NMLS, as described in subsection (b) of this section. The Commissioner may establish different fee amounts for a new registration versus renewal of the registration. The current fee is set in NMLS and posted on SML's website (sml.texas.gov). The Commissioner may change the fee at any time; provided, any fee increase is not effective until notice has been posted on SML's website for at least 30 days. The registration fee must be paid in NMLS.

(b) NMLS Fees. NMLS charges a separate fee to process the application. Such fee is determined by NMLS and must be paid by the applicant at the time it files the application. The current fee is set in NMLS and posted on the NMLS website (nationwidelicensingsystem.org).

(c) All fees are nonrefundable and nontransferable.

History

• Source Note: The provisions of this §58.102 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.103 Renewal of Registration

(a) A registration may be renewed on:

(1) timely submission of a completed renewal application (renewal request) in NMLS together with payment of all required fees; and

(2) a determination by SML that the mortgage servicer continues to meet the minimum requirements for registration, including the requirements of Finance Code §158.058(c).

(b) Application of §58.101. A renewal request is an application subject to the requirements of §58.101 of this title (relating to Applications for Registration). A renewal request withdrawn under §58.101(c) of this title will be rejected in NMLS.

(c) Commissioner's Discretion to Approve with a Deficiency. The Commissioner may, in his or her sole discretion, approve a renewal request with one or more deficiencies the Commissioner deems to be relatively minor and allow the mortgage servicer to continue conducting regulated activities while the mortgage servicer works diligently to resolve the deficiencies. A renewal request approved by the Commissioner under this subsection will be assigned the NMLS registration status "Approved - Deficient." Approval under this subsection does not relieve the mortgage servicer of the obligation to resolve the deficiencies noted. A mortgage servicer approved under this subsection must resolve the deficiencies within 30 days after the date the registration is approved, unless an extension of time is granted by the Commissioner. Failure to timely resolve the deficiencies constitutes grounds for the Commissioner to suspend or revoke the registration.

(d) No Renewal After Expiration. If a mortgage servicer fails to make a renewal request during the annual renewal period (November 1 to December 31) while the registration is still active and before it expires, then the registration cannot be renewed. Instead, the person must apply for a new registration and comply with all current requirements and procedures governing issuance of a new registration.

History

• Source Note: The provisions of this §58.103 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.104 NMLS Records; Notices Sent to the Mortgage Servicer

(a) NMLS Registration Status. SML is required to assign a status to the registration in NMLS. The registration status is displayed in NMLS and on the NMLS Consumer Access website (nmlsconsumeraccess.org). SML is limited to the registration status options available in NMLS. The NMLS Resource Center website (nationwidelicensingsystem.org) describes the available registration status options and their meaning.

(b) Amendments to NMLS Records Required. A mortgage servicer must amend its NMLS registration records (MU1 filing) within 10 days after the date of any material change affecting any aspect of the MU1 filing, including, but not limited to:

(1) name (which must be accompanied by supporting documentation submitted to SML establishing the name change);

(2) the addition or elimination of an assumed name (also known as a trade name or "doing business as" name; which must be accompanied by a certificate of assumed business name or other documentation establishing or abandoning the assumed name);

(3) the contact information under "Identifying Information";

(4) the contact information listed under "Resident/Registered Agent";

(5) the contact information listed under "Contact Employee Information"; and

(6) answers to disclosure questions (which must be accompanied by explanations for each such disclosure, together with supporting documentation concerning such disclosure).

(c) Amendments to MU2 Associations Required. A mortgage servicer must cause the individuals who are required to register an association with the mortgage servicer (control persons) to make the proper filings in NMLS using the current form prescribed by NMLS (MU2 filing) and must ensure such associations are amended within 10 days after the date of any material change affecting such associations.

(d) Notices Sent to the Mortgage Servicer. Any correspondence, notification, alert, message, official notice or other written communication from SML will be sent to the mortgage servicer in accordance with this subsection using the mortgage servicer's current contact information of record in NMLS unless another method is required by other applicable law.

(1) Service by Email. Service by email is made using the email address the mortgage servicer has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by email is complete on transmission of the email to mortgage servicer's email service provider; provided, SML does not receive a "bounce back" notification, or similar, from the email service provider indicating that delivery was not effective. A mortgage servicer must monitor such email account and ensure that emails sent by SML are not lost in a "spam" or similar folder, or undelivered due to intervention by a "spam filter" or similar service. A mortgage servicer is deemed to have constructive notice of any emails sent by SML to the email address described by this paragraph. A mortgage servicer is further deemed to have constructive notice of any NMLS system notifications sent to it by email.

(2) Service by Mail. Service by mail is made using the address the mortgage servicer has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by mail is made using the address the mortgage servicer has designated in its MU1 filing under "Contact Employee Information" for the contact designated as the "Primary Company Contact." Service by mail is complete on deposit of the document, postpaid and properly addressed, in the mail or with a commercial delivery service. If service is made on the mortgage servicer by mail and the document communicates a deadline by or a time during which the mortgage servicer must perform some act, such deadline or time period for action is extended by 3 days. However, if service was made by another method prescribed by this subsection, such deadline or time period will be calculated based on the earliest possible deadline or shortest applicable time period.

History

• Source Note: The provisions of this §58.104 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.106 Surrender of the Registration

(a) Surrender Request. A mortgage servicer may seek surrender of the registration by filing a surrender request (request) in NMLS. The filing must be made using the current form prescribed by NMLS. SML will review the request and determine whether to grant it. SML may not grant the request if, among other reasons:

(1) the mortgage servicer is the subject of a pending or contemplated investigation or enforcement action;

(2) the mortgage servicer is in violation of an order of the Commissioner; or

(3) the mortgage servicer has failed to pay any fee, charge, or other indebtedness owed to SML.

(b) Inactive Status Pending Surrender. If SML does not grant the request or requires additional time to consider the request, the request will be left pending while the issue preventing SML from granting the request is resolved or lapses. During this time, the mortgage servicer's registration will be assigned the registration status "Approved - Inactive" in NMLS.

History

• Source Note: The provisions of this §58.106 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.107 Surety Bond Requirement

(a) Purpose and Applicability. This section clarifies and establishes requirements related to the surety bond certain mortgage servicers are required to have under Finance Code §158.055. This section does not apply to a mortgage servicer excepted from the surety bond requirement under Finance Code §158.055(h).

(b) NMLS Electronic Surety Bond Required. The surety bond must be submitted electronically through NMLS and must be made using the current form prescribed by NMLS. The NMLS Resource Center website (nationwidelicensingsystem.org) explains how to file the electronic surety bond in NMLS.

(c) Required Parties. The surety bond must be payable to the Commissioner as the sole payee. The name of the principal insured on the bond must match exactly the name filed with the Texas Secretary of State, if applicable.

(d) Authorized Surety Provider. The surety bond must be issued by a surety company authorized to transact business in Texas and comply with the applicable requirements of the Insurance Code.

(e) Minimum Bond Amount. Except as provided by paragraph (4) of this subsection, the minimum amount for the surety bond is determined based on the mortgage servicer's volume of loans serviced in Texas. The loan volume is calculated by adding the total unpaid principal balance of all residential mortgage loans serviced by the mortgage servicer secured by real property located in Texas as of October 31 of the year preceding the calendar year of the mortgage servicer's registration. The minimum amount for the surety bond is:

(1) New Applicants for Registration. If the applicant has never been registered with SML as a mortgage servicer or was not registered within the 12 months preceding the date of application, the minimum amount for the surety bond is $25,000. If the mortgage servicer was registered with SML within the 2 years preceding the date of application, the minimum amount for the surety bond is determined based on the mortgage servicer's loan volume on the day the mortgage servicer's registration lapsed.

(2) Volume less than or equal to $25,000,000. If the mortgage servicer's volume of loans is less than or equal to $25,000,000, the minimum amount for the surety bond is $25,000.

(3) Volume greater than $25,000,000. If the mortgage servicer's volume of loans is greater than $25,000,000, the minimum amount for the surety bond is $50,000.

(4) Servicers of Unimproved Real Property or Foreclosed Properties. Paragraphs (2) and (3) of this subsection notwithstanding, and as provided by Finance Code §158.055(c), if a mortgage servicer services only residential mortgage loans secured by unimproved real property or services only residential mortgage loans secured by foreclosed properties with a dwelling, or both, the minimum amount for the surety bond is $25,000, regardless of the cumulative value of sales of property by the mortgage servicer.

(f) Duty to Maintain and Update Surety Bond. The surety bond must remain active for as long as the mortgage servicer's registration is active. The mortgage servicer must recalculate the minimum amount for the surety bond before requesting renewal of the registration during the annual renewal period (November 1 to December 31). If the mortgage servicer is required to increase the amount of the surety bond as provided by this section, the new surety bond reflecting the higher surety bond amount must be active before the registration will be renewed.

History

• Source Note: The provisions of this §58.107 adopted to be effective January 1, 2026, 49 TexReg 9215.

Subchapter C DUTIES AND RESPONSIBILITIES

7 Tex. Admin. Code § 58.200 Required Disclosures

(a) Purpose. This section clarifies and establishes requirements related to the disclosure a mortgage servicer is required to make under Finance Code §158.101.

(b) Specific Notice to Borrower. A mortgage servicer must send written notice to the borrower concerning SML's regulatory oversight within 30 days after the date it begins servicing a residential mortgage loan. The notice must be in the current form prescribed by SML and posted on its website (sml.texas.gov). The notice must be included in the first notice sent to the borrower that notifies the borrower of the mortgage servicer's role in servicing the loan, including any notice required by Regulation X (12 C.F.R. §1024.33(b)). This subsection applies to the servicing of residential mortgage loans secured by real property located in Texas. Mortgage servicers servicing a residential mortgage loan not secured by real property located in Texas must not provide the notice described by this section.

(c) Posted Notice on Websites. A mortgage servicer must post the notice required by subsection (b) of this section on each website of the mortgage servicer, other than a social media site, that is accessible by a borrower. The notice must be displayed on the initial or home page of the website (typically the base-level domain name) or contained in a linked page with the link to such page displayed on the initial or home page.

(d) Disclosures in Correspondence. All correspondence sent to the borrower must include:

(1) the mortgage servicer's name and NMLS ID; and

(2) the mortgage servicer's website address, if it has as website.

History

• Source Note: The provisions of this §58.200 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.207 Periodic Statements

A mortgage servicer that services a loan secured by a dwelling must comply with the requirements of Section 1026.41 of Regulation Z (12 C.F.R. §1026.41), governing the issuance, content, form, and layout of periodic statements sent to the borrower.

History

• Source Note: The provisions of this §58.207 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.210 Reportable Incidents

(a) Definitions. For purposes of this section, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Catastrophic event" means an event, other than a security event, that is unforeseen and results in extraordinary levels of damage or disruption to operations (e.g., the destruction of a principal office or data center).

(2) "Reportable incident" means an incident or situation that presents a material risk, financial or otherwise, to a mortgage servicer's operations or its customers. A reportable incident includes the following items, provided, it presents a material risk:

(A) a "catastrophic event" as defined by this subsection;

(B) a "security event" as defined by this subsection;

(C) the termination or curtailment of a line of credit or funding source; or

(D) the termination or curtailment of a service provided to the mortgage servicer by a third-party service provider.

(3) "Root cause analysis report" means a written report concerning the results or findings of an audit or investigation to determine the origin or root cause of a security event, identify strategic measures to effectively contain and limit the impact of a security event, and to prevent a future security event.

(4) "Security event" means an event resulting in unauthorized access to, or disruption or misuse of, an information system, information stored on such information system, or customer information held in physical form. It includes information that is encrypted, if the person with unauthorized access to the information can decrypt the data.

(b) Incident Report. Except as provided by subsection (c) of this section, a mortgage servicer must submit a written report to SML concerning any reportable incident within 30 days after the date the mortgage servicer becomes aware of the reportable incident. The report must include:

(1) a detailed description of the nature and circumstances of the reportable incident;

(2) the number of Texas residents affected or potentially affected by the reportable incident;

(3) the measures taken by the mortgage servicer to resolve or address the reportable incident;

(4) the measures the mortgage servicer plans to take to resolve or address the reportable incident; and

(5) the point of contact designated by the mortgage servicer for inquires by SML about the reportable incident.

(c) Incidents Reported to Other Agencies. A mortgage servicer must provide SML with a copy of the following notifications sent to other agencies at the time it makes the notification. Except as provided by subsection (d) of this section, a notification provided to SML under this subsection satisfies the requirement to file a report under subsection (b) of this section:

(1) the notification to the Federal Trade Commission (FTC) required by Section 314.4(j) of the FTC's Standards for Safeguarding Customer Information rules (16 C.F.R. §314.4(j)); and

(2) the notification to the Office of the Attorney General of Texas required by Business and Commerce Code §521.053(i).

(d) Root Cause Analysis for Security Events. For any security event triggering a notification described by subsection (c) of this section, the mortgage servicer must provide SML with a root cause analysis report within 120 days after the date the mortgage servicer becomes aware that the security event occurred.

(e) Supplemental Information. SML may require additional, clarifying, or supplemental information or documentation related to a reportable incident as SML deems necessary or appropriate.

(f) Confidentiality. Information reported under subsection (b) or (d) of this section is deemed to be confidential information obtained by SML during an examination, investigation, or inspection, as provided by Finance Code §158.102 and §58.302 of this title (relating to Confidentiality of Investigation Information).

History

• Source Note: The provisions of this §58.210 adopted to be effective November 23, 2024, 49 TexReg 9215.

Subchapter D SUPERVISION AND ENFORCEMENT

7 Tex. Admin. Code § 58.301 Investigations

(a) Purpose. This section clarifies and establishes requirements related to investigations of a mortgage servicer conducted by SML under Finance Code §158.102.

(b) Reasonable Cause. SML will conduct an investigation if it has reasonable cause to do so. Reasonable cause is deemed to exist if SML receives or discovers information from a source SML has no reason to believe is other than credible indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The absence of reasonable cause to initiate an investigation does not constitute grounds to challenge and does not invalidate an action taken by SML to address a violation found during the course of an investigation.

(c) Investigation Methods. Investigations will be conducted as SML deems appropriate based on the relevant facts and circumstances then known. Such investigation may include:

(1) review of documentary evidence;

(2) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(3) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(4) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(5) other lawful investigative methods as SML deems necessary or appropriate.

(d) Investigation Fee. The Commissioner may collect a fee for conducting an investigation on a mortgage servicer. The amount of the fee is determined by the Commissioner not to exceed $975 per complaint. The investigation fee, if any, is assessed at the time SML closes the complaint. The investigation fee, if any, will be invoiced in NMLS and must be paid in NMLS.

History

• Source Note: The provisions of this §58.301 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.302 Confidentiality of Investigation Information

(a) Purpose. This section clarifies and establishes requirements related to the confidentiality of information obtained by SML during an investigation, as provided by Finance Code §158.102.

(b) Confidential Information. All information obtained by SML during an investigation is confidential and cannot be released except as required or expressly permitted by law. The Finance Commission of Texas and the Commissioner have determined that the following information is confidential under Finance Code §158.102 (list is not exhaustive):

(1) any documents, data, data compilations, work papers, notes, memoranda, summaries, recordings, or other information, in whatever form or medium, obtained, compiled, or generated during an investigation;

(2) information that is derived from or is the product of the confidential information described by paragraph (1) of this subsection, including any reports or other information chronicling or summarizing the results, conclusions, or other findings of an investigation, including assertions of an actual or apparent violation of law or any directives, mandates, or recommendations for action by the mortgage servicer to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the investigation; and

(3) information that is derived from or is the product of the confidential information described by paragraphs (1) and (2) of this subsection, including any communications, documentary evidence, or other information concerning the mortgage servicer's compliance with any directives, mandates, or recommendations for action by the mortgage servicer and any corrective or remedial action taken by the mortgage servicer to address, correct, or remediate the violations, deficiencies, issues, or other findings identified during the investigation.

(c) Loss of Confidentiality. Subsection (b) of this section notwithstanding, information described by that subsection is not confidential to the extent the information becomes publicly available in a disciplinary or enforcement action that is a contested case (i.e., information made part of the administrative record during an adjudicative hearing that is open to the public).

History

• Source Note: The provisions of this §58.302 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.303 Corrective Action

(a) Corrective Action, Generally; Purpose. During an investigation, SML may determine that violations, deficiencies, or compliance issues (collectively, violations) occurred. Within the confidential environment of the investigation, SML may direct the mortgage servicer to voluntarily take corrective action to address the violations identified during the investigation. This section clarifies and establishes requirements related to such corrective action.

(b) Internal Reviews. If SML determines during an investigation that a violation may be systemic, SML may direct the mortgage servicer to conduct its own internal review to self-identify any other violations, compile information concerning such violations, and report its findings to SML. SML may direct the mortgage servicer to take corrective action for any violations identified during the review.

(c) Policies and Procedures and Internal Controls. SML may direct the mortgage servicer to develop and adopt policies and procedures and institutional controls designed to prevent or mitigate future violations.

(d) Refunds to Consumers. SML may direct the mortgage servicer to make refunds to consumers affected by the violation. Any refund must comply with this subsection. The Commissioner, in his or her sole discretion, may waive or modify the requirements of this subsection to achieve appropriate, practical, and workable results. A refund must be made by one of the following methods:

(1) Certified Funds. The refund may be made by certified funds (cashier's check or money order) sent to the borrower at his or her last known address. The mortgage servicer must use reasonable diligence to determine the last known address of the borrower. The payment must be sent in a manner that includes tracking information and confirmation of delivery (e.g., certified mail return receipt requested, or commercial delivery service with tracking). The mortgage servicer must capture and maintain records evidencing the payment, including a copy of the payment instrument, any correspondence accompanying the payment, tracking information, and delivery confirmation;

(2) Corporate Check. The refund may be made by issuing a check to the borrower. The check must be drawn on a bank account owned by the mortgage servicer. The check must be sent to the borrower at his or her last known address. The mortgage servicer must use reasonable diligence to determine the last known address of the borrower. The mortgage servicer must capture and maintain records evidencing the payment, including a copy of the check, any correspondence accompanying the check, and evidence that the check was successfully negotiated (i.e., cancelled check). If the borrower fails to cash the check, the mortgage servicer must comply with requirements of §58.304 of this title (relating to Unclaimed Funds);

(3) Wire Transfer or ACH. The refund may be made by wire transfer or automated clearing house (ACH) payment to the borrower's verified bank account. The mortgage servicer must capture and maintain records evidencing the payment, including any transaction receipt, confirmation page, or similar, reflecting:

(A) name of the sender and any relevant contact information;

(B) sender's bank information (institution, routing number, and account number);

(C) name of the recipient and any relevant contact information;

(D) recipient's bank information (routing number and account number); and

(E) the transaction reference number or confirmation code; or

(4) Credit Against Indebtedness. If, at the time of the refund, the mortgage servicer holds the mortgage servicing rights to the residential mortgage loan related to the refund, the mortgage servicer may issue a credit against the indebtedness equal to the refund; however, if the refund is related to an improper charge or proceeds improperly held by the mortgage servicer on which interest was charged, the credit must be applied to the unpaid principal balance as of the date of such improper charge or the date the mortgage servicer began improperly holding the proceeds. The mortgage servicer must capture and maintain records evidencing application of the credit, including the payment history reflecting application of the credit and any subsequent adjustments to principal and interest payments as a result of the credit being applied.

History

• Source Note: The provisions of this §58.303 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.304 Unclaimed Funds

(a) Escheat Suspense Account; Escheat Log. Funds owed to or held for the benefit of a borrower or other customer of the mortgage servicer for more than one year (i.e., unclaimed funds) must be transferred to an escheat suspense account. The mortgage servicer must maintain a log of all transfers made to the escheat suspense account, including, at a minimum:

(1) date of transfer to the escheat suspense account;

(2) date the obligation to pay the funds arose;

(3) full name and last known contact information of the borrower other customer to whom funds are owed; and

(4) amount of unclaimed funds.

(b) Required Records. The mortgage servicer must maintain records reflecting bona fide attempts to pay the funds to the borrower or customer.

(c) Escheat to State. At the end of three years, the unclaimed funds must be paid to the Texas Comptroller of Public Accounts as provided by Property Code §72.101, or as provided by such other state law governing the unclaimed funds.

(d) Records Retention. Records required by this section must be retained for 10 years beginning on the date the obligation to pay the unclaimed funds arose.

History

• Source Note: The provisions of this §58.304 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.310 Appeals

(a) Purpose. Finance Code Chapter 158 provides that certain decisions of the Commissioner adverse to a mortgage servicer or other person may be appealed and offers the opportunity for an adjudicative hearing to challenge the decision. This section establishes various deadlines by which a mortgage servicer or other person must appeal the decision before it becomes final and non-appealable.

(b) The following appeal deadlines apply:

(1) Registration Denials. A registration denial under Finance Code §158.058(c), or otherwise, must be appealed on or before 10 days after the date notice of the Commissioner's decision is received by the person seeking the registration.

(2) Order to Take Affirmative Action or Order to Cease and Desist. An order issued by the Commissioner under Finance Code §§158.103(a), 158.105(a), or 158.106 must be appealed within 30 days after the date the order is issued.

(3) Notice of Revocation. A notice of revocation issued under Finance Code §158.059 must be appealed on or before 30 days after the date the notice is issued.

(4) Other Deadlines. Any appeal not otherwise addressed by this section must be made on or before 30 days after the date notice or order is issued.

(c) Requests for Appeal. An appeal must be made in writing and received by SML on or before the appeal deadline. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(d) Effect of Not Appealing. A mortgage servicer or other person that does not timely appeal the Commissioner's decision is deemed to have irrevocably waived any right it had to challenge the decision or request an adjudicative hearing on the decision and is deemed not to have exhausted all administrative remedies available to it for purposes of judicial review of the Commissioner's decision under Government Code §2001.171. The failure to appeal an order of the Commissioner results in the order becoming final and non-appealable. The failure to appeal a notice of the Commissioner's decision means the Commissioner can issue a final, non-appealable order at any time without further notice or opportunity for a hearing to the mortgage servicer or other person.

History

• Source Note: The provisions of this §58.310 adopted to be effective November 23, 2024, 49 TexReg 9215.

7 Tex. Admin. Code § 58.311 Hearings

Adjudicative hearings conducted under Finance Code Chapter 158 are governed by the rules in Chapter 9 of this title (concerning Rules of Procedure for Contested Hearings, Appeals, and Rulemakings). Contested cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings are held in Austin, Texas. Any appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas.

History

• Source Note: The provisions of this §58.311 adopted to be effective November 23, 2024, 49 TexReg 9215.

Chapter 59 WRAP MORTGAGE LOANS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 59.1 Purpose and Applicability

This chapter governs the Commissioner's administration and enforcement of Finance Code Chapter 159, governing wrap mortgage loans concerning residential real estate located in Texas. This chapter applies to wrap mortgage lenders, borrowers, and any person who collects or receives a payment from a wrap borrower under the terms of a wrap mortgage loan, including servicers of a wrap mortgage loan.

History

• Source Note: The provisions of this §59.1 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.2 Definitions

For purposes of this chapter, and in SML's administration and enforcement of Finance Code Chapter 159, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Application" means a request, in any form, for an offer (or a response to a solicitation of an offer) of wrap mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Attorney" has the meaning assigned by Insurance Code §2501.003.

(3) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(4) "E-Sign Act" refers to the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. §7001 et seq.).

(5) "Inspection" includes examination.

(6) "Legal holiday" means the federal legal public holidays specified in 5 U.S.C. §6103(a).

(7) "Make a wrap mortgage loan," means when a person determines the credit decision to provide the wrap mortgage loan, or the act of funding the wrap mortgage loan or transferring money to the wrap borrower. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the wrap mortgage loan.

(8) "Nationwide Multistate Licensing System" or "NMLS" has the meaning assigned by Finance Code §180.002 in defining "Nationwide Mortgage Licensing System and Registry."

(9) "Residential mortgage loan" has the meaning assigned by Finance Code §159.001. The term does not include a loan secured by structure that is suitable for occupancy as a dwelling but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as a residence.

(10) "Residential mortgage loan originator" has the meaning assigned by Finance Code §180.002.

(11) "Residential mortgage loan servicer" has the meaning assigned by Finance Code §158.002.

(12) "Residential real estate" has the meaning assigned by Finance Code §159.001. For purposes of Finance Code §159.002(b)(1), the term does not include "unimproved residential estate," as that term is defined by Finance Code §159.002(a).

(13) "SML" means the Department of Savings and Mortgage Lending.

(14) "Superior lien" refers to any lien described by Finance Code §159.001(7)(A).

(15) "Superior lienholder" means the holder of any lien described by Finance Code §159.001(7)(A).

(16) "Third-party servicer" means a person other than the wrap lender acting as residential mortgage loan servicer for a wrap mortgage loan.

(17) "Title company" means a "title insurance company" as that term is defined by Insurance Code §2501.003.

(18) "UETA" refers to the Texas Uniform Electronic Transactions Act, Business & Commerce Code Chapter 322.

(19) "Wrap borrower" has the meaning assigned by Finance Code §159.001.

(20) "Wrap lender" has the meaning assigned by Finance Code §159.001.

(21) "Wrap lender registrant" means a wrap lender who is required to register as a residential mortgage loan servicer under Finance Code Chapter 158.

(22) "Wrap mortgage applicant" means an applicant for a wrap mortgage loan or a person who is solicited (or contacts a wrap lender in response to a solicitation) to obtain a wrap mortgage loan, and includes a person who has not completed or started completing a formal loan application on the appropriate form (e.g., Fannie Mae's Form 1003 Uniform Residential Mortgage Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(23) "Wrap mortgage loan" has the meaning assigned by Finance Code §159.001.

History

• Source Note: The provisions of this §59.2 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.3 Formatting Requirements for Notices

Any notice or disclosure (notice) required by Finance Code Chapter 159, or this chapter, must be easily readable. A notice is deemed to be easily readable if it is in at least 12-point font and uses a typeface specified by this section. A font point generally equates to 1/72 of an inch. If Finance Code Chapter 159, or this chapter, prescribes a form for the notice, the notice must closely follow the font types used in the form. For example, where the form uses bolded, underlined, or "all caps" font type, the notice or disclosure must be made using those font types. The following typefaces are deemed to be easily readable for purposes of this section (list is not exhaustive and other typefaces may be used; provided, the typeface is easily readable):

(1) Arial;

(2) Aptos;

(3) Calibri;

(4) Century Schoolbook;

(5) Garamond;

(6) Georgia;

(7) Lucinda Sans;

(8) Times New Roman;

(9) Trebuchet; and

(10) Verdana.

History

• Source Note: The provisions of this §59.3 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.4 Electronic Delivery and Signature of Notices

Any notice or disclosure required by Finance Code Chapter 156, or this chapter, may be provided and signed in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §59.4 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.5 Computation of Time

The calculation of any time period measured in days by Finance Code Chapter 159, or this chapter, is made using calendar days, unless clearly stated otherwise. In computing a period of days, the first day is excluded and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

History

• Source Note: The provisions of this §59.5 adopted to be effective November 23, 2024, 49 TexReg 9217.

Subchapter B LENDER REQUIREMENTS AND RESPONSIBILITIES

7 Tex. Admin. Code § 59.100 Purpose and Applicability

The purpose of this subchapter is to clarify and establish requirements related to a wrap lender's requirements and responsibilities under a wrap mortgage loan, as provided by Finance Code Chapter 159, Subchapter C, and §159.105.

History

• Source Note: The provisions of this §59.100 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.101 Required Disclosure

(a) Purpose. The purpose of this section is to clarify and establish requirements related to the written disclosure a wrap lender is required to provide the wrap borrower in accordance with Finance Code §159.101 (disclosure).

(b) Model Disclosure Form. In accordance with Finance Code §159.101(c), the following form (Figure: 7 TAC §59.101(b)(3); model disclosure form) is deemed to satisfy the substantive requirements of Finance Code §159.101(a). Interested persons should visit SML's website (sml.texas.gov) for a form-fillable version of the model disclosure form and an editable version in Word format (including for purposes of attaching additional sheets to supplement the form with additional information, as necessary). A wrap lender may modify and customize the model disclosure form; provided, the form:

(1) contains all substantive information contained in the model disclosure form that is applicable to the person issuing the disclosure;

(2) conforms to the formatting requirements of §59.3 of this title (relating to Formatting Requirements for Notices); and

(3) otherwise fulfills the requirements of Finance Code §159.101(a).

Attached Graphic

(c) Effective Date. The disclosure is deemed to be provided by the wrap lender and received by the wrap borrower for purposes of Finance Code §159.101 on the date the disclosure is dated and signed by the wrap borrower, as provided by Finance Code §159.101(b).

(d) Foreign Language Requirement. The wrap borrower must be provided an English-language version of the disclosure in addition to and contemporaneously with the foreign-language version required by Finance Code §159.102, if applicable. A wrap lender may provide the English-language and foreign-language disclosure in a single, combined disclosure. A wrap borrower receiving a foreign-language version of the disclosure may, but is not required to, date and sign the foreign-language disclosure. A wrap borrower receiving a foreign-language version of the disclosure must date and sign the English-language version of the disclosure, which determines the effective date the disclosure is received by the wrap borrower, as provided by subsection (c) of this section. A Spanish-language version of the model disclosure form is available on SML's website (sml.texas.gov) and is deemed to satisfy the substantive requirements of Finance Code §159.101(a) and §159.102, with respect to negotiations with a wrap borrower conducted primarily in Spanish.

(e) Computation of Time. Computation of the time period for a wrap lender to provide the disclosure required by Finance Code §159.101(a) is made using calendar days, irrespective of any Saturdays, Sundays, or legal holidays.

History

• Source Note: The provisions of this §59.101 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.102 Closing Requirements

(a) Purpose. The purpose of this section is to clarify and establish requirements related to the requirement that a wrap mortgage loan be closed by an attorney or title company, as provided by Finance Code §159.105.

(b) Closing by Title Company. For purposes of Finance Code §159.105, a wrap mortgage loan may only be closed by a title company issuing an owner's title insurance policy to the wrap borrower for the residential real estate secured or designed to be secured by the wrap mortgage loan.

History

• Source Note: The provisions of this §59.102 adopted to be effective November 23, 2024, 49 TexReg 9217.

Subchapter C BORROWER'S RIGHTS AND RESPONSIBILITIES

7 Tex. Admin. Code § 59.200 Purpose and Applicability

The purpose of this subchapter is to clarify and establish requirements related to a wrap borrower's rights under a wrap mortgage loan, as provided by Finance Code Chapter 159, Subchapter E.

History

• Source Note: The provisions of this §59.200 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.201 Right to Deduct; Notice of Deduction

(a) Purpose. The purpose of this section is to clarify and establish requirements related to a wrap borrower's right to make deductions from the amounts the wrap borrower owes to the wrap lender under the terms of a wrap mortgage loan, as provided by Finance Code §159.202.

(b) Notice of Deduction. To the extent the wrap borrower seeks to exercise its right to deduct amounts owed to the wrap lender pursuant to Finance Code §159.202, the wrap borrower must, at the time the wrap borrower makes the deduction, provide the wrap lender or its third-party servicer notice of the amounts deducted including:

(1) an itemized list of the deductions made, describing in detail the amounts paid by the wrap borrower on behalf of the wrap lender;

(2) the dates on which such payments were made; and

(3) supporting documentation evidencing paragraphs (1) and (2) of this subsection.

History

• Source Note: The provisions of this §59.201 adopted to be effective November 23, 2024, 49 TexReg 9217.

Subchapter D WRAP LENDER AND SERVICER REQUIREMENTS

7 Tex. Admin. Code § 59.300 Purpose and Applicability

The purpose of this subchapter is to clarify and establish requirements applicable to persons who collect or receive a payment from a wrap borrower under the terms of a wrap mortgage loan, as provided by Finance Code Chapter 159, Subchapter D. The rules in this subchapter apply to a wrap lender or any other person who collects or receives a payment from a wrap borrower under the terms of a wrap mortgage loan, including a third-party servicer servicing a wrap mortgage loan.

History

• Source Note: The provisions of this §59.300 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.301 Fiduciary Duties; Required Accounting

(a) Purpose. The purpose of this section is to clarify and establish requirements related to the fiduciary duties owed to a wrap borrower by a person who collects or receives a payment from a wrap borrower under the terms of a wrap mortgage loan, as provided by Finance Code §159.152.

(b) Non-Delegation of Duties. A wrap lender or other person collecting or receiving a payment from a wrap borrower under the terms of a wrap mortgage loan may not delegate or assign its fiduciary duties owed under Finance Code §159.152 to another person except as a result of the wrap lender selling, assigning, transferring, or conveying the wrap mortgage loan. Any sale, assignment, transfer, or conveyance by a wrap lender of a wrap mortgage loan is deemed to include an assignment of the fiduciary duties owed by the wrap lender to the wrap borrower under Finance Code §159.152. A sale, assignment, transfer, or conveyance by a wrap lender of a wrap mortgage loan does not extinguish the assigning wrap lender's fiduciary duties to the wrap borrower in connection with amounts collected or received by the wrap lender from the wrap borrower prior to the effective date of the sale, assignment, transfer, or conveyance of the wrap mortgage loan.

(c) Required Accounting. The wrap lender must, either directly, or through use of a third-party servicer it has contracted with, maintain, on a current basis, separate written accountings for each wrap mortgage loan made by the wrap lender sufficient to account for, track, and retrospectively trace all payments received from the wrap borrower under the terms of the wrap mortgage loan, and all disbursements, transfers, or assignments of such funds, including, but not limited to, disbursements made to a superior lienholder, taxing authority, or insurance company in connection with the residential real estate secured by the wrap mortgage loan. The accounting required by this subsection must be maintained by the wrap lender or its successor-in-interest until the limitations period for the wrap borrower to bring any cause of action against the wrap lender arising from a violation of law in connection with the wrap mortgage loan transaction has lapsed. To the extent the wrap lender uses the services of a third-party servicer, a wrap lender must establish and maintain policies and procedures that are reasonably designed to acquire from the third-party servicer any information or supporting documentation necessary or prudent to ensure the wrap lender satisfies the accounting required by this subsection. The accounting required by this subsection may be accomplished through administration of and the retention of records in connection with a trust account as provided by §59.302 of this title (relating to Trust Account; Maintenance of Funds Held in Trust).

History

• Source Note: The provisions of this §59.301 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.302 Trust Account; Maintenance of Funds Held in Trust

(a) Purpose. The purpose of this section is to clarify and establish requirements related to the requirement of a person who collects or receives a payment from a wrap borrower under the terms of a wrap mortgage loan to hold such funds in trust, as provided by Finance Code §159.151.

(b) Definitions. The following terms in this section have the following meanings, unless the context clearly indicates otherwise:

(1) "Financial institution" has the meaning assigned by Finance Code §201.101(1).

(2) "Trust account" means a custodial, trust, or escrow account managed by one person for the benefit of another person.

(3) "Trust funds" means the funds collected or received from a wrap borrower under the terms of a wrap mortgage loan.

(4) "Receiver" means a wrap lender or other person collecting or receiving trust funds.

(c) Trust Account Required. Unless otherwise agreed to in writing by the wrap borrower and wrap lender in connection with the wrap mortgage loan, trust funds must be placed in a trust account meeting the requirements of this section, and maintained or disbursed in accordance with this section.

(d) Trust Account Requirements.

(1) The trust account must be clearly identified as such at the financial institution.

(2) The receiver may, but is not required to, maintain separate trust accounts for each wrap mortgage loan or wrap borrower. To the extent the receiver maintains separate trust accounts for each wrap mortgage loan or wrap borrower, the same trust account may also be used for purposes of administering an escrow account for the wrap mortgage loan or wrap borrower.

(3) Funds in the trust account must be capable of being disbursed by the receiver on-demand or in an amount of time sufficient to timely effect disbursements reasonably anticipated from the trust account.

(4) A receiver, in addition to depositing trust funds, may deposit and maintain a limited amount of money in the trust account necessary to avoid or cover potential fees imposed by the financial institution in connection with the trust account including account maintenance fees or fees charged for insufficient funds.

(e) A receiver may not:

(1) commingle trust funds with non-trust funds;

(2) deposit or maintain trust funds in a personal account or any form of business account; or

(3) pay operating expenses or otherwise make withdrawals or disbursements from a trust account for any purpose other than the proper disbursement of trust funds.

(f) Disbursement of Trust Funds.

(1) A receiver may only disburse money from a trust account in accordance with the terms of the wrap mortgage loan or such other agreement as may be entered into with the wrap borrower to govern the disbursement of trust funds.

(2) If a receiver is unable to reasonably determine to which party or parties trust funds should be disbursed, the receiver may tender trust funds into the registry of a court of competent jurisdiction and interplead the relevant party or parties.

History

• Source Note: The provisions of this §59.302 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.303 Use of a Third-Party Servicer

(a) Purpose. The purpose of this section is to clarify and establish requirements concerning a wrap lender's use of a third party to act as a residential mortgage loan servicer of wrap mortgage loan.

(b) Use of a Third-Party Servicer. A wrap lender is authorized to use the services of a third party to act as the residential mortgage loan servicer of a wrap mortgage loan (also known as a "subservicer").

(c) Handling of Payments and Disbursements. To the extent a wrap lender uses the services of a third-party servicer, the handling of payments and disbursement of funds received by the third-party servicer is governed by the agreement between the wrap lender and third-party servicer, including:

(1) whether or not and on what terms the third-party servicer makes disbursements to the superior lienholder;

(2) disbursements made to the wrap lender; and

(3) how payments by the wrap borrower in excess of the current amount due under the terms of the wrap mortgage loan are handled, applied, or disbursed.

(d) No Limitation on Liability. As provided by Finance Code §159.107, any agreement between a wrap lender and a third-party servicer may not seek to waive or limit the wrap lender's or third-party servicer's liability to the wrap borrower arising from the fiduciary duties owed to the wrap borrower pursuant to Finance Code §159.152. However, an agreement between a wrap lender and third-party servicer may contain an indemnification agreement concerning potential liability arising from the fiduciary duties owed to the wrap borrower under Finance Code §159.152.

History

• Source Note: The provisions of this §59.303 adopted to be effective November 23, 2024, 49 TexReg 9217.

Subchapter E SUPERVISION AND ENFORCEMENT

7 Tex. Admin. Code § 59.400 Purpose and Applicability

The purpose of this subchapter is to clarify and establish requirements related to the Commissioner's authority to conduct inspections of, and investigations on, a wrap lender who is required to register as a residential mortgage loan servicer under Finance Code Chapter 158 (wrap mortgage registrant), as provided by Finance Code Chapter 159, Subchapter F. This subchapter further clarifies and establishes requirements concerning the Commissioner's authority to seek enforcement action against a wrap mortgage registrant under Finance Code Chapter 159, Subchapter G.

History

• Source Note: The provisions of this §59.400 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.401 Required Books and Records by a Wrap Lender Registrant

(a) Purpose. This section clarifies and establishes requirements related to the wrap lender's requirement to maintain information and records necessary to facilitate the Commissioner's inspection of a wrap lender required to register as a residential mortgage loan servicer under Finance Code Chapter 158, as provided by Finance Code §159.252(d)(1). The requirements of this section are in addition to and supplement the requirements a wrap lender registrant or other person is required to maintain as a licensee or registrant under Finance Code Chapters 156, 157, 158, or 342, as applicable.

(b) Maintenance of Records, Generally. Each wrap lender registrant must maintain records with respect to each wrap mortgage loan under Finance Code Chapter 159 and make those records available for examination under Finance Code §159.252. The records required by this section may be maintained using a paper, manual, electronic, or digitally-imaged recordkeeping system, or a combination thereof, unless otherwise specified by other applicable law. The records must be accurate, complete, current, legible, and readily accessible and sortable. If the requirements of other applicable law governing recordkeeping by the wrap loan registrant differ from the requirements of this section, such other applicable law prevails only to extent this section conflicts with the requirements of this section.

(c) Required Records. A wrap lender registrant must maintain the following items:

(1) Wrap Mortgage Servicing Log. A wrap mortgage servicing log for each wrap mortgage loan serviced by a wrap lender registrant, maintained on a current basis (which means that all entries must be made within seven days from the date on which the matters they relate to occurred), setting forth, at a minimum:

(A) the loan or account number, or other unique identifier assigned by the wrap lender registrant to the wrap mortgage loan;

(B) the name and contact information of each wrap borrower; and

(C) the date the wrap mortgage loan was entered into by the wrap lender and wrap borrower.

(2) Wrap Borrower Index. The current alphabetical index or a report of outstanding wrap mortgage loans of the wrap lender registrant, regardless of whether or not it services the wrap mortgage loan, reflecting the name of each wrap borrower and the loan or account number, or other unique identifier assigned by the wrap lender to the wrap mortgage loan. A wrap lender registrant may maintain the wrap borrower index as a part of other records maintained by the wrap lender registrant; provided, the wrap lender registrant is able to sort, generate, and print, as a separate record, the wrap borrower index in strict alphabetical order.

(3) Wrap Mortgage Transaction File. A wrap lender registrant must maintain a wrap mortgage transaction file for each wrap mortgage loan or be able to produce the same information within a reasonable time upon request. The wrap mortgage transaction file must contain documents demonstrating the wrap lender registrant's compliance with applicable law, including Finance Code Chapter 159, and any applicable state and federal statutes, rules, or regulations. The wrap mortgage loan transaction file must include the following records or documents:

(A) for all wrap mortgage loan transactions:

(i) the promissory note, loan agreement, or repayment agreement, signed by the wrap borrowers;

(ii) the recorded deed of trust, contract, security deed, security instrument, or other lien transfer document signed by the wrap borrower(s);

(iii) the title insurance policy or abstract of title;

(iv) the initial and final mortgage application (including any attachments, supplements, or addenda thereto), signed and dated by the mortgage applicant and the residential mortgage loan originator, and any other written or recorded information used to evaluate the mortgage application, as required by Regulation B (12 C.F.R. §1002.4(c));

(v) the real estate contract documenting the sale of the residential real estate securing the wrap mortgage loan;

(vi) the disclosure statement requirement by Finance Code §159.101 and §59.101 of this title (relating to Required Disclosure), including any foreign-language disclosure required by Finance Code §159.102;

(vii) the initial and any revised integrated loan estimate disclosure required by Regulation Z (12 C.F.R. §1026.37);

(viii) the initial, revised, and final closing disclosure as required by Regulation Z (12 C.F.R. §1026.38);

(ix) any rate lock agreements, or similar document;

(x) the records relating to the ability-to-repay the wrap mortgage loan required by Regulation Z (12 C.F.R. §1026.25 and §1026.43);

(xi) copies of any appraisal reports or written valuation reports used to determine the value of the residential real estate;

(xii) the privacy notice required by Regulation P (12 C.F.R. §1016.5); and

(xiii) the wrap borrower's authorization and consent to receive electronic documents as required by the E-Sign Act and Regulation Z (12 C.F.R. §1026.17(a)(1);

(B) with respect to servicing the wrap mortgage loan, the following additional records are required to be maintained:

(i) any payoff requests received from the wrap borrower, agent of the wrap borrower, another lender, or a title company;

(ii) any payoff statements issued to the wrap borrower, agent of the wrap borrower, another lender, or a title company;

(iii) if the wrap mortgage loan is paid off or otherwise satisfied, a copy of the release of lien;

(iv) receipts or invoices along with proof of payment for any attorneys' fees assessed, charged, or collected in the collection of a delinquent wrap mortgage loan;

(v) if collateral protection insurance is acquired or purchased, a copy of the insurance policy or certificate of insurance and the notice required by Finance Code §307.052;

(vi) any periodic statements or billing invoices sent to the wrap borrower;

(vii) copies of any collection letters or notices sent by the wrap lender registrant or its agent to the wrap borrower;

(viii) any modification, reinstatement, or settlement agreement that is proposed or entered into between the wrap borrower and the wrap lender registrant;

(ix) any records related to a consumer inquiry, complaint, or error resolution;

(x) any records or documents relating to a request for protection under the Servicemembers Civil Relief Act (50 U.S.C. §3901 et seq.); and

(xi) any other servicing notice, disclosure, or record required by federal or state law;

(C) for wrap mortgage loan transactions involving a foreclosure or attempted foreclosure, the following records:

(i) for transactions involving judicial foreclosure:

(I) any records pertaining to a judicial foreclosure including records from the wrap lender registrant's attorneys, the court, or the wrap borrower or the wrap borrower's agent;

(II) any notice to cure the default sent to the wrap borrower and each superior lienholder as required by Property Code §51.002(d), including verification of delivery of the notice;

(III) any notice of intent to accelerate sent to the wrap borrower and each superior lienholder, including verification of delivery of the notice;

(IV) any notice of acceleration sent to the wrap borrower and each superior lienholder; and

(V) any records related to receipt of the foreclosure proceeds;

(ii) for transactions involving non-judicial foreclosure:

(I) the notice to cure the default sent to the wrap borrower and each superior lienholder as required by Property Code §51.002(d), including verification of delivery of the notice;

(II) the notice of intent to accelerate sent to the wrap borrower and each superior lienholder, including verification of delivery of the notice;

(III) the notice of acceleration sent to the wrap borrower and each superior lienholder;

(IV) the notice of sale required by Property Code §51.002(b) including verification of delivery of the notice;

(V) any records related to the foreclosure sale by the trustee including the person purchasing the property, and the dollar amount of the proceeds received from the foreclosure sale;

(VI) any records related to a short sale, deed-in-lieu of foreclosure, or similar disposition;

(VII) proof of payment of reasonable fees or charges paid by the trustee in connection with the deed of trust or similar instrument including fees for enforcing the lien against or posting for sale, selling, or releasing the residential real estate secured by the deed of trust; and

(VIII) the foreclosure deed upon sale of the property;

(D) for wrap mortgage loan transactions where the wrap borrower provided an actionable notice of rescission and the wrap lender registrant did not avoid the rescission, a copy of the notice of rescission and documentation reflecting that the wrap lender registrant refunded to the wrap borrower all amounts required by Finance Code §159.104(c);

(E) for wrap mortgage loan transactions where the wrap lender avoided the rescission, documentation reflecting that the wrap lender:

(i) paid the outstanding balance due on the debt owed on the residential real estate to the superior lienholders;

(ii) paid any due and unpaid taxes or other governmental assessments owed on the residential real estate;

(iii) paid to the wrap borrower as damages for noncompliance the sum of $1,000 and any reasonable attorneys' fees incurred by the wrap borrower; and

(iv) evidence of compliance with clause (i) or (ii) of this subparagraph provided to the wrap borrower;

(F) for wrap mortgage loan transactions where the wrap borrower has deducted from the amount owed to the wrap lender under the terms of the wrap mortgage loan as authorized by Finance Code §159.202, any records related to this action including the written notice from the wrap borrower required by §59.201 of this title (relating to Right to Deduct; Notice of Deduction), and any actions taken to address the deductions;

(4) General Business Records. General business records include:

(A) all servicing and sub-servicing agreements entered into by the wrap lender registrant as a residential mortgage loan servicer;

(B) policies and procedures related to the origination and servicing of wrap mortgage loans by the wrap lender registrant, including, but not limited to, Quality Control Policy / Compliance Manual, Identify Theft Prevention Program / Red Flags Rule required by 16 C.F.R. §681 et seq., Anti-Money Laundering Program required by Title X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978, Personnel Administration / Employee Policies, Ability-to-Repay Underwriting Policies, and an information security program required by 16 C.F.R. §314.1 et seq.;

(C) records reflecting the disbursement of money to pay the superior lienholders and payment of taxes and insurance for which the wrap lender registrant has received from the wrap borrower;

(D) all checkbooks, check registers, bank statements, deposit slips, withdrawal slips, and cancelled checks (or copies thereof) relating to disbursements made in connection with wrap mortgage loans by the wrap lender registrant;

(E) complete records (including invoices and supporting documentation) for all expenses and fees paid in connection with the wrap mortgage loan, including the date and amount of all such payments;

(F) copies of all written complaints or inquiries (or summaries of any verbal complaints or inquiries) along with any and all correspondence, notes, responses, and documentation relating thereto and the disposition thereof;

(G) copies of all contractual agreements or understandings with third parties in any way relating to a wrap mortgage loan transaction;

(H) copies of all reports of audits, examinations, reviews, investigations, or other similar matters performed by any third party, including any regulatory or supervisory authorities; and

(I) copies of all advertisements in the medium (e.g., recorded audio, video, and print) in which they were published or distributed;

(5) Record of the wrap borrower's account (payment and collection history). A separate record must be maintained for the servicing account of each wrap borrower and the record must contain at least the following information on each wrap mortgage loan serviced by the wrap lender registrant:

(A) loan identification number;

(B) loan repayment schedule and terms, itemized to reflect:

(i) the date of the loan;

(ii) the number of installments;

(iii) the due date of installments;

(iv) the amount of each installment; and

(v) the maturity date;

(C) name, address, and phone number of the wrap borrower(s);

(D) legal description of the residential real estate;

(E) principal amount;

(F) total interest charges, including the scheduled base finance charge, points (i.e., prepaid finance charge), and per diem interest;

(G) amount of official fees for recording or releasing a security interest that are collected at the time the loan is made;

(H) individual payment entries, itemized to show:

(i) the date payment was received (dual postings are acceptable if the date of posting is other than the date of receipt);

(ii) actual amounts received for application to principal and interest; and

(iii) actual amounts paid for default, deferment, or other authorized charges;

(I) individual entries for disbursements of funds from a wrap borrower under the terms of wrap mortgage loan to superior lienholders, taxing authorities, insurance companies, or other payees, itemized to show:

(i) the actual date of disbursement; and

(ii) the actual amounts disbursed;

(J) any refunds of unearned charges that are required in the event a loan is prepaid in full, including records of final entries, and entries to substantiate that refunds due were paid to the wrap borrower(s), with refund amounts itemized to show interest charges refunded, including the refund of any unearned points; and

(K) collection contact history, including a record of each contact made by a wrap lender registrant with the wrap borrower or any other person and each contact made by the wrap borrower with the wrap lender registrant, in connection with amounts due, with each record including the date, method of contact, contacted party, person initiating the contact, and a summary of the contact.

(d) A wrap lender registrant must maintain such other books and records as may be required to evidence compliance with applicable state and federal laws, rules, and regulations, including, but not limited to: the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, and the Truth in Lending Act.

(e) A wrap lender registrant must maintain such other books and records as the Commissioner or the Commissioner's designee may from time to time specify in writing.

(f) Production of Records. All books and records required by this section must be maintained in good order and must be produced for the Commissioner or the Commissioner's designee upon request.

(g) Records Retention Period. All books and records required by this section must be maintained for three years or such longer period(s) as may be required by applicable state or federal laws, rules, and regulations.

(h) Records Retention After Dissolution. Within ten days of termination of operations, a wrap lender registrant must provide SML with written notice of where the required records will be maintained for the prescribed periods. If such records are transferred to another wrap lender registrant, the transferee must provide SML with written notice within ten days after receiving such records.

History

• Source Note: The provisions of this §59.401 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.402 Examination of Wrap Lender Registrants

(a) Purpose. This section clarifies and establishes requirements related to SML's authority to make inspections of a wrap lender required to register as a residential mortgage loan servicer under Finance Code Chapter 158, as provided by Finance Code §159.252.

(b) Notice of Examination. Except when SML determines that giving advance notice would impair the examination, SML will give the primary contact person of the wrap lender registrant listed in NMLS, or a person designated by the primary contact person, advance notice of each examination. Such notice will be sent to the primary contact person's or designated person's mailing address or email address of record with NMLS and will specify the date on which SML's examiners are scheduled to begin the examination. Failure to receive the notice will not be grounds for delay or postponement of the examination. The notice will include a list of the documents and records that must be produced or made available to facilitate the examination.

(c) Examination Scope. Examinations will be conducted to determine compliance with Finance Code Chapter 159, and this chapter, and will specifically address whether:

(1) all required books and records are being maintained in accordance with §59.401 of this title (relating to Required Books and Records by a Wrap Lender Registrant);

(2) all legal and regulatory requirements applicable to the wrap lender registrant are being properly followed; and

(3) other matters SML and its examiners deem necessary or advisable to carry out the purposes of Finance Code Chapter 159.

(d) Loan Sample. The examiners will review a sample of wrap mortgage loan files identified by the examiners from the wrap lender registrant's wrap mortgage servicing log required by §59.401(c)(1) of this title. The examiner may expand the number of files to be reviewed if, in his or her discretion, conditions warrant.

(e) The examiners may require a wrap lender registrant, at its own cost, to make copies of loan files or such other books and records as the examiners deem appropriate for the preparation of or inclusion in the examination report.

(f) Confidentiality. The work papers, compilations, findings, reports, summaries, and other materials, in whatever form, relating to an examination conducted under this section, will be maintained as confidential except as permitted or required by law.

(g) Reimbursement for Costs. When SML must travel outside of Texas to conduct an examination of a wrap lender registrant because the required records are maintained at a location outside of Texas, SML will require reimbursement for the actual costs incurred by SML in connection with such travel, including, but not limited to, transportation, lodging, meals, communications, courier service, and any other reasonably related costs.

History

• Source Note: The provisions of this §59.402 adopted to be effective November 23, 2024, 49 TexReg 9217.

7 Tex. Admin. Code § 59.403 Investigation of Wrap Lender Registrants

(a) Purpose. The purpose of this section is to implement the requirements of Finance Code §159.252 concerning SML's authority to conduct an investigation of a wrap lender required to register as a residential mortgage loan servicer under Finance Code Chapter 158.

(b) Reasonable Cause for Investigation. Pursuant to Finance Code §159.252(b), SML may, upon a finding of reasonable cause, examine a wrap lender registrant to determine whether the wrap lender registrant is complying with Finance Code Chapter 159, and this chapter. Reasonable cause will be deemed to exist if SML has received information from a source the Commissioner has no reason to believe to be other than reliable, including documentary or other evidence, or information, indicating facts which a prudent person would deem worthy of investigation as a violation of Finance Code Chapter 159, or this chapter.

(c) Investigations will be conducted as deemed appropriate in light of all the relevant facts and circumstances then known. Such investigation may include any or all of the following:

(1) review and consideration of any complaints received by SML against a wrap lender registrant;

(2) review of documentary evidence;

(3) interviews with complainants, licensees, and third parties;

(4) obtaining reports, advice, and other comments and assistance from other state and/or or federal regulatory, enforcement, or oversight bodies; and

(5) other lawful investigative techniques SML deems necessary or appropriate, including, but not limited to, requesting that complainants or other parties that are the subject of a complaint provide explanatory, clarifying, or supplemental information.

History

• Source Note: The provisions of this §59.403 adopted to be effective November 23, 2024, 49 TexReg 9217.

Chapter 60 SAVINGS ASSOCIATIONS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 60.1 Purpose and Applicability

This chapter governs the chartering, administration, and operations of a Texas-chartered savings and loan association under Finance Code Title 3, Subtitle B, the Texas Savings and Loan Act (Finance Code §61.001 et seq.).

History

• Source Note: The provisions of this §60.1 adopted to be effective July 16, 2023, 48 TexReg 3644.

7 Tex. Admin. Code § 60.2 Definitions

As used in this chapter, and in the Commissioner's administration and enforcement of Finance Code Title 3, Subtitle B, the following words and terms are assigned the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--An affiliate of, or person affiliated with, a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

(2) Affiliated person--

(A) a director, officer, or controlling person of a savings association;

(B) a spouse of a director, officer, or controlling person of a savings association;

(C) a member of the immediate family of a director, officer, or controlling person of a savings association, who is a director or officer of any subsidiary of a savings association or of any holding company affiliate of a savings association;

(D) any company (other than the savings association, its holding company, or an operating subsidiary) of which a director, officer, or controlling person of a savings association:

(i) is a director or officer;

(ii) in the case of a limited liability company, is a manager or managing member;

(iii) in the case of a partnership, is a general partner;

(iv) in the case of a partnership, is a limited partner who, directly or indirectly, either alone or with his or her spouse and the members of their immediate family who are also affiliated persons of the savings association, owns an interest of 10% or more in the partnership (based on the value of their contribution) or who, directly or indirectly with other directors, officers, and controlling persons of a savings association, and their spouses and their immediate family members who are also affiliated persons of the savings association, owns an interest of 25% or more in the partnership; or

(v) directly or indirectly, either alone or with their spouse and the members of their immediate family, who are also affiliated persons of the savings association, owns or controls 10% or more of any class of equity securities, or owns or controls with other directors, officers, and controlling persons of a savings association and their spouses and their immediate family members, who are also affiliated persons of the savings association, 25% or more of any class of equity securities; and

(E) any trust or other estate in which a director, officer, or controlling person of a savings association, or a member of the director's, officer's, or controlling person's immediate family, has a substantial beneficial interest or as to which such person or his or her spouse serves as trustee or in a similar fiduciary capacity.

(3) Application--An application requesting authorization or other relief from the Commissioner pursuant to this chapter or under the Texas Savings and Loan Act for which a filing fee is required under §60.102 of this title (relating to Application Fees and Charges).

(4) Appropriate banking agency--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(5) Board--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(6) Bylaws--The rules adopted to regulate or manage a company, regardless of the name used to designate the rules, and with respect to a limited liability company, means the company agreement, or similar rules adopted to regulate or manage the limited liability company.

(7) Capital stock--Has the meaning assigned by the Texas Savings and Loan Act (Tex. Fin. Code §61.002).

(8) Capital stock association--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(9) Certificate of formation--The document evidencing the formation of the business entity, referred to in other governmental jurisdictions as the articles of incorporation, certificate of incorporation, or articles of organization, as applicable.

(10) Commissioner--The savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(11) Company--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(12) Control--The power to exercise, directly or indirectly, a controlling influence over the management or policies of a company. Control is deemed to exist when a person, directly or indirectly, or acting through or in concert with one or more persons:

(A) owns, controls, or has the power to vote 25% or more of any class of voting securities of a company;

(B) is an officer or director of the company and owns, controls, or has the power to vote 10% or more of any class of voting securities of a company, and no other person owns, controls, or has the power to vote a greater percentage of that class of voting securities; or

(C) controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of a company.

(13) Controlling person--A person having control as defined by paragraph (12) of this section.

(14) Day--A calendar day, unless another method of counting days is specified.

(15) Deposit account--A savings account, certificate of deposit, withdrawable deposit, demand deposit account, checking account, or any other term referring to the amount of money a savings association owes an account holder as a result of the deposit of money in the savings association.

(16) Deposit liability--The aggregate amount of money shown by the books of the savings association to be owed to the savings association's bank deposit account holders after applying any legal or contractual reduction.

(17) FDIC--The Federal Deposit Insurance Corporation, including any successor.

(18) Finance Commission--The Finance Commission of Texas, the oversight body responsible for overseeing and coordinating the Department under Finance Code Chapter 11.

(19) Financial institution--Has the meaning assigned by Finance Code §201.101.

(20) GAAP--Generally Accepted Accounting Principles.

(21) Holding company--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002) in defining the term "savings and loan holding company."

(22) Holding company affiliate--A company of which a savings association is a subsidiary and any other subsidiary of such company other than a subsidiary of the savings association.

(23) Home office--The office where a savings association has its headquarters and from which all of its operations are directed.

(24) Immediate family--The spouse of an individual, the individual's minor children, and any of the individual's children (including adults) residing in the individual's home.

(25) Issuer--The savings association that issued the security in question.

(26) Managing officer--An individual designated by the board as being responsible for, and having the authority to direct, the day-to-day operations of the savings association. The managing officer must have sufficient banking experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that, under the management and supervision of the managing officer, the savings association will operate in compliance with applicable law and that success of the savings association is probable.

(27) Member--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(28) Mutual association--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(29) Officer--The president, any vice president (but not an assistant vice president, second president, or other vice president having authority similar to an assistant or second vice president), the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any entity or organization, whether incorporated or unincorporated. The term "officer" includes the chairman of the board, if the savings association's certificate of formation or bylaws authorize the chairman to participate in the operating management of the entity or organization, or if the chairman actually participates in such management.

(30) Person--An individual, corporation, a partnership, a savings association, a joint stock company, a trust, an unincorporated organization, any similar entity, or any combination of the foregoing acting in concert.

(31) Recourse--A contract by a borrower or guarantor to repay 100% of all amounts due and owing under the loan.

(32) Savings Association--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002) in defining the term "association."

(33) Shareholder--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(34) Subsidiary--Any company that is controlled by the savings association or by a company that is controlled by a company which is controlled, directly or indirectly, by the savings association.

(35) Surplus--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002).

(36) Texas Savings and Loan Act--Finance Code Title 3, Subtitle B (Finance Code §61.001 et seq.).

(37) Unsafe and unsound practice--Has the meaning assigned by the Texas Savings and Loan Act (Finance Code §61.002), and includes excessive operating expenses, excessive growth, high-risk or undiversified investment positions, and non-existent or poorly followed lending or underwriting policies, procedures, or guidelines.

(38) Voting security--Includes any security convertible into or evidencing a right to acquire a voting security.

(39) Withdrawal value--The net amount of money that may be withdrawn by an account holder from a deposit account.

History

• Source Note: The provisions of this §60.2 adopted to be effective July 16, 2023, 48 TexReg 3644.

Chapter 75 SAVINGS BANKS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 75.1 Purpose and Applicability

This chapter governs the chartering, administration, and operations of a Texas-chartered savings bank, including the affiliates and third-party service providers of a savings bank under Finance Code Title 3, Subtitle C, the Texas Savings Bank Act (Finance Code §91.001 et seq.).

History

• Source Note: The provisions of this §75.1 adopted to be effective November 20, 2022, 47 TexReg 7535.

7 Tex. Admin. Code § 75.2 Definitions

As used in this chapter, and in the Commissioner's administration and enforcement of Finance Code Title 3, Subtitle C, the following words and terms are assigned the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--An affiliate of, or person affiliated with, a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

(2) Affiliated person--

(A) a director, officer, or controlling person of a savings bank;

(B) a spouse of a director, officer, or controlling person of a savings bank;

(C) a member of the immediate family of a director, officer, or controlling person of a savings bank, who is a director or officer of any subsidiary of a savings bank or of any holding company affiliate of a savings bank;

(D) any company (other than the savings bank, its holding company, or an operating subsidiary) of which a director, officer, or controlling person of a savings bank:

(i) is a director or officer;

(ii) in the case of a limited liability company, is a manager or managing member;

(iii) in the case of a partnership, is a general partner;

(iv) in the case of a partnership, is a limited partner who, directly or indirectly, either alone or with his or her spouse and the members of their immediate family who are also affiliated persons of the savings bank, owns an interest of 10% or more in the partnership (based on the value of their contribution) or who, directly or indirectly with other directors, officers, and controlling persons of a savings bank, and their spouses and their immediate family members who are also affiliated persons of the savings bank, owns an interest of 25% or more in the partnership; or

(v) directly or indirectly, either alone or with their spouse and the members of their immediate family, who are also affiliated persons of the savings bank, owns or controls 10% or more of any class of equity securities, or owns or controls with other directors, officers, and controlling persons of a savings bank and their spouses and their immediate family members, who are also affiliated persons of the savings bank, 25% or more of any class of equity securities; and

(E) any trust or other estate in which a director, officer, or controlling person of a savings bank, or a member of the director's, officer's, or controlling person's immediate family, has a substantial beneficial interest or as to which such person or his or her spouse serves as trustee or in a similar fiduciary capacity.

(3) Application--An application requesting authorization or other relief from the Commissioner pursuant to this chapter or under the Texas Savings Bank Act for which a filing fee is required under §75.102 of this section (relating to Application Fees and Charges).

(4) Appropriate banking agency--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(5) Board--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(6) Bylaws--The rules adopted to regulate or manage a company, regardless of the name used to designate the rules, and with respect to a limited liability company (including a limited savings bank), means the company agreement, or similar rules adopted to regulate or manage the limited liability company.

(7) Capital stock--Has the meaning assigned by the Texas Savings Bank Act (Tex. Fin. Code §91.002).

(8) Capital stock savings bank--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(9) Certificate of formation--The document evidencing the formation of the business entity, referred to in other governmental jurisdictions as the articles of incorporation, certificate of incorporation, or articles of organization, as applicable.

(10) Commissioner--The savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(11) Company--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(12) Control--The power to exercise, directly or indirectly, a controlling influence over the management or policies of a company. Control is deemed to exist when a person, directly or indirectly, or acting through or in concert with one or more persons:

(A) owns, controls, or has the power to vote 25% or more of any class of voting securities of a company;

(B) is an officer or director of the company and owns, controls, or has the power to vote 10% or more of any class of voting securities of a company, and no other person owns, controls, or has the power to vote a greater percentage of that class of voting securities; or

(C) controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of a company.

(13) Controlling person--A person having control as defined by paragraph (12) of this section.

(14) Day--A calendar day, unless another method of counting days is specified.

(15) Deposit account--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(16) Deposit liability--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(17) FDIC--The Federal Deposit Insurance Corporation, including any successor.

(18) Finance Commission--The Finance Commission of Texas, the oversight body responsible for overseeing and coordinating the Department under Finance Code Chapter 11.

(19) Financial institution--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(20) GAAP--Generally Accepted Accounting Principles.

(21) Holding company affiliate--A company of which a savings bank is a subsidiary and any other subsidiary of such company other than a subsidiary of the savings bank.

(22) Home office--The office where a savings bank has its headquarters and from which all of its operations are directed.

(23) Immediate family--The spouse of an individual, the individual's minor children, and any of the individual's children (including adults) residing in the individual's home.

(24) Issuer--The savings bank that issued the security in question.

(25) Limited savings bank--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(26) Managing officer--An individual designated by the board as being responsible for, and having the authority to direct, the day-to-day operations of the savings bank. The managing officer must have sufficient banking experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that, under the management and supervision of the managing officer, the savings bank will operate in compliance with applicable law and that success of the savings bank is probable.

(27) Member--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(28) Mutual savings bank--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(29) Officer--The president, any vice president (but not an assistant vice president, second president, or other vice president having authority similar to an assistant or second vice president), the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any entity or organization, whether incorporated or unincorporated. The term "officer" includes the chairman of the board, if the savings bank's certificate of formation or bylaws authorize the chairman to participate in the operating management of the entity or organization, or if the chairman actually participates in such management.

(30) Person--An individual, corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity, or any combination of the foregoing acting in concert.

(31) Recourse-- A contract by a borrower or guarantor to repay 100% of all amounts due and owing under the loan.

(32) Savings bank--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(33) Shareholder--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(34) Subsidiary-- Any company that is controlled by the savings bank or by a company that is controlled by a company which is controlled, directly or indirectly, by the savings bank.

(35) Surplus--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002).

(36) Texas Savings Bank Act--Finance Code Title 3, Subtitle C (Finance Code §91.001 et seq.).

(37) Unsafe and unsound practice--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002), and includes excessive operating expenses, excessive growth, high-risk or undiversified investment positions, and non-existent or poorly followed lending or underwriting policies, procedures, or guidelines.

(38) Voting security--Includes any security convertible into or evidencing a right to acquire a voting security.

(39) Withdrawal value--Has the meaning assigned by the Texas Savings Bank Act (Finance Code §91.002) in defining "withdrawal value of deposit account."

History

• Source Note: The provisions of this §75.2 adopted to be effective November 20, 2022, 47 TexReg 7535.

Part 5 OFFICE OF CONSUMER CREDIT COMMISSIONER

Chapter 82 ADMINISTRATION

7 Tex. Admin. Code § 82.1 Custody of Criminal History Record Information

(a) Definitions. The following terms, when used in this section, have the following meanings:

(1) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(2) Criminal history record information--Has the meaning provided by Texas Government Code, §411.082(2).

(3) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(b) Use of criminal history record information. The OCCC may obtain criminal history record information under Texas Government Code, §411.095 and Texas Finance Code, Chapter 14, Subchapter D. The OCCC's use of criminal history information is limited to evaluating a person described by Texas Government Code, §411.095(a). All criminal history record information received by the OCCC is confidential and is for the exclusive use of the OCCC. The OCCC may not disclose criminal history record information except as provided by Texas Government Code, §411.095(b).

(c) Employee access. Access to criminal history record information maintained by the OCCC will be limited to the following persons:

(1) the commissioner;

(2) any assistant commissioner;

(3) any attorney employed by the OCCC or an assistant attorney general representing the interest of the OCCC;

(4) employees of the licensing section;

(5) the director of consumer protection;

(6) the public information officer;

(7) the human resources specialist;

(8) any person appointed to act on behalf of or in the stead of any of the above; and

(9) any employee of the OCCC who:

(A) requires access to criminal history record information in order to fulfill the employee's duties; and

(B) is approved by the commissioner or the director of consumer protection to view criminal history record information.

History

• Source Note: The provisions of this §82.1 adopted to be effective October 29, 1993, 18 TexReg 7157; amended to be effective January 4, 2007, 31 TexReg 10760; amended to be effective September 6, 2012, 37 TexReg 6909; amended to be effective June 30, 2016, 41 TexReg 4641; amended to be effective November 5, 2020, 45 TexReg 7702.

7 Tex. Admin. Code § 82.2 Public Information Requests; Charges

(a) Definitions. The following words and terms, when used in this section, will have the following meanings, unless the context clearly indicates otherwise.

(1) Agency or OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(2) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(3) Motor vehicle record--Has the meaning provided by Texas Transportation Code, §730.003(4).

(4) Personal information in a motor vehicle record--Has the meaning provided by Texas Transportation Code, §730.003(6).

(5) Public information request--A written request made for public information pursuant to Texas Government Code, Chapter 552 (the Texas Public Information Act). Another name for a "public information request" is an "open records request," and these terms may be used synonymously.

(6) Readily available information--Public information that already exists in printed form, or information that is stored electronically, and is ready to be printed or copied without requiring any programming, but not information that is located in two or more separate buildings that are not physically connected with each other or information that is located in a remote storage facility as per Texas Government Code, §552.261.

(7) Standard paper copy--A printed impression on one side of a piece of paper that measures up to 8 1/2 inches by 14 inches. A piece of paper that is printed on both sides will be counted as two copies.

(b) Receipt of public information request.

(1) Generally. Upon receipt of a written public information request that clearly identifies the public information requested to be copied or examined pursuant to Texas Government Code, Chapter 552 (the Texas Public Information Act), the agency will make every reasonable effort to provide the information in the manner requested as quickly as possible without disruption of normal business activities. All requests will be processed in accordance with the Texas Public Information Act, and all requests will be treated equally.

(2) Requests by email directed to OCCC public information officer or designee. Public information requests submitted via email must be sent to the OCCC's public information officer at an email address designated by the OCCC.

(3) Requests sent by mail or hand delivery. Public information requests, other than email requests, may be submitted to the OCCC by mail or hand delivery to Public Information Officer, Office of Consumer Credit Commissioner, 2601 N. Lamar Blvd., Austin, TX 78705.

(4) Confidential information. Information that is confidential by law will not be provided except under court order, attorney general directive, or other legal process.

(5) Charge waiver or reduction. Charges imposed by this section may be waived or reduced at the discretion of the commissioner as per Texas Government Code, §552.267.

(c) Copy and service charges. The cost to any person requesting copies of public information from the OCCC will be the applicable charges established by the Office of the Attorney General under 1 TAC Chapter 70 (relating to Cost of Copies of Public Information). This subsection outlines the OCCC's most common charges to produce copies of public information. These charges may be supplemented or modified as authorized by 1 TAC Chapter 70.

(1) Charges not collected. No charge will be collected for requests resulting in charges of $5 or less.

(2) Application of charges. The following charges may apply to requests for public information:

(A) $0.10 copy charge per page if paper copies are requested;

(B) $15 per hour of labor or personnel time spent to locate (including pulling documentation from archives), compile, manipulate (including redacting mandated confidential information), reproduce, and prepare the information for delivery or inspection;

(C) 20% overhead charge, calculated by multiplying the total personnel cost under subparagraph (B) by 0.20.

(3) Certification. If certification of copies as true and accurate from the OCCC's records, or a certified statement verifying information on record with the OCCC is requested, an additional charge of $5 per certification will be added to the charges described by this subsection. The certification will include the signature of the commissioner, or a designated custodian of records for the information being certified, and the OCCC seal.

(4) Nonstandard copies. The charge for nonstandard copies will be determined by reference to any recommended standards promulgated by the Office of the Attorney General, 1 TAC Chapter 70 (relating to Cost of Copies of Public Information).

(5) Cost estimates.

(A) Over $40. If the anticipated charges under this subsection plus anticipated charges under subsection (d) of this section exceed $40, the agency will send an estimate outlining the estimated cost to fulfill the request as per Texas Government Code, §552.2615.

(B) Over $100. If the anticipated charges under this subsection plus anticipated charges under subsection (d) of this section exceed $100, the agency will send a cost estimate as provided in subparagraph (A) of this paragraph. In addition, the agency may require cash prepayment or bond equal to the total anticipated charges prior to providing copies of the requested information, as per Texas Government Code, §552.263.

(d) Delivery charges.

(1) U.S. mail. When public information is required to be mailed, the cost of postage will be added to the charges described by subsection (c) of this section.

(2) Expedited delivery. When a requestor asks and the agency agrees to provide public information by overnight delivery service or other expedited delivery, the cost of the service will be added to the charges described by subsection (c) of this section, unless the requestor arranges to pay the delivery charges directly. The agency is not required to provide expedited delivery without payment for the service.

(e) Inspection of records.

(1) Generally. Records access for purposes of inspection will be by appointment only and will only be available during regular business hours of the agency. If the safety of any public record or the protection of confidential information is at issue, or when a request for inspection would be unduly disruptive to the ongoing business of the office, physical access may be denied and the option of receiving copies at the usual charges will be provided.

(2) Redaction of confidential information from paper records. If confidential information must be redacted prior to a requestor's inspection of paper records, $0.10 per page may be charged to prepare the inspection copies containing the remaining public information.

(3) Labor charges. The agency may assess charges for labor or personnel time, as described by subsection (c)(2) of this section, if production of the information requires programming or manipulation of data (including redaction). The agency will not charge overhead for an inspection where the requestor does not receive copies of documents.

(4) Over $40. If a request for inspection would result in charges under Texas Government Code, §552.271 that exceed $40, the agency will send an estimate outlining the estimated cost to fulfill the request as per Texas Government Code, §552.2615.

(5) Over $100. If a request for inspection would result in charges of over $100, the agency may require a 50% cash prepayment or a bond equal to the total anticipated charges prior to providing access to the requested information, as per Texas Government Code, §552.263 and 1 TAC §70.7 (relating to Estimates and Waivers of Public Information Charges).

(f) Agency officer for public information. The commissioner or the commissioner's designee is the agency's officer for public information.

(g) Motor vehicle records.

(1) Generally. Requests for motor vehicle records are subject to Texas Transportation Code, Chapter 730 (the Motor Vehicle Records Disclosure Act).

(2) Disclosure of personal information in a motor vehicle record. Personal information in a motor vehicle record may be disclosed only to an authorized recipient. A requestor is an authorized recipient if the requestor is the subject of the information, has the consent of the person who is the subject of the information, or meets the criteria in Texas Transportation Code, §730.005 or §730.007.

(3) Unauthorized receipt of personal information in a motor vehicle record. If a requestor becomes aware that the requestor is not an authorized recipient of personal information in a motor vehicle record received from the OCCC, then the requestor must delete the information from the requestor's records, as provided by Texas Transportation Code, §730.0121.

History

• Source Note: The provisions of this §82.2 adopted to be effective October 11, 1994, 19 TexReg 7594; amended to be effective July 14, 2002, 27 TexReg 5966; amended to be effective January 4, 2007, 31 TexReg 10760; amended to be effective September 6, 2012, 37 TexReg 6909; amended to be effective June 30, 2016, 41 TexReg 4641; amended to be effective November 5, 2020, 45 TexReg 7702; amended to be effective July 14, 2022, 47 TexReg 3968.

7 Tex. Admin. Code § 82.3 Request for Criminal History Evaluation Letter

(a) Definitions. The following terms, when used in this section, have the following meanings:

(1) Agency or OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(2) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(3) Principal party--An individual who would qualify as a principal party as provided by the relevant chapter of this title under which a business entity is considering applying for a license or registration.

(b) Purpose. The purpose of this section is to provide the procedures for a potential applicant to request a criminal history evaluation letter from the OCCC under Texas Occupations Code, Chapter 53, Subchapter D.

(c) Applicability.

(1) This section applies to an individual who:

(A) is considering applying for a license or registration for which the OCCC may obtain criminal history record information;

(B) is enrolled or planning to enroll in an educational program that prepares the individual for a license or registration, or is planning to take an examination for a license or registration, as provided by Texas Occupations Code, §53.102(a)(1); and

(C) has reason to believe that the individual is ineligible for the license or registration due to a conviction or deferred adjudication for a felony or misdemeanor offense, as provided by Texas Occupations Code, §53.102(a)(2).

(2) This section applies to a business entity that:

(A) is considering applying for a license or registration for which the OCCC may obtain criminal history record information; and

(B) has at least one principal party who:

(i) is enrolled or planning to enroll in an educational program that prepares the principal party for a license or registration, or is planning to take an examination for a license or registration, as provided by Texas Occupations Code, §53.102(a)(1); and

(ii) has reason to believe that the business entity is ineligible for the license or registration due to a conviction or deferred adjudication for a felony or misdemeanor offense of the principal party, as provided by Texas Occupations Code, §53.102(a)(2).

(d) Required information. In order to request a criminal history evaluation letter, a person must submit the request in a format prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. The request must include the following:

(1) a description of any educational program that the requestor is enrolled in or planning to enroll in to prepare for the license or registration;

(2) a description of any examination that the requestor is planning to take for the license or registration;

(3) all court documentation relevant to the requestor's criminal history, including:

(A) copies of all court indictments, judgments, and orders against the requestor; and

(B) an explanation of the circumstances and events of the criminal action that led to the arrest, conviction, or sentence;

(4) the basis for the requestor's potential ineligibility for a license or registration; and

(5) an explanation of why any potential ineligibility should be disregarded.

(e) Business entities. A business entity must provide the information required by subsection (d) for the entity and for each principal party.

(f) Processing fees. A requestor must pay a $75 processing fee to the OCCC for each individual or business entity that is considering applying for a license or registration. The requestor must pay the fee at the time the request is filed. In addition, for each individual potential applicant and each principal party, the requestor must pay a fee to a party designated by the Texas Department of Public Safety for processing fingerprints. The Texas Department of Public Safety and the designated party determine the amount of the fee and whether it is refundable.

(g) Notice of agency determination. Upon completion of the agency's investigation, the agency will notify the requestor of the agency's determination within 90 days of the requestor satisfying all of the agency's requests for information to complete the criminal history evaluation letter request. The determination letter will include the agency's determination on each ground of potential ineligibility.

History

• Source Note: The provisions of this §82.3 adopted to be effective November 5, 2009, 34 TexReg 7601; amended to be effective June 30, 2016, 41 TexReg 4641.

7 Tex. Admin. Code § 82.4 Consumer Complaint Process

(a) Definitions.

(1) "Complainant" means a person who files a complaint with the OCCC.

(2) "Complaint" means a communication received by the OCCC consumer assistance department that expresses dissatisfaction with a transaction or alleges wrongful conduct. For purposes of this section, the OCCC will collect the following items and information regarding a complaint, if available:

(A) the complainant's name and contact information;

(B) the name of the person against whom the complaint is submitted;

(C) the date and place of the alleged misconduct, violation, or transaction;

(D) a description of the facts or conduct alleged to violate applicable statutes or rules, and the transaction; and

(E) any written documentation supporting the complaint.

(3) "Inquiry" means a communication received by the OCCC consumer assistance department that is not a complaint.

(4) "OCCC" means the Office of Consumer Credit Commissioner of the State of Texas.

(b) Complaint processing.

(1) Complaints and inquiries filed with the OCCC are generally considered public information, unless a specific statutory exception applies.

(2) Upon receipt of a complaint and at the request of the complainant, the OCCC will make a good faith effort to protect the complainant's identity to the extent possible.

(3) The OCCC will determine whether the complaint or inquiry relates to an activity that the OCCC regulates.

(4) If the OCCC does not regulate the activity that is the subject of the complaint or inquiry, the OCCC will close the complaint or inquiry and refer the person making the complaint or inquiry to the appropriate regulatory entity, if known.

(5) If the OCCC regulates the activity that is the subject of a complaint, the OCCC will send a summary of the complaint and appropriate supporting documentation to the person that is the subject of the complaint.

(6) The OCCC will prioritize complaints for purposes of determining the order in which complaints are investigated, taking into account the seriousness of the allegations made in a complaint and the length of time a complaint has been pending.

(7) A person that receives a complaint forwarded by the OCCC must respond by the deadline identified by the OCCC when it forwards the complaint.

(8) The OCCC will monitor how long each complaint is open, and will make all reasonable efforts to resolve complaints within 90 days of receipt. The OCCC will notify the complainant of their complaint status at least quarterly until final disposition, unless such notice would jeopardize an ongoing complaint analysis, a field investigation, or a pending enforcement action.

(9) If the OCCC determines that the complaint is not supported by the evidence, is not within the OCCC's jurisdiction, contains no violation, or is resolved to the satisfaction of the parties, the complaint will be closed. Upon closure, the OCCC will promptly send a closure summary outlining the results of the complaint analysis to all parties to the complaint.

(10) The OCCC will notify all parties to the complaint within 10 business days of closing the complaint.

(11) A complainant who disagrees with the disposition of a complaint may appeal by sending a written appeal request to the OCCC consumer assistance department within 90 calendar days after the date of the closure summary. Upon receipt of an appeal request, the OCCC will notify the complaint parties of the request, and a senior member of the OCCC consumer protection department will review all information and make a determination regarding the complaint. The OCCC will send a letter of its final findings to the complaint parties.

(c) Complaint review and reporting.

(1) The OCCC will maintain records of all complaints received in accordance with its retention policy. These records will include the information required in Texas Finance Code, §14.062.

(2) At least quarterly, the consumer assistance manager will review a sample of complaints closed administratively, due to lack of jurisdiction, due to lack of a violation, or due to lack of evidence.

(3) At least quarterly, the OCCC will submit to the Finance Commission a report of the sources, subjects, types, and dispositions of complaint activity during the preceding period.

(4) The OCCC will make available on its website information describing procedures for complaint receipt, investigation, and closure.

History

• Source Note: The provisions of this §82.4 adopted to be effective September 5, 2019, 44 TexReg 4712.

Chapter 84 MOTOR VEHICLE INSTALLMENT SALES

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 84.101 Purpose and Scope

(a) Purpose. The purpose of this chapter is to assist in the administration and enforcement of Texas Finance Code, Chapter 348.

(b) Scope. This chapter applies to:

(1) all persons engaged in the business of selling motor vehicles to retail buyers in transactions in which a retail buyer purchases a motor vehicle from a retail seller and agrees with the retail seller to pay part or all of the cash price in one or more deferred installments; and

(2) all persons that acquire or otherwise receive retail installment sales contracts unless specifically exempted from licensing by Texas Finance Code, Chapter 348.

History

• Source Note: The provisions of this §84.101 adopted to be effective May 8, 2008, 33 TexReg 3572.

7 Tex. Admin. Code § 84.102 Definitions

The following words and terms, when used in this chapter, will have the following meanings, unless the context clearly indicates otherwise:

(1) Accrual method--A method to compute a finance charge and apply the finance charge to the unpaid principal balance. Both the true daily earnings method and the scheduled installment earnings method are accrual methods.

(2) Add-on method--A method for calculating a precomputed time price differential charge in which the retail buyer agrees to pay the total of payments. The total of payments includes both the principal balance of the contract and the time price differential charge. The add-on time price differential charge is calculated at the inception of the contract on the principal balance for the full term, as if the principal balance of the contract did not decline over the term of the contract.

(3) Commercial vehicle--A motor vehicle that is not used primarily for personal, family, or household use and has the same meaning as defined by Texas Finance Code, §353.001.

(4) Contract rate--The annual time price differential rate that may be stated in a retail installment sales contract, and that accrues or is assessed against the principal balance that is subject to a finance charge for the term of the contract. The contract rate cannot exceed the daily rate converted to an annualized rate.

(5) Creditor--The seller or any subsequent holder or assignee of the retail installment sales contract.

(6) Daily rate--The rate authorized under Texas Finance Code, §348.105, or the simple rate equivalent of the rate applicable to the contract under Texas Finance Code, §348.104, computed on a daily basis using a 365-day calendar year.

(7) Default charge or late charge--The additional charge for a late payment on a contract.

(8) Deferment charge--A charge to defer the payment date of a scheduled payment on a contract.

(9) Holder--Holder includes retail sellers as well as any person who subsequently purchases, acquires, or otherwise receives the retail installment sales contract. All holders are creditors.

(10) Irregular payment contract--A contract:

(A) that is payable in installments that are not consecutive, monthly, and substantially equal in amount; or

(B) the first scheduled installment of which is due later than one month and 15 days after the date of the contract.

(11) Licensee--Any person who has been issued a motor vehicle sales finance license pursuant to Texas Finance Code, Chapter 348.

(12) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(13) Ordinary vehicle--A motor vehicle that is used primarily for personal, family, or household use.

(14) Principal balance subject to finance charge--The principal balance used in the determination or calculation of the time price differential charge.

(A) Sales tax advanced transaction--In a sales tax advanced transaction, the principal balance subject to a finance charge is computed by:

(i) adding:

(I) the cash price of the vehicle;

(II) the amount of the authorized itemized charges;

(III) sales tax;

(IV) an authorized and properly disclosed documentary fee;

(V) an amount authorized under Texas Finance Code, §348.404(b); and

(ii) subtracting from the results under clause (i) of this subparagraph the amount of the retail buyer's down payment in money, goods, or both.

(B) Sales tax deferred transaction--In a sales tax deferred transaction, the principal balance subject to a finance charge does not include the deferred sales tax. The principal balance subject to a finance charge is computed by:

(i) adding:

(I) the cash price of the vehicle (excluding sales tax);

(II) the amount of the authorized itemized charges (excluding sales tax);

(III) an authorized and properly disclosed documentary fee;

(IV) an amount authorized under Texas Finance Code, §348.404(b); and

(ii) subtracting from the results under clause (i) of this subparagraph the amount of the retail buyer's down payment in money, goods, or both.

(15) Regular payment contract--Any contract that is not an irregular payment contract.

(16) Scheduled installment earnings method--The scheduled installment earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal balance. Under this method, a finance charge refund is calculated by deducting the earned finance charges from the total finance charges. If prepayment in full or demand for payment in full occurs between payment due dates, a daily rate equal to 1/365th of the annual rate is multiplied by the unpaid principal balance. The result is then multiplied by the actual number of days from the date of the previous scheduled installment through the date of prepayment or demand for payment in full to determine earned finance charges for the abbreviated period. In addition to the earned finance charges calculated in this paragraph, the creditor may also earn a $25 acquisition fee so long as the total of the earned finance charges and the acquisition fee do not exceed the finance charge disclosed in the contract. The creditor is not required to refund unearned finance charges if the refund is less than $1.00. The scheduled installment earnings method may be used with either an irregular payment contract or a regular payment contract. The computation of finance charges must comply with the U.S. Rule as defined in paragraph (22) of this section.

(17) Sales tax advanced transaction--A retail installment sales transaction in which a retail seller remits the entire amount of the sales tax to the appropriate taxing authority within 20 working days of the sale.

(18) Sales tax deferred transaction--A retail installment sales transaction in which a retail seller or a qualified related finance company collects sales tax from the retail buyer and remits the tax under Texas Tax Code, §152.047 to the Texas Comptroller of Public Accounts.

(19) Seller--The seller of the motor vehicle. This term is synonymous with the term "retail seller."

(20) Sum of the periodic balances method (Rule of 78s).

(A) Under this method, the finance charge refund is calculated as follows:

(i) Subtract an acquisition fee not greater than $25 from the total finance charge.

(ii) Multiply the amount computed in clause (i) of this subparagraph by the refund percentage computed below. The result is the finance charge refund.

(iii) Compute the refund percentage by:

(I) Computing the sum of the unpaid monthly balances under the contract's schedule of payments beginning:

(-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or

(-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;

(II) Dividing the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.

(B) The creditor is not required to give a finance charge refund if it would be less than $1.00.

(C) The sum of the periodic balances method may not be used with an irregular payment contract.

(21) True daily earnings method--The true daily earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance. The daily rate is 1/365th of the equivalent contract rate. The earned finance charge is computed by multiplying the daily rate of the finance charge by the number of days the actual unpaid principal balance is outstanding. Payments are credited as of the time received; therefore, payments received prior to the scheduled installment date result in a greater reduction of the unpaid principal balance than the scheduled reduction, and payments received after the scheduled installment date result in less than the scheduled reduction of the unpaid principal balance. The computation of finance charges must comply with the U.S. Rule as defined in paragraph (22) of this section.

(22) U.S. Rule--The ruling of the United States Supreme Court in Story v. Livingston, 38 U.S. (13 Pet.) 359, 371 (1839) that, in partial payments on a debt, each payment is applied first to finance charge and any remainder reduces the principal. Under this rule, accrued but unpaid finance charge cannot be added to the principal and interest cannot be compounded. The U.S. Rule is described in Regulation Z, 12 C.F.R. Part 226, Appendix J, and 12 C.F.R. Part 1026, Appendix J.

(23) Vehicle--A motor vehicle as defined by Texas Finance Code, §348.001(4).

History

• Source Note: The provisions of this §84.102 adopted to be effective May 8, 2008, 33 TexReg 3572; amended to be effective November 5, 2009, 34 TexReg 7602; amended to be effective September 8, 2011, 36 TexReg 5670; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 5, 2015, 40 TexReg 7624; amended to be effective May 5, 2016, 41 TexReg 3120.

7 Tex. Admin. Code § 84.103 Responsibility for Acts of Agents

A licensee is responsible for the acts and omissions of its officers, directors, employees, and agents in the conduct of the licensee's business.

History

• Source Note: The provisions of this §84.103 adopted to be effective May 8, 2008, 33 TexReg 3572.

7 Tex. Admin. Code § 84.104 Knowledge of Laws and Regulations Required

(a) Each officer and director of a licensee must be familiar with Texas Finance Code, Chapter 348 and its implementing regulations.

(b) Employees and agents of a licensee are responsible for being familiar with the provisions of Texas Finance Code, Chapter 348 and its implementing regulations that are related to their duties and responsibilities, as provided by the licensee through training or an internal system of controls. An employee or agent may demonstrate compliance with this section through adherence to the training or internal system of controls provided by the licensee.

(c) This section applies to the listed parties to the extent that the individual has contact with retail buyers or potential retail buyers, or has responsibility for compliance with Texas Finance Code, Chapter 348, or its implementing regulations governing the licensee's business.

History

• Source Note: The provisions of this §84.104 adopted to be effective May 8, 2008, 33 TexReg 3572.

7 Tex. Admin. Code § 84.105 Indigency Affidavit for Appeal of Conditional Delivery Determination

(a) Required information. An affidavit under Texas Finance Code, §348.013(m) filed with the hearings officer must contain the following information:

(1) the name of the prospective retail buyer;

(2) a statement by a notary public identifying the prospective retail buyer, and stating that the prospective retail buyer personally appeared before the notary and made the statements under oath;

(3) the following statement: "I am over 18 years of age and am capable of making this affidavit. The facts stated in this affidavit are within my personal knowledge and are true and correct. Due to my financial situation, I cannot afford to pay the deposit required under Texas Finance Code, §348.013(m). I wish to appeal the Consumer Credit Commissioner's determination under §348.013(g) regarding my conditional delivery agreement with (Insert Name and Address of Retail Seller and OCCC license number). The following information accurately states my income, assets, expenses, and liabilities.";

(4) nature and amount of monthly income from the following sources:

(A) employment;

(B) government entitlement;

(C) spouse, if spouse's income is available to the prospective retail buyer; and

(D) any other income;

(5) type and approximate value of property owned (other than homestead), including make, model, and year of any motor vehicles owned;

(6) checking or savings account information, including:

(A) name and location of financial entity;

(B) approximate amount of money held in account;

(7) approximate amount of any cash on hand;

(8) monthly expenses, including expenses from the following example sources:

(A) rent/mortgage;

(B) utilities;

(C) food;

(D) child care;

(E) child support;

(F) health care;

(G) car payment;

(H) transportation;

(I) insurance;

(J) clothes/laundry;

(K) finance charges; and

(L) any other monthly expenses;

(9) information regarding debts and other liabilities, including:

(A) name of creditor;

(B) total debt amount; and

(C) monthly payment;

(10) number of dependents;

(11) the following statement: "As the prospective retail buyer, I am unable to pay the deposit required by Texas Finance Code, §348.013(m) for the appeal of the Consumer Credit Commissioner's conditional delivery determination. I verify that the statements made in this affidavit are true and correct.";

(12) the date the affidavit was signed;

(13) the prospective retail buyer's signature and printed name;

(14) the prospective retail buyer's address; and

(15) the notary public's seal and signature.

(b) Filing. The affiant should file the affidavit with the hearings officer through the commissioner.

(c) Commissioner's evaluation. The commissioner will use the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. §9902(2) when evaluating an individual's affidavit for waiver of the deposit required by Texas Finance Code, §348.013(m). The commissioner will consider the particular financial situation of the affiant in the process of determining whether the affiant's request for wavier of the deposit should be granted.

(d) Sample affidavit. A sample affidavit under Texas Finance Code, §348.013(m) is presented in the following example.

Attached Graphic

History

• Source Note: The provisions of this §84.105 adopted to be effective September 10, 2009, 34 TexReg 6104; amended to be effective November 8, 2012, 37 TexReg 8780.

Subchapter B RETAIL INSTALLMENT CONTRACT

7 Tex. Admin. Code § 84.201 Time Price Differential

(a) Precomputed retail installment sales contracts. A retail installment sales contract may not contain a time price differential charge that exceeds both the add-on rates authorized by Texas Finance Code, §348.104 and the alternative simple time price differential rate authorized by Texas Finance Code, §348.105 as calculated by the add-on method or scheduled installment earnings method. A retail installment sales contract may be in compliance with either statutory rate specified in this subsection. Prepaid time price differential in the form of points is not permitted.

(b) Time price differential-bearing retail installment sales contracts. A retail installment sales contract may not contain a time price differential charge that exceeds both the maximum annualized daily rate authorized by Texas Finance Code, §348.104 and the alternative simple time price differential rate authorized by Texas Finance Code, §348.105 as calculated by the true daily earnings method. A retail installment sales contract may be in compliance with either statutory rate specified in this subsection. Prepaid time price differential in the form of points is not permitted.

(c) Minimum time price differential. In lieu of the time price differential charge specified under subsections (a) and (b), a retail seller may charge a minimum time price differential charge of $25.

(d) Method of calculation.

(1) Regular payment contract using sum of the periodic balances method. The time price differential charge is computed using the add-on rates authorized by Texas Finance Code, §348.104 or the alternative time price differential rate authorized by Texas Finance Code, §348.105 converted to an equivalent add-on rate per $100 per annum.

(A) Base time price differential charge. The base time price differential charge is determined by multiplying the principal balance subject to a finance charge, as defined by §84.102(14) of this title (regarding Definitions), by the applicable add-on rate per $100 per year for the corresponding term of the contract. If the retail installment contract is payable for a period that is shorter or longer than a year or is for an amount that is less or greater than $100, the amount of the time price differential charge is decreased or increased proportionately.

(B) Add-on rates. The applicable add-on rate per $100 per year is determined by the model year designated by the manufacturer of the vehicle.

(C) Deferred sales tax. For usury purposes, the deferred sales tax is allocated on a straight line basis. A straight line basis is calculated by dividing the original gross deferred sales tax amount by the original term of the contract. The allocation of the deferred sales tax for the final payment must be adjusted for any rounding differences. The payment amount disclosed on the retail installment sales contract must include the straight line allocation of the deferred sales tax per installment.

(D) Conversion of the alternative time price differential rate to an add-on rate per $100 per annum. If the maximum time price differential rate is the rate specified by Texas Finance Code, §348.105, the maximum add-on rate per $100 per annum cannot exceed the add-on rate contained in Figure: 7 TAC §84.201(d)(1)(D). The add-on rate per $100 per annum is determined by converting the current maximum alternative rate authorized by Texas Finance Code, §348.105 to an equivalent add-on rate for the given monthly term of the contract. The alternative simple time price differential rate authorized by Texas Finance Code, §348.105 displayed as an example in Figure: 7 TAC §84.201(d)(1)(D) is 18% per annum. If the alternative simple time price differential rate is adjusted according to Texas Finance Code, Chapter 303 and is greater than 18% per annum, the add-on rates shown in Figure: 7 TAC §84.201(d)(1)(D) should be adjusted accordingly.

Attached Graphic

(2) Scheduled installment earnings method. The scheduled installment earnings method can be used for both regular and irregular payment contracts.

(A) Maximum time price differential. The maximum time price differential charge is computed by applying the applicable maximum daily rate to the unpaid principal balance subject to a finance charge, as defined by §84.102(14) of this title, as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal subject to a finance charge. The computation of the time price differential must comply with the U.S. Rule as defined by §84.102(22) of this title.

(B) Maximum annualized daily rate.

(i) Sales tax advanced transactions. On sales tax advanced transactions using the scheduled installment earnings method, the annualized daily rate is either:

(I) the annual percentage rate disclosed on the retail installment sales contract; or

(II) the contract rate if the retail seller requires the retail buyer to purchase credit life or credit accident and health insurance.

(ii) Sales tax deferred transactions. On sales tax deferred transactions using the scheduled installment earnings method, the annualized daily rate is the contract rate.

(iii) Effective rate. The maximum annualized daily rate cannot exceed the effective rate contained in Figure: 7 TAC §84.201(d)(2)(B)(iii) for the equivalent monthly period and appropriate add-on rate per $100 determined by the model year designated by the manufacturer of the vehicle. The effective rates contained in Figure: 7 TAC §84.201(d)(2)(B)(iii) are the current maximum annualized daily rate authorized by Texas Finance Code, §348.104 or the alternative simple time price differential rate authorized by Texas Finance Code, §348.105. The alternative simple time price differential rate authorized by Texas Finance Code, §348.105 displayed as an example in Figure: 7 TAC §84.201(d)(2)(B)(iii) is 18% per annum. If the alternative simple time price differential rate is adjusted according to Texas Finance Code, Chapter 303 and is greater than effective rate contained in Figure: 7 TAC §84.201(d)(2)(B)(iii), the published rate will be highest effective rate.

Attached Graphic

(iv) Irregular payment contract effective rate. On a retail installment sales contract that is an irregular payment contract, the highest effective rate is determined by taking the closest monthly effective rate as shown in Figure: 7 TAC §84.201(d)(2)(B)(iii) assuming that the contract was payable in substantially equal successive monthly installments beginning one month from the date of the contract.

(I) The closest monthly period is determined as follows:

(-a-) Count the number of days from the date of the contract to the originally scheduled maturity date;

(-b-) Divide the results of item (-a-) of this subclause by 365;

(-c-) Multiply the results of item (-b-) of this subclause by 12.

(II) If the results of subclause (I) of this clause are exactly .5333 or more between the two monthly periods, the closest monthly period is rounded up to the next monthly period. For example, if the closest monthly period is determined to be 14.5333 months, the maximum annualized daily rate is the effective rate for 15 months.

(III) If the results of subclause (I) of this clause are less than .5333 between the two monthly periods, the closest monthly period is rounded down to the previous monthly period. For example, if the closest monthly period is determined to be 14.50 months, the maximum annualized daily rate is the effective rate for 14 months.

(C) Deferred sales tax. For usury purposes, the deferred sales tax is allocated on a straight line basis. A straight line basis is calculated by dividing the original gross deferred sales tax amount by the original term of the contract. The allocation of the deferred sales tax for the final payment must be adjusted for any rounding differences. The payment amount disclosed on the retail installment sales contract must include the straight line allocation of the deferred sales tax per installment.

(D) Contract rate less than the maximum annualized daily rate. If a retail seller consummates a retail installment sales contract with a contract rate that is less than the maximum annualized daily rate, the retail seller must compute the time price differential charge at the disclosed contract rate.

(3) True daily earnings method. The true daily earnings method can be used for both regular and irregular payment contracts.

(A) Maximum time price differential. The maximum time price differential charge is computed by applying the applicable daily rate to the unpaid principal balance subject to a finance charge, as defined by §84.102(14) of this title. The computation of the time price differential must comply with the U.S. Rule as defined by §84.102(22) of this title. The earned time price differential charge is computed as follows:

(i) multiply the unpaid principal balance subject to a finance charge by the applicable daily rate; and

(ii) multiply the results of clause (i) of this subparagraph by the number of days the actual unpaid principal balance subject to a finance charge is outstanding.

(B) Maximum annualized daily rate.

(i) Sales tax advanced transactions. On sales tax advanced transactions using the true daily installment earnings method, the annualized daily rate is either:

(I) the annual percentage rate disclosed on the retail installment sales contract; or

(II) the contract rate if the retail seller requires the retail buyer to purchase credit life or credit accident and health insurance.

(ii) Sales tax deferred transactions. On sales tax deferred transactions using the true daily installment earnings method, the annualized daily rate is the contract rate.

(iii) Effective rate. The maximum annualized daily rate cannot exceed the effective rate contained in Figure: 7 TAC §84.201(d)(2)(B)(iii) for the equivalent monthly period and appropriate add-on rate per $100 determined by the model year designated by the manufacturer of the vehicle. The effective rates contained in Figure: 7 TAC §84.201(d)(2)(B)(iii) are the current maximum annualized daily rate authorized by Texas Finance Code, §348.104 or the alternative simple time price differential rate authorized by Texas Finance Code, §348.105. The alternative simple time price differential rate authorized by Texas Finance Code, §348.105 displayed as an example in Figure: 7 TAC §84.201(d)(2)(B)(iii) is 18% per annum. If the alternative simple time price differential rate is adjusted according to Texas Finance Code, Chapter 303 and is greater than effective rate contained in Figure: 7 TAC §84.201(d)(2)(B)(iii), the published rate will be highest effective rate.

(iv) Irregular payment contract effective rate. On a retail installment sales contract that is an irregular payment contract, the highest effective rate is determined by taking the closest monthly effective rate as shown in Figure: 7 TAC §84.201(d)(2)(B)(iii) assuming that the contract was payable in substantially equal successive monthly installments beginning one month from the date of the contract.

(I) The closest monthly period is determined as follows:

(-a-) Count the number of days from the date of the contract to the originally scheduled maturity date;

(-b-) Divide the results of item (-a-) of this subclause by 365;

(-c-) Multiply the results of item (-b-) of this subclause by 12.

(II) If the results of subclause (I) of this clause are exactly .5333 or more between the two monthly periods, the closest monthly period is rounded up to the next monthly period. For example, if the closest monthly period is determined to be 14.5333 months, the maximum annualized daily rate is the effective rate for 15 months.

(III) If the results of subclause (I) of this clause are less than .5333 between the two monthly periods, the closest monthly period is rounded down to the previous monthly period. For example, if the closest monthly period is determined to be 14.50 months, the maximum annualized daily rate is the effective rate for 14 months.

(C) Deferred sales tax. For usury purposes, the deferred sales tax is allocated on a straight line basis. A straight line basis is calculated by dividing the original gross deferred sales tax amount by the original term of the contract. The allocation of the deferred sales tax for the final payment must be adjusted for any rounding differences. The payment amount disclosed on the retail installment sales contract must include the straight line allocation of the deferred sales tax per installment.

(D) Contract rate less than the maximum annualized daily rate. If a retail seller consummates a retail installment sales contract with a contract rate that is less than the maximum annualized daily rate, the retail seller must compute the time price differential charge at the disclosed contract rate.

(E) Application of payments.

(i) General requirements if no payment application specified in contract. If the retail installment sales contract does not prescribe the method for the application of the payment, the payment should be applied in the following order:

(I) earned but unpaid time price differential charge; and

(II) anything else owed under the contract.

(ii) Sales tax deferred transactions assigned to related finance companies. If the retail installment sales transaction is a sales tax deferred transaction in which the retail installment sales contract does not prescribe an application of payments method and the contract has been assigned by a dealer to its related finance company as that term is defined by Texas Tax Code, Chapter 152, the related finance company must apply the payment in the following order:

(I) amount of the straight line allocation of the deferred sales tax, if the transaction is a sales tax deferred transaction;

(II) earned but unpaid time price differential charge; and

(III) anything else owed under the contract.

(iii) Use of model provision sufficient. While the retail installment contract is not required to use the model provision, use of the model provision found in 7 TAC §84.808(21) (relating to Model Clauses), or a variation of it as allowed under that section or 7 TAC §84.809 (relating to Model Contract; Permissible Changes), is deemed to sufficiently prescribe the method of application of payment.

History

• Source Note: The provisions of this §84.201 adopted to be effective November 6, 2008, 33 TexReg 8913; amended to be effective November 5, 2009, 34 TexReg 7605; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective December 31, 2020, 45 TexReg 9416.

7 Tex. Admin. Code § 84.202 Default Charge

(a) Definition. A default charge is the additional charge for a late payment on a contract. The term default charge is synonymous with the term delinquency charge as contained in Texas Finance Code, §348.107.

(b) Precomputed regular payment contract using sum of the periodic balances method. For a regular payment contract employing the add-on method and the refunding method of the sum of the periodic balances, a holder may assess, charge, and collect a default charge not to exceed 5% of the scheduled payment or a default charge on the past due amount computed at the maximum daily rate authorized for the contract from the due date to the date that the past due amount is paid.

(c) Scheduled installment earnings method. For a regular or an irregular payment contract employing the scheduled installment earnings method, a holder may assess, charge, and collect a default charge not to exceed 5% of the scheduled payment and a default charge on the past due amount computed at the maximum daily rate authorized for the contract from the due date to the date that the past due amount is paid.

(d) True daily earnings method. For a regular payment contract or an irregular payment contract employing the true daily earnings method, a holder may assess, charge, and collect a default charge not to exceed 5% of the scheduled payment and a default charge on the past due amount computed at the maximum daily rate authorized for the contract from the due date to the date that the past due amount is paid. The default charge authorized under this subsection is in addition to the contractual time price differential charge earned on the principal balance subject to a finance charge.

(e) Contract required. No default charge may be assessed, imposed, charged, or collected unless contracted for in writing by the parties.

(f) Default period. A default charge may not be assessed until after the 15th day after the installment due date. For example, if the installment due date is the 1st of the month, a default charge may not be assessed until the 17th of the month.

(g) Pyramiding prohibited. An authorized lender seeking to assess additional interest for default on a retail installment sales contract under Texas Finance Code, Chapter 348 must comply with the prohibition on the pyramiding of late charges set forth in the Federal Trade Commission Credit Practices Rule at 16 C.F.R. §444.4.

(h) Default charge on final installment balloon payment. If the retail buyer does not exercise the option to refinance the balloon payment as permitted by Texas Finance Code, §348.123, a default charge is allowed on the balloon payment.

(i) Default charge on deferred downpayment. A default charge under Texas Finance Code, §348.107 is not allowed on a deferred downpayment.

History

• Source Note: The provisions of this §84.202 adopted to be effective November 6, 2008, 33 TexReg 8913; amended to be effective September 8, 2011, 36 TexReg 5670.

7 Tex. Admin. Code § 84.203 Deferment Charge

(a) Definition. A "deferment charge" means a charge to defer the payment date of a scheduled payment or partial payment on a contract. A deferment charge prescribed by this section may occur in a retail installment transaction that employs the precomputed add-on method for regular payment contracts using the sum of the periodic balances or the scheduled installment earnings method. This section applies only to an amendment relating to the deferment of all or a part of one or more installments, and does not apply to amendments relating to renewing, restating, or rescheduling the unpaid balance under a retail installment sales contract. This section 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. The parties to a retail installment sales contract may agree to modify the terms of the transaction as long as the amendment conforms to the requirements of Texas Finance Code, Chapter 348, Subchapter B.

(b) Written deferment agreement.

(1) General requirements. A retail buyer and a holder may mutually agree to defer all or a part of one or more scheduled installments. A deferment agreement must be in writing and must be noted in the account record at the time the deferment is made. The written deferment agreement must include all of the following:

(A) the name of the holder;

(B) the name of the retail buyer;

(C) the account number of the retail buyer;

(D) the date of the deferment;

(E) the installment or installments being deferred;

(F) the deferment period;

(G) the total amount of any deferment charge and any authorized additional deferment cost;

(H) the date and amount of the next installment due; and

(I) any other conditions of deferment.

(2) Signature and delivery. A deferment agreement is an amendment to the retail installment sales contract that must be confirmed in a writing signed by the retail buyer and delivered to the retail buyer, as provided by Texas Finance Code, §348.116. The retail buyer's written agreement to the bilateral or mutual deferment may be confirmed by an email signature, an electronic signature, a facsimile signature, a written notation made by the retail buyer on a signed check, or some other writing signed by the retail buyer.

(3) Disaster exception. A holder must deliver the deferment agreement to the retail buyer, but is not required to obtain the retail buyer's signature, if the following conditions are met:

(A) The retail buyer resides in an area designated as a state of disaster under Texas Government Code, §418.014; and

(B) The deferment occurs before the state of disaster has been terminated:

(i) by executive order; or

(ii) by expiration as described in Texas Government Code, §418.014(c).

(c) Limitation of number of installments being deferred per amendment. A holder may only defer the equivalent of three monthly installments per amendment. This limitation applies to the number of whole or partial installments that can be deferred, not the length of time an installment can be deferred.

(d) Computation of deferment charge. A holder of a retail installment sales contract under Texas Finance Code, Chapter 348 may calculate the deferment charge by any method of calculation as long as the deferment charge does not exceed the maximum amount permitted by Texas Finance Code, §348.114 and this section.

(1) Regular payment contract using sum of the periodic balances method.

(A) Base deferment charge. For a regular payment contract employing the add-on method and the refunding method of the sum of the periodic balances, a holder may assess, charge, and collect a base deferment charge computed by:

(i) Multiplying the amount of the installment or installments being deferred by either:

(I) the maximum effective rate authorized for a regular payment contract for the monthly term; or

(II) a lower rate agreed to by the parties;

(ii) dividing the results of clause (i) of this subparagraph by 12; and

(iii) multiplying the results of clause (ii) of this subparagraph by the number of months the installment or installments are being deferred.

(B) Additional deferment costs. In addition to the base deferment charge authorized by this section, the holder of a retail installment sales contract may collect from the retail buyer the amount of the additional cost to the holder for:

(i) premiums for continuing in force any insurance coverages provided by the retail installment contract; and

(ii) any additional necessary official fees.

(C) Minimum deferment charge. The minimum deferment charge authorized under this paragraph is $1.00.

(D) Application of payments. For a regular payment contract employing the add-on method and the refunding method of the sum of the periodic balances, if a payment is submitted from which a deferment charge is taken, any excess of the amount paid over the amount necessary to bring the account current must be applied to the remaining balance of the retail installment sales contract.

(E) Time price differential not included. For a regular payment contract employing the add-on method and the refunding method of the sum of the periodic balances, the deferment charge does not include time price differential agreed upon in the retail installment sales contract.

(2) Scheduled installment earnings method.

(A) Base deferment charge. For a regular or an irregular payment contract employing the scheduled installment earnings method, a holder may assess, charge, and collect a base deferment charge computed by:

(i) Multiplying the amount of the installment or installments being deferred by either of the following rates computed on a daily basis using a 365-day calendar year:

(I) the maximum annualized daily rate authorized for the contract, as described by Figure: 7 TAC §84.201(d)(2)(B)(iii); or

(II) a lower rate agreed to by the parties, which may be the contract rate; and

(ii) multiplying the results of clause (i) of this subparagraph by the actual number of days the installment or installments are being deferred.

(B) Additional deferment costs. In addition to the base deferment charge authorized by this section, the holder of a retail installment sales contract may collect from the retail buyer the amount of the additional cost to the holder for:

(i) premiums for continuing in force any insurance coverages provided by the retail installment contract; and

(ii) any additional necessary official fees.

(C) Minimum deferment charge. The minimum deferment charge authorized under this paragraph is $1.00.

(D) Application of payments. For a contract using the scheduled installment earnings method, if a payment is submitted from which a deferment charge is taken, any excess of the amount paid over the amount necessary to bring the account current must be applied to the remaining balance of the retail installment sales contract. However, any difference that exceeds $3.00 must be returned to the retail buyer if the retail buyer requests the refund within 30 days of the payment.

(E) Time price differential not included. For a contract using the scheduled installment earnings method, the deferment charge does not include time price differential agreed upon in the retail installment sales contract.

(e) Noncompliance. Deferment fees not assessed or collected in accordance with the requirements of this section are subject to refund to the retail buyer. In the event deferment fees are refunded to the retail buyer, no rescheduling of the retail installment sales contract is permitted.

(f) False, misleading, or deceptive representation. A holder may not make a false, misleading, or deceptive representation relating to a deferment charge. If a holder makes a false, misleading, or deceptive representation regarding a deferment charge, then the deferment charge is subject to refunding under subsection (e).

History

• Source Note: The provisions of this §84.203 adopted to be effective November 6, 2008, 33 TexReg 8913; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462.

7 Tex. Admin. Code § 84.204 Disclosure of Equity in Retail Buyer's Trade-in Motor Vehicle

(a) Purpose and delivery. The purpose of this section is to provide a standard form for the disclosure of equity that a retail seller must provide to the retail buyer before accepting a trade-in motor vehicle for an ordinary motor vehicle sold under a retail installment sales contract. The disclosure of equity standard form is not required for transactions where a single cash payment is made for the sale of the motor vehicle. This section prescribes the form and content of the standard form under Texas Finance Code, §348.0091. This section does not apply to retail installment sales transactions for commercial vehicles.

(b) Required elements. A disclosure of equity standard form to be provided to the retail buyer before accepting a trade-in motor vehicle for a motor vehicle sold under a retail installment sales contract must contain the required elements as provided in Texas Finance Code, §348.0091(c).

(c) Single page required. The disclosure of equity standard form must fit on one standard-size sheet of paper (8 1/2 by 11 inches).

(d) Font. The disclosure of equity standard form must be printed in an easily readable font and type size. If other state or federal law requires a different type size for a specific disclosure or contractual provision, the type size specified by the other law should be used.

(e) Typeface. The text of the disclosure of equity standard form must be set in an easily readable typeface. Typefaces considered to be readable include: Arial, Calibri, Caslon, Century Schoolbook, Garamond, Helvetica, Scala, and Times New Roman.

(f) Typeface size. Typeface size is referred to in points. Because different typefaces in the same point size are not of equal size, typeface is not strictly defined but is expressed as a minimum size in the Times New Roman typeface for visual comparative purposes. Generally, the typeface for the text of the disclosure of equity standard form must be at least as large as 10 point in the Times New Roman typeface. A point is generally viewed as 1/72nd of an inch.

(g) Co-buyers. If the motor vehicle being sold under a retail installment sales contract is being purchased by co-buyers, the signature of one co-buyer will verify delivery of a disclosure under this section.

(h) Required standard form. The required disclosure of equity standard form under Texas Finance Code, §348.0091 to be provided to the retail buyer before accepting a trade-in motor vehicle for a motor vehicle sold under a retail installment sales contract is presented in the following figure.

Attached Graphic

(i) Permissible changes. A retail seller must use the required disclosure of equity standard form, but may consider making only limited technical changes in the disclosure paragraph required by Texas Finance Code, §348.0091(c)(1)(H), as provided by the following exclusive list:

(1) substituting the following for the words "the dealer":

(A) the retail seller's name;

(B) the pronoun "we"; or

(C) "the seller";

(2) substituting the following words for the pronoun "you":

(A) "the buyer";

(B) "the retail buyer"; or

(C) "the retail buyer(s)";

(3) substituting the article "the" for the pronoun "your";

(4) appropriate changes to verbs in order to maintain proper grammar.

(j) Benefit under trade-in credit agreement. 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.

History

• Source Note: The provisions of this §84.204 adopted to be effective January 7, 2010, 35 TexReg 64; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective September 7, 2017, 42 TexReg 4462.

7 Tex. Admin. Code § 84.205 Documentary Fee

(a) Purpose. Under Texas Finance Code, §348.006(e), before a retail seller charges a documentary fee greater than $225, the seller must provide the OCCC with a written notification of the maximum amount of the documentary fee the seller intends to charge. The OCCC may review the amount of the documentary fee for reasonableness. This section describes the requirements for the notification and cost analysis.

(b) General requirements.

(1) $225 or less. A seller is not required to provide a notification or cost analysis to the OCCC before charging a documentary fee of $225 or less. A documentary fee of $225 or less is presumed reasonable under Texas Finance Code, §348.006(f).

(2) Over $225. Before charging a documentary fee greater than $225, a seller must provide a notification and a cost analysis to the OCCC.

(c) Notification.

(1) Generally. Before charging a documentary fee greater than $225, a seller must provide a written notification to the OCCC, stating the amount of the maximum documentary fee that the seller intends to charge.

(2) Notification for each location. A seller must provide a notification for each licensed location or registered office at which motor vehicles are sold. If a seller has more than one license or registered office in the same physical space, then it must provide a notification for each license or registered office under which it sells vehicles. For example, if a seller has two registered offices at the same location and does business under the names of both registered offices, then it must provide a notification for each of the two registered offices.

(3) Form. The notification must be provided on a form prescribed by the OCCC for receiving notifications of documentary fee amounts. A notification is not effective until the OCCC receives a complete form.

(4) Transfer of ownership. In the event of a transfer of ownership described by §84.604 of this title (relating to Transfer of License; New License Application on Transfer of Ownership), if the transferee intends to charge a documentary fee greater than $225, then the transferee must provide a documentary fee notification for each licensed location or registered office that the transferee will operate. The transferee must provide the notification no later than the 30th calendar day following the transfer of ownership. If the transferee has not filed a notification on or before the 30th calendar day following the transfer of ownership, then it must cease charging a documentary fee greater than $225. The transferee may not charge a greater amount than the amount described in the transferor's previous notification until the transferee has provided a complete notification listing the amount that the transferee intends to charge. If the transferor did not previously provide a documentary fee notification, then the transferee may not charge a documentary fee greater than $225 until it has provided a complete notification listing the amount it intends to charge.

(5) Failure to provide notification. A seller violates this subsection if the seller:

(A) charges a documentary fee greater than $225 without first providing a complete notification to the OCCC; or

(B) provides a notification to the OCCC and charges a documentary fee greater than the amount described in the notification.

(6) Restitution and order to lower documentary fee. If a seller violates this subsection, then the OCCC may take an action, including ordering the seller to do one or more of the following:

(A) provide restitution to affected buyers;

(B) lower its documentary fee prospectively;

(C) provide a complete, accurate notification to the OCCC;

(D) cease charging a documentary fee greater than $225 for a specified period of time.

(7) Restitution amount. If a seller does not provide a complete notification to the OCCC, then the amount of restitution for violating this subsection will not exceed the amount of the documentary fee the seller charged or received minus $225 (for each buyer). If the seller provides a notification but charges a documentary fee greater than the amount described in the notification, then the restitution for violating this subsection will not exceed the amount of the documentary fee the seller charged or received minus the amount of its filing (for each buyer).

(d) Cost analysis.

(1) Generally. Before charging a documentary fee greater than $225, a seller must submit a cost analysis showing that the documentary fee is reasonable. The seller has the burden of showing that the documentary fee is reasonable, and that all included costs are reasonable, specified, and supported by adequate documentation. This subsection does not require the OCCC's approval of a documentary fee before a seller charges it. However, the OCCC may order restitution under subsection (d)(6) if a seller charges a documentary fee over $225 that is not supported by a complete cost analysis, or if the documentary fee includes costs that are not reasonable.

(2) Reasonableness requirements. In order to be reasonable, a documentary fee must reflect costs actually incurred by the seller in preparing and processing documents for a motor vehicle sale. All included costs must comply with the following reasonableness requirements.

(A) Directly related and allocable. Costs must directly relate to the seller's preparation and processing of documents for a motor vehicle sale. Costs must be allocable (i.e., chargeable or assignable) to the objective of preparing and processing documents. Costs must be incurred by the seller. A seller may not increase any authorized charge imposed by a third party.

(B) Allowable. Costs must relate to activities required to comply with local, state, or federal law concerning motor vehicle sales. Costs related to ancillary or optional products may not be included. Costs must be determined in accordance with generally accepted accounting principles and in accordance with this section.

(C) Prudent business person. Costs must comply with the prudent-business-person standard. This means that costs are limited to what a prudent business person would pay in a competitive marketplace. For example, hiring a limousine to deliver documents does not comply with the prudent-business-person standard. In determining whether a given cost is prudent, consideration will be given to the following:

(i) whether the cost is of a type generally recognized as ordinary, customary, and necessary for preparing and processing documents for a motor vehicle sale;

(ii) the restraints or requirements imposed by sound business practices, arm's-length bargaining, and applicable laws and regulations;

(iii) market prices for comparable goods or services; and

(iv) the necessity of the cost.

(D) Timing.

(i) Costs must be incurred either concurrently with or after the seller's preparation of at least one of the following: a buyer's order, bill of sale, purchase agreement, or retail installment sales contract. Any costs incurred before the preparation of the earliest of these documents may not be included. This clause does not apply to the costs of purchasing or printing forms specifically listed in subsection (d)(3)(B)(ii).

(ii) Costs must be incurred before the title of the purchased motor vehicle is actually transferred, or when title is legally required to have been transferred, whichever is earlier.

(iii) Costs relating to a trade-in motor vehicle must be incurred before the title of the trade-in motor vehicle is actually transferred, or when the title is legally required to have been transferred, whichever is earlier.

(E) No finance charge. The documentary fee may not include any amount that would be considered a finance charge under the Truth in Lending Act, 15 U.S.C. §§1601-1667f. All included costs must be incurred uniformly in cash and credit transactions.

(i) The documentary fee may not include any cost associated with the negotiation or assignment of the retail installment sales contract to another financial institution or a related finance company.

(ii) The documentary fee may not include any cost associated with the evaluation of the buyer's creditworthiness. A seller may include the cost of obtaining a credit report for a buyer who ultimately purchases a motor vehicle, if the seller incurs this cost uniformly in cash and credit transactions, and the cost complies with the other requirements described in this subsection (e.g., the cost of obtaining a credit report to ensure compliance with regulations of the Office of Foreign Assets Control, 31 C.F.R. Parts 501-599). The documentary fee may not include the cost of obtaining a credit report in unconsummated transactions.

(iii) The documentary fee may not include the cost of preparing any disclosure or contractual provision that is used only in credit transactions. In particular, the documentary fee may not include the cost of preparing a Truth in Lending disclosure statement.

(F) Other prohibitions. The documentary fee may not include costs associated with any of the following:

(i) advertising;

(ii) floor planning (i.e., the seller's credit arrangements for the purchase of its inventory);

(iii) manufacturer or distributor's rebates;

(iv) the price of any report on the condition or history of the motor vehicle to be purchased or traded in;

(v) the disbursement of money to a financial institution (e.g., the cost of issuing a certified check);

(vi) a salesperson's commission for the sale of the motor vehicle (but commissions for an employee other than a salesperson may be included if they comply with subsection (d)(3)(B)(i)).

(3) Form of cost analysis. The cost analysis must include a summary of documentary fee costs and supporting exhibits.

(A) Summary of documentary fee costs. The summary of documentary fee costs must be provided on a form prescribed by the OCCC.

(i) The summary must include an itemization of the amount of costs for each of the following categories:

(I) personnel;

(II) forms and printing;

(III) postage;

(IV) software;

(V) facilities costs;

(VI) other costs.

(ii) The summary must include the number of sales completed during the period used to determine the costs described in clause (i).

(B) Supporting exhibits. A seller must provide a supporting exhibit for each category of costs included in the documentary fee. A seller must prorate costs to ensure that costs that are impermissible under this subsection are excluded. If a category is associated with both permissible and impermissible costs, then a seller must include only the permissible portion and explain the percentage of the category that is being included. The OCCC may prescribe a form for the supporting exhibits. A seller is not required to provide an exhibit for any category that does not include any costs.

(i) Personnel. The supporting exhibit for personnel must describe how all employee salaries included in the documentary fee comply with the reasonableness requirements described in this subsection.

(I) The supporting exhibit for personnel must include a job description for each position. Job descriptions must be specific enough to illustrate which functions are unique to each listed position, on a task level. The job description must identify which specific tasks are included as a cost component of the documentary fee, and which are excluded.

(II) The supporting exhibit for personnel must include each salary and a complete description of how compensation is calculated for each position (e.g., a pay plan).

(-a-) Commission paid to a salesperson for the sale of a motor vehicle must be excluded. If the seller includes a portion of the base salary paid to a salesperson, then the seller must explain how the salary has been prorated to exclude impermissible costs. If the seller offers a guaranteed minimum draw against future commission, then the draw may be included in the base salary rather than the commission.

(-b-) If the seller includes any commission paid to a person other than a salesperson, then the seller must explain how the commission has been prorated to exclude any impermissible costs (e.g., commission for ancillary products, or commission that arises only in credit transactions). If the seller offers a guaranteed minimum draw against future commission, then the draw may be included in the base salary rather than the commission.

(III) If costs of training employees are included, then the supporting exhibit must include an agenda for the training and an explanation of the subject matter of the training. The seller must explain how training costs have been prorated to exclude impermissible costs (e.g., costs of training employees on responsibilities that arise only in credit transactions, or that arise before preparation of a purchase agreement).

(ii) Forms and printing. The supporting exhibit for forms and printing must describe all included costs and explain which forms are purchased or printed. All included forms must be used uniformly in cash and credit motor vehicle sales. If a seller uses a form only in certain transactions, then the seller must prorate costs by the fraction of the seller's sales in which the form is used. For example, if a form is used only for used motor vehicle sales, then a seller must prorate the cost of the form by the fraction of the seller's sales that are used motor vehicles. If a seller includes forms not listed in this clause, then the supporting exhibit must include an explanation of how the forms comply with the reasonableness requirements described in this subsection, with a citation to the law that requires the form. A seller may include the costs of the following forms:

(I) a written contract for the sale of the motor vehicle, as required by Texas Business and Commerce Code §2.201, which must be in the form of only one of the following:

(-a-) a purchase agreement;

(-b-) a buyer's order;

(-c-) a bill of sale; or

(-d-) a retail installment sales contract (if a seller includes the cost of a retail installment sales contract, then the cost must be prorated to exclude the Truth in Lending disclosure statement and any provisions that are used only in credit transactions);

(II) an application for certificate of title, form 130-U, as required by Texas Transportation Code, §501.023;

(III) a privacy notice, as required by the Gramm-Leach-Bliley Act, 15 U.S.C. §6803;

(IV) a copy of the buyer's driver's license, in order to verify the buyer's identity and ensure compliance with regulations of the Office of Foreign Assets Control, 31 C.F.R. Parts 501-599;

(V) a report of a cash payment over $10,000, form 8300, as required by the USA PATRIOT Act, 31 U.S.C. §5331;

(VI) a Texas Lemon Law disclosure, as required by Texas Occupations Code, §2301.610;

(VII) the buyer's temporary tag, as required by Texas Transportation Code, §503.063, and 43 Texas Administrative Code §215.155

(VIII) the buyer's temporary tag receipt, as required by 43 Texas Administrative Code §215.156;

(IX) a window sticker for new vehicles, as required by 15 U.S.C. §1232; and

(X) a used car buyers guide, as required by the Federal Trade Commission's Used Motor Vehicle Rule, 16 C.F.R. §455.2.

(iii) Postage. The supporting exhibit for postage must identify the postage carrier, the types of documents that are sent by postage, and each specific postage cost. All postage costs must comply with the reasonableness requirements described in this subsection, including the prudent-business-person standard. The OCCC will presume that a prudent business person would use certified mail from the United States Postal Service or a similarly priced service. The exhibit must explain how costs that do not comply with this subsection (e.g., costs of sending documents to other financial institutions) have been excluded.

(iv) Software. The supporting exhibit for software must identify the cost of each included piece of software. The exhibit must state the type of software used and the specific functions of the software. The exhibit must identify which specific software functions are included as a cost component of the documentary fee, and which are excluded. If the software is associated with both permissible and impermissible costs, then a seller must include only the permissible portion and explain the percentage of the category that is being included.

(v) Facilities costs. The supporting exhibit for facilities must identify all included facilities costs (e.g., rent, property taxes, insurance). Any facilities costs must be adjusted to include only direct fixed costs that comply with the reasonableness requirements described in this subsection. The documentary fee may not include costs incurred while the seller's facilities are closed, because these are indirect costs that do not directly relate to the processing of documents. The documentary fee may not include costs associated with areas that are not involved in the processing of documents (e.g., common areas, break rooms, bathrooms). The documentary fee may not include any depreciation of facilities costs. The exhibit must describe an appropriate methodology ensuring that the documentary fee includes only the portion of the facilities costs that corresponds to the percentage of time and space used for activities that may be included in the documentary fee.

(vi) Other costs. The supporting exhibit for other costs must identify all other costs included in the documentary fee. The exhibit must state the amount of each cost and the nature of the associated activities. If the activities are associated with both permissible and impermissible costs, then a seller must include only the permissible portion and explain the percentage of the category that is being included.

(4) Cost analysis covering multiple locations. A seller may submit a cost analysis that covers more than one licensed location or registered office if:

(A) the cost structures of all covered locations are substantially similar (e.g., due to centralized processing among a group of locations); and

(B) in the supporting exhibits, the seller explains which costs are similar among the locations and explains the differences in costs among the locations.

(5) OCCC review. The OCCC will review each cost analysis in order to determine whether the documentary fee is reasonable for the seller that provided the analysis. If the cost analysis does not support the seller's documentary fee, or if the OCCC determines that any included costs are not reasonable, then the OCCC may require the seller to provide additional information, or the OCCC may determine that the amount is unreasonable. The review may result in a determination of the maximum amount of the documentary fee that a specific seller may charge.

(6) Restitution and order to lower documentary fee. If a seller violates this subsection by charging a documentary fee over $225 that is not supported by a complete cost analysis or that includes costs that are not reasonable, then the OCCC may order the seller to provide restitution to affected buyers and lower its documentary fee prospectively. For each buyer, the restitution for violating this subsection will not exceed the amount of the documentary fee the seller charged or received, minus $225, minus other restitution paid under subsection (c)(6) - (7) of this section. In addition, the OCCC may order a seller to cease charging a documentary fee greater than $225 for a specified period of time if the seller violates this subsection.

History

• Source Note: The provisions of this §84.205 adopted to be effective June 1, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective July 11, 2024, 49 TexReg 4903.

Subchapter C INSURANCE AND DEBT CANCELLATION AGREEMENTS

7 Tex. Admin. Code § 84.301 Definitions

(a) Debt Cancellation Agreement for Death of Retail Buyer--The agreement between the retail buyer and the retail seller or the holder of a retail installment sales contract in which a holder agrees to waive all or part of the amount owed under the retail installment sales contract in the event of the death of the retail buyer. The fee amount of the debt cancellation agreement may be paid to the retail seller, holder, or any other party designated by the retail seller or holder.

(b) Debt Cancellation Agreement for Disability of Retail Buyer--The agreement between the retail buyer and the retail seller or the holder of a retail installment sales contract in which a holder agrees to waive one or more payments owed under the retail installment sales contract in the event of the disability of the retail buyer. The fee amount of the debt cancellation agreement may be paid to the retail seller, holder, or any other party designated by the retail seller or holder.

(c) Debt Cancellation Agreement for Total Loss or Theft of Motor Vehicle. For a retail installment sales transaction involving an ordinary vehicle, a debt cancellation agreement for total loss or theft of a motor vehicle is a retail installment sales contract term or a contractual arrangement modifying a retail installment sales contract term under which a retail seller or holder agrees to cancel all or part of an obligation of the retail buyer to repay an extension of credit from the retail seller or holder on the occurrence of the total loss or theft of the motor vehicle that is the subject of the retail installment sales contract but does not include an offer to pay a specified amount on the total loss or theft of the motor vehicle. The fee amount of the debt cancellation agreement may be paid to the retail seller, holder, or any other party designated by the retail seller or holder.

(d) Prepaid Maintenance Agreement--A maintenance agreement as defined in Texas Occupations Code, §1304.004.

(e) Primary Insurance Carrier--The retail buyer's physical damage insurance company or a liability insurance policy of a person that has caused a total loss to the motor vehicle.

(f) Service Contract--A service contract as defined in Texas Occupations Code, §1304.003. Pursuant to Texas Occupations Code, §1304.004, a prepaid maintenance agreement is a type of service contract.

(g) Total Loss or Theft for Debt Cancellation Agreement Not Requiring Insurance.

(1) Holder bears complete responsibility for canceling the debt. Under §84.308(e)(1) of this title (relating to Debt Cancellation Agreements Not Requiring Insurance), a total loss means direct or accidental physical damage loss of or damage to the motor vehicle subject to the debt cancellation agreement which results in a determination by the holder of the retail installment sales contract that the total cost of the repair is greater than or equal to the retail value of the motor vehicle. The value of the motor vehicle subject to the debt cancellation agreement must be determined by an established retail value guide as of the date immediately prior to loss. Under §84.308(e)(1) of this title, theft means the motor vehicle subject to the debt cancellation agreement is stolen and deemed to be not recoverable.

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance. Under §84.308(e)(2) of this title, a total loss means direct or accidental physical damage loss of or damage to the motor vehicle subject to the debt cancellation agreement which results in a determination by the holder of the retail installment sales contract that the total cost of the repair is greater than or equal to the retail value of the motor vehicle. The value of the motor vehicle subject to the debt cancellation agreement must be determined by an established retail value guide as of the date immediately prior to loss. Under §84.308(e)(2) of this title, theft means the motor vehicle subject to the debt cancellation agreement is stolen and deemed to be not recoverable.

History

• Source Note: The provisions of this §84.301 adopted to be effective August 31, 2006, 31 TexReg 6670; amended to be effective March 14, 2010, 35 TexReg 1959; amended to be effective November 4, 2010, 35 TexReg 9708; amended to be effective September 8, 2011, 36 TexReg 5671; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.302 Authorized Credit Insurance and Debt Cancellation Agreements

(a) Purpose. This section only applies to a motor vehicle retail installment sales transaction under Texas Finance Code, Chapter 348 where a charge for insurance or debt cancellation agreement is included in the balance due under the retail installment sales contract. This section does not apply to insurance sold outside of the retail installment sales transaction.

(b) Authorized credit insurance. Authorized credit insurance includes credit life, credit accident and health insurance, credit involuntary unemployment insurance, and dual-interest gap insurance. The retail seller may but is not required to offer the authorized credit insurance products described in this section.

(c) Decreasing term coverage for credit life, credit accident and health, and involuntary unemployment insurance. Credit life insurance, credit accident and health insurance, and involuntary unemployment insurance written in connection with a Texas Finance Code, Chapter 348 motor vehicle retail installment sales contract must be decreasing term insurance.

(d) Lawful rates and terms for credit life and credit accident and health insurance. Credit life insurance and credit accident and health insurance must be written in compliance with Texas Insurance Code, Chapters 1131 and 1153, and any regulations issued by the Texas Department of Insurance under the authority of those provisions.

(e) Lawful rates and terms for involuntary unemployment insurance. Involuntary unemployment insurance must be written in compliance with Texas Insurance Code, Chapter 3501, and any regulations issued by the Texas Department of Insurance under the authority of that chapter.

(f) Lawful rates and terms for dual-interest gap insurance. Dual-interest gap insurance, authorized by Texas Finance Code, §348.208(b)(4), must be written at rates and on forms set and filed in accordance with Texas Insurance Code, Chapters 2251 and 2301, and any regulations issued by the Texas Department of Insurance under the authority of those provisions.

(g) Authorized insurance and surplus lines insurance companies. For retail installment sales transactions involving ordinary vehicles, credit insurance must be procured from an insurance company authorized to do business in this state. Surplus lines insurance companies are not authorized to offer credit insurance on a Chapter 348 motor vehicle retail installment sales contract.

(h) Debt cancellation agreements. Debt cancellation agreements are not credit insurance. For retail installment sales transactions involving ordinary vehicles, debt cancellation agreements that cancel all or part of the retail buyer's obligation to repay the retail installment sales contract based upon the occurrence of death, disability, or unemployment of the retail buyer are not authorized to be sold or written with a Chapter 348 motor vehicle retail installment sales contract. A debt cancellation agreement may be offered in connection with a Chapter 348 motor vehicle retail installment sales transaction and included as a term of, or modification to, the retail installment sales contract if the debt cancellation agreement is written in compliance with:

(1) Texas Finance Code, §348.124 and §84.308 of this title; or

(2) Texas Finance Code, Chapter 354.

History

• Source Note: The provisions of this §84.302 adopted to be effective July 10, 2008, 33 TexReg 5280; amended to be effective March 14, 2010, 35 TexReg 1959; amended to be effective September 8, 2011, 36 TexReg 5671; amended to be effective September 7, 2017, 42 TexReg 4462.

7 Tex. Admin. Code § 84.303 Provision of Policy or Certificate

(a) If a retail seller obtains insurance for which a charge is included in a motor vehicle retail installment sales contract under Texas Finance Code, Chapter 348, the retail seller must send or cause to be sent to the retail buyer, within 30 days of the date of the contract, a properly executed policy or certificate of insurance. The policy or certificate of insurance must clearly set forth:

(1) the amount of the premium;

(2) the kind of insurance provided;

(3) the coverage of the insurance; and

(4) all terms, including options, limitations, restrictions and conditions of the insurance that has been purchased.

(b) This section does not apply to a holder who purchases dual-interest insurance on a motor vehicle retail installment sales contract involving a commercial vehicle.

History

• Source Note: The provisions of this §84.303 adopted to be effective July 10, 2008, 33 TexReg 5280; amended to be effective November 5, 2009, 34 TexReg 7607.

7 Tex. Admin. Code § 84.304 Evidence of Equivalent Insurance

If a retail buyer provides a holder with evidence of property insurance coverage that names the holder as a loss payee and that is equivalent to insurance already purchased through the holder, the holder must promptly cancel any equivalent property insurance or collateral protection insurance. The refund of any unearned insurance premium must be applied to the balance of the contract or refunded to the retail buyer.

History

• Source Note: The provisions of this §84.304 adopted to be effective July 10, 2008, 33 TexReg 5280.

7 Tex. Admin. Code § 84.305 Collateral Protection Insurance

If a holder of a motor vehicle retail installment sales contract involving an ordinary vehicle arranges for collateral protection insurance and assesses a charge for the insurance to the retail buyer, the holder must comply with the provisions of Texas Finance Code, Chapter 307.

History

• Source Note: The provisions of this §84.305 adopted to be effective July 10, 2008, 33 TexReg 5280; amended to be effective November 5, 2009, 34 TexReg 7607.

7 Tex. Admin. Code § 84.307 Prepaid Maintenance Agreements

(a) If the prepaid maintenance agreement is required in connection with the sale of a motor vehicle, regardless of whether the sale is a cash sale or a credit sale, the charge for the prepaid maintenance agreement should be disclosed or otherwise included as a component of the cash price.

(b) If the prepaid maintenance agreement is offered as a voluntary purchase in connection with the credit sale of a motor vehicle, the prepaid maintenance agreement may be disclosed:

(1) as a component of the cash price; or

(2) as an itemized charge on the retail installment sales contract.

(c) At the time of the sale, the services covered by the prepaid maintenance agreement should be reasonably expected to be delivered during the term of the agreement.

(d) The agency may evaluate the assessed charge for a prepaid maintenance agreement. If the agency determines that the charge is excessive considering relevant factors, then the agency may consider the excessive amount as finance charge. One of the relevant factors the agency will consider is whether the assessed charge and sales representations between cash and credit transactions differ.

History

• Source Note: The provisions of this §84.307 adopted to be effective July 10, 2008, 33 TexReg 5280.

7 Tex. Admin. Code § 84.308 Debt Cancellation Agreements Not Requiring Insurance

(a) Purpose and scope. The Texas Finance Code allows a debt cancellation agreement to be included in a motor vehicle retail installment sales contract involving an ordinary vehicle subject to Texas Finance Code, Chapter 348 as an itemized charge. This section outlines the parameters under which a retail seller or holder may provide a debt cancellation agreement for total loss or theft of an ordinary vehicle in connection with a Chapter 348 retail installment sales contract. This section applies only to debt cancellation agreements that do not require insurance coverage. This section does not apply to a debt cancellation agreement under Texas Finance Code, Chapter 354.

(b) Disclosure under Texas Finance Code, §348.124.

(1) Delivery. A retail seller must provide the retail buyer with a notice that a debt cancellation agreement for total loss or theft of an ordinary vehicle is not required in order to purchase the motor vehicle if a retail seller offers to sell a debt cancellation agreement for total loss or theft to a retail buyer. This notice can be provided to the retail buyer either in a debt cancellation agreement for total loss or theft of an ordinary vehicle or in a separate disclosure. The notice under this section must be provided separately from the retail installment sales contract. A retail seller may request that the retail buyer authenticate the debt cancellation agreement for total loss or theft of an ordinary vehicle disclosure acknowledging the applicant's receipt of the disclosure or notice. A retail seller may rely upon a verifiable procedure to show that a debt cancellation agreement for total loss or theft of an ordinary vehicle notice was provided to an applicant.

(2) Multiple applicants. In the case of multiple applicants, it is only necessary for the retail seller to deliver the debt cancellation agreement for total loss or theft of an ordinary vehicle notice to one applicant.

(c) Authorized debt cancellation agreement for total loss or theft of an ordinary vehicle provisions. A debt cancellation agreement under this section may only contain provisions or exclusions from either paragraph (1) or (2) of this subsection, language to implement any of the provisions or exclusions of either paragraph (1) or (2) of this subsection, and language to identify and obligate the parties to the debt cancellation agreement under Texas law if that language does not conflict with this subsection.

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft must:

(A) contain a statement that the holder will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle;

(B) permit the exclusion of loss or damage only as a result of one or more of the following:

(i) an act occurring after the original maturity date or date of holder's acceleration of the retail installment sales contract;

(ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;

(iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;

(iv) lawful confiscation by an authorized public official;

(v) the operation, use, or maintenance of the motor vehicle in any race or speed contest;

(vi) war, whether or not declared, invasion, civil war, insurrection, rebellion, revolution, or act of terrorism;

(vii) normal wear and tear, freezing, mechanical or electrical breakdown or failure;

(viii) use of the motor vehicle for primarily commercial purposes;

(ix) loss that occurs after the motor vehicle has been repossessed;

(x) damage to the motor vehicle prior to the purchase of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(xi) damage related to any personal property attached to or within the vehicle;

(xii) damages associated with falsification of documents by any person not associated with the retail seller or the debt cancellation provider;

(xiii) abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, or leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;

(xiv) any loss occurring outside the continental United States of America, Alaska, or Hawaii (holder may opt to cover losses in Canada);

(xv) any exclusion or limitation approved in writing by the commissioner;

(C) contain a statement that the retail buyer is required to notify the holder within 75 days, or a longer period as agreed to in the debt cancellation agreement, of any potential loss under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(D) contain a statement that requests the retail buyer to provide or complete a debt cancellation request form and a copy of the police report, if any, filed in connection with the total loss or theft of the motor vehicle and provide those documents to the holder;

(E) contain a statement that the holder will cancel amounts as provided under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(F) contain a statement naming the refunding method to be used to calculate refunds under subsection (f) of this section;

(G) contain a statement that the holder may not be named as loss payee on any insurance policy covering the motor vehicle or receive any of the proceeds from an insurance policy on the motor vehicle;

(H) contain a statement that the holder may not require property insurance on the motor vehicle;

(I) contain a statement that the debt cancellation agreement is not required to obtain credit and will not be a factor in the credit approval process;

(J) contain a statement that a partial loss of the motor vehicle is not subject to relief under the debt cancellation agreement;

(K) contain a statement that upon request of the commissioner, the administrator will make its records relating to the creation, processing, and resolution of the debt cancellation agreement available to the commissioner;

(L) contain a statement that the retail buyer should consider contacting a tax advisor regarding possible tax consequences; and

(M) contain, at the election of the drafter, contract provisions pertaining to the following issues, so long as the provisions comply with state and federal law and implementing regulations:

(i) a notice provision regarding how notice may be given or delivered by either party under the debt cancellation agreement;

(ii) a severability provision;

(iii) an arbitration provision;

(iv) any contract provision approved in writing by the commissioner.

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance, must:

(A) contain a statement that:

(i) if the retail buyer does not have property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle, the retail seller will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle; or

(ii) if the retail buyer has property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle or the motor vehicle is involved in a total loss involving another responsible party's liability insurance policy, the retail seller will apply any settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy to the retail buyer's account and cancel the remaining balance;

(B) permit the exclusion of loss or damage only as a result of one or more of the following:

(i) an act occurring after the original maturity date or date of retail seller's acceleration of the retail installment sales contract;

(ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;

(iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;

(iv) lawful confiscation by an authorized public official;

(v) the operation, use, or maintenance of the motor vehicle in any race or speed contest;

(vi) war, whether or not declared, invasion, civil war, insurrection, rebellion, revolution, or act of terrorism;

(vii) normal wear and tear, freezing, mechanical or electrical breakdown or failure;

(viii) use of the motor vehicle for primarily commercial purposes;

(ix) loss that occurs after the motor vehicle has been repossessed;

(x) damage to the motor vehicle prior to the purchase of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(xi) damage related to any personal property attached to or within the vehicle;

(xii) damages associated with falsification of documents by any person not associated with the retail seller or the debt cancellation provider;

(xiii) abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, or leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;

(xiv) any loss occurring outside the continental United States of America, Alaska, or Hawaii (retail seller may opt to cover losses in Canada);

(xv) any exclusion or limitation approved in writing by the commissioner;

(C) contain a statement that the retail buyer is required to notify the retail seller within 75 days, or a longer period as agreed to in the debt cancellation agreement, of any potential loss under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(D) contain a statement that requests the retail buyer to provide or complete some or all of the following documents and provide those documents to the retail seller:

(i) a debt cancellation request form;

(ii) if property insurance is in force and effect, proof of loss and settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle;

(iii) a copy of the police report, if any, filed in connection with the total loss or theft of the motor vehicle;

(iv) a copy of the damage estimate;

(v) any additional documentation approved in writing by the commissioner;

(E) contain a statement that the retail seller will cancel amounts as provided under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(F) contain a statement naming the refunding method to be used to calculate refunds under subsection (f) of this section;

(G) contain a statement explaining the calculation of the amount canceled under the debt cancellation agreement for total loss or theft of an ordinary vehicle that is in accordance with subsection (h)(2) of this section;

(H) contain a statement that the retail seller may be named as loss payee on any insurance policy covering the motor vehicle, but may only receive proceeds from an insurance policy on the motor vehicle in the event of a total loss or theft;

(I) contain a statement that the retail seller may not require property insurance on the motor vehicle;

(J) contain a statement that the debt cancellation agreement is not required to obtain credit and will not be a factor in the credit approval process;

(K) contain a statement that a partial loss of the motor vehicle is not subject to relief under the debt cancellation agreement, but may be subject to relief from property insurance voluntarily purchased by the retail buyer;

(L) contain a statement that upon request of the commissioner, the administrator will make its records relating to the creation, processing, and resolution of the debt cancellation agreement available to the commissioner;

(M) contain a statement that the retail buyer should consider contacting a tax advisor regarding possible tax consequences; and

(N) contain, at the election of the drafter, contract provisions pertaining to the following issues, so long as the provisions comply with state and federal law and implementing regulations:

(i) a notice provision regarding how notice may be given or delivered by either party under the debt cancellation agreement;

(ii) a severability provision;

(iii) an arbitration provision;

(iv) any contract provision approved in writing by the commissioner.

(d) Copy of debt cancellation agreement for total loss or theft of ordinary vehicle provided to retail buyer. If a retail buyer purchases a debt cancellation agreement for total loss or theft of an ordinary vehicle, the retail seller must provide the retail buyer, within a reasonable amount of time not to exceed 10 days from the date of the retail installment sales contract, a true and correct copy of the agreement that clearly sets forth:

(1) the name of the retail buyer, and the name, address, and telephone number of the place where requests for debt cancellation are processed;

(2) the amount and term of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(3) the cost of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(4) the terms, including the limitations, exclusions and restrictions; and

(5) a statement that the holder will cancel certain amounts under the debt cancellation agreement for total loss or theft of an ordinary vehicle substantially similar to the following: "YOU WILL CANCEL CERTAIN AMOUNTS I OWE UNDER THIS CONTRACT IN THE CASE OF A TOTAL LOSS OR THEFT OF THE VEHICLE AS STATED IN THE DEBT CANCELLATION AGREEMENT."

(e) Fee or rate for debt cancellation agreement for total loss or theft of an ordinary vehicle. The amount of the fee is based upon the amount financed. The fee for a debt cancellation agreement can be adjusted to the nearest whole dollar. The fee may be included in the amount financed and a finance charge may be charged on the fee. The minimum fee for a debt cancellation agreement under this subsection is $50.

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle that are in compliance with subsection (c)(1) of this section.

Attached Graphic

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle that are in compliance with subsection (c)(2) of this section.

Attached Graphic

(f) Refund or credit of unearned debt cancellation agreement fee.

(1) Notification of cancellation triggering refund or credit. A holder may require that the retail buyer notify the holder, retail seller, or any administrator appointed by the holder in writing should the retail buyer decide to cancel the debt cancellation agreement.

(2) Refunding method. Upon termination of a debt cancellation agreement prior to the scheduled maturity date of a retail installment sales contract, the holder or administrator will provide the retail buyer a refund or credit calculated using a method that is at least as favorable to the buyer as the Rule of 78s. In the event of a canceled debt under the debt cancellation agreement, the fee paid for the debt cancellation agreement is fully earned and no refund or credit is due.

(3) Cancellation date. The refund or credit of the debt cancellation agreement fee, if any, must be based upon the earlier date of:

(A) the prepayment of the retail installment sales contract in full prior to the original maturity date;

(B) a demand by the holder for payment in full of the unpaid balance or acceleration;

(C) a request by the retail buyer for cancellation of the debt cancellation agreement; or

(D) the total denial of a debt cancellation request based on one of the exclusions contained in subsection (c)(1)(B) or (2)(B) of this section, except in the case of a partial loss of the covered motor vehicle.

(4) Rounding of unearned debt cancellation agreement fee. The refund or credit for the unearned debt cancellation agreement fee can be rounded to the nearest whole dollar.

(5) Refund or credit less than $1.00 not required. A refund or credit is not required if the amount of the refund or credit is less than $1.00.

(6) Flat cancellation within 30 days. If no total loss or theft has occurred, the retail buyer may cancel the debt cancellation agreement within 30 days from the date of the retail installment sales contract or the issuance of the debt cancellation agreement, whichever is later, or such later day as may be provided under the debt cancellation agreement. Upon such cancellation, the holder or administrator will refund or credit the entire debt cancellation agreement fee. A retail buyer may not cancel the debt cancellation agreement and then receive any benefits under the agreement.

(g) Prompt cancellation under debt cancellation agreement. A holder must comply with the terms of a debt cancellation agreement within 60 days of receiving a debt cancellation request form and all necessary information needed by the holder or administrator to process the request. If the administrator has all of the information that a retail buyer would provide in the completion of a debt cancellation request form, the administrator must comply with the terms of the debt cancellation agreement within 60 days of receipt of all the necessary information needed by the holder or administrator to process the request.

(h) Calculation of amount to be cancelled under debt cancellation agreement for total loss or theft of ordinary vehicle. The calculation of the amount to be canceled under this section will be figured in compliance with one of the following methods:

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft. The amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle on the retail installment sales contract will be the amount canceled under the debt cancellation agreement for total loss or theft of an ordinary vehicle.

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance.

(A) If the retail buyer did not have property insurance at the time of the total loss or theft of the motor vehicle or the total loss of the vehicle was not covered by another responsible party's liability insurance policy, the amount to be canceled will be the amount currently owed by the retail buyer as of the date of total loss or theft of the motor vehicle.

(B) If the retail buyer had property insurance at the time of the total loss or theft of the motor vehicle or the total loss of the vehicle was covered by another responsible party's liability insurance policy, the retail seller or related finance company will calculate the amount to be canceled by determining:

(i) the current balance owed by the retail buyer as of the date of total loss or theft of the motor vehicle;

(ii) subtracting the total loss payment made by the primary insurance carrier or other responsible party's liability insurance carrier; and

(iii) subtracting any refunds received by the retail seller or related finance company as of the date of total loss or theft of the motor vehicle.

(i) Prepayment of retail installment sales contract by debt cancellation agreement. If the debt cancellation agreement is triggered by the total loss or theft of the motor vehicle, all refunds should be calculated as of the date of loss.

(1) Insurance refunds and other cancelable items. Examples of refunds that should be calculated as of the date of loss include credit life premium, credit accident and health insurance premium, credit involuntary unemployment insurance premium, collateral protection insurance premium, and service contract refunds. The retail installment sales contract may permit an administrator or provider to receive any refunds that are received by the holder after the settlement of the debt cancellation agreement, if those refunds were included in the amount received by the holder from the administrator. Refunds that were not part of the amount received by the holder from the administrator must be either applied to the retail buyer's account or given to the retail buyer.

(2) Time price differential refund. If the retail installment sales contract uses the scheduled installment earnings method or is a regular payment contract using the sum of the periodic balances method, the time price differential refund should be calculated as of the date of loss. If the retail installment sales contract uses the true daily earnings method, the holder should not earn any time price differential charge after the date of loss.

(j) Assignment and delegation.

(1) The retail seller or subsequent holder of a retail installment sales contract may not assign any of its rights under a debt cancellation agreement unless the retail seller or subsequent holder assigns the retail installment sales contract that the debt cancellation agreement modifies. The retail seller or subsequent holder of the retail installment sales contract may delegate its duties under a debt cancellation agreement, but the delegating party remains liable for the performance it delegated and the conduct of the persons to whom the duties are delegated.

(2) Good faith reliance. A holder may in good faith rely on a computation by the administrator of the balance waived, unless the holder has knowledge that the computation is not correct. If a computation by the administrator of the balance waived is not correct, the holder must, within a reasonable time of learning that the computation is incorrect, make the necessary corrections or cause the corrections to be made to the retail buyer's account. This section does not prevent the holder from obtaining reimbursement from the administrator or others responsible for the debt cancellation agreement or computation.

(3) For any documents relating to the creation, processing, or resolution of a debt cancellation agreement, the licensee must:

(A) maintain documents that come into its possession; and

(B) upon request by the agency, cooperate in requesting and obtaining access to documents not in its possession.

(4) Paragraph (3) of this subsection also applies to a retail seller who negotiates a debt cancellation agreement and subsequently assigns the retail installment sales contract.

(k) Prohibited practices. A debt cancellation agreement cannot be offered if:

(1) the retail installment sales contract is already protected by gap insurance;

(2) the purchase of the debt cancellation agreement is required for the retail buyer to obtain the extension of credit.

History

• Source Note: The provisions of this §84.308 adopted to be effective March 14, 2010, 35 TexReg 1959; amended to be effective November 4, 2010, 35 TexReg 9708; amended to be effective September 8, 2011, 36 TexReg 5671; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective September 7, 2017, 42 TexReg 4462.

7 Tex. Admin. Code § 84.309 Debt Cancellation Agreements Requiring Insurance

(a) Purpose and scope. This section applies to a debt cancellation agreement described by Texas Finance Code, Chapter 354, that includes insurance coverage as part of the retail buyer's responsibility to the holder. Debt cancellation agreements must be submitted to the OCCC for approval, as provided by Texas Finance Code, §354.005(a). The denial of a debt cancellation agreement may be appealed in a contested case, as provided by Texas Finance Code, §354.005(d). This section describes the requirements for submitting a debt cancellation agreement to the OCCC and the requirements for appealing the denial of a debt cancellation agreement.

(b) Submission. A debt cancellation agreement must be submitted in accordance with the OCCC's instructions. A submission is not effective until the agreement is submitted in accordance with the OCCC's instructions, including the fee required under subsection (c).

(c) Fee. The person submitting a debt cancellation agreement must pay a $250 nonrefundable fee to the OCCC for each submitted agreement.

(d) OCCC's notice of approval or denial. No later than the 45th day after the OCCC receives a debt cancellation agreement submission, the OCCC will send a notice of approval or a notice of denial to the person who submitted the agreement, as provided by Texas Finance Code, §354.005(b). On the written request of the person who submitted the agreement, the OCCC may agree in writing to extend the approval period for an additional 45 days. The date of approval or denial is the date on which the OCCC sends the notice of approval or denial. The OCCC may deny approval of a debt cancellation agreement if the agreement excludes language required by Texas Finance Code, §354.003 and §354.004, or if it contains any inconsistent or misleading provisions.

(e) Appellant's notice of appeal. A person who submits a debt cancellation agreement and receives a notice of denial from the OCCC may appeal the denial by serving a notice of appeal on the OCCC. The appellant must serve the notice of appeal no later than the 30th calendar day after the date of denial. If a notice of appeal is not served in accordance with this subsection, then the denial becomes final and cannot be appealed.

(f) Contested case. If a person appeals the denial of a debt cancellation agreement under subsection (e), then the appeal will be a contested case under the Administrative Procedure Act, Texas Government Code, Chapter 2001, and the rules of procedure applicable under §9.1(a) of this title (relating to Application, Construction, and Definitions). The burden of proof is on the appellant to show that the agreement should have been approved under Texas Finance Code, §354.005.

(g) Proposal for decision. In connection with a contested case under this section, the administrative law judge will issue a proposal for decision to the commissioner. The proposal for decision will include a recommendation regarding whether the OCCC's denial of the agreement should be affirmed or reversed. The proposal for decision may include a recommendation that costs be assigned to a party, to the extent authorized by law.

(h) Final order. The commissioner will issue a final order after review of the administrative law judge's proposal for decision. The final order will include a statement of whether the OCCC's denial of the agreement is affirmed or reversed. The final order may include an assignment of costs to a party, to the extent authorized by law.

(i) Judicial review of final order. A final order under subsection (h) of this section may be appealed to a Travis County district court, as provided by Texas Government Code, §2001.176.

History

• Source Note: The provisions of this §84.309 adopted to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective September 5, 2019, 44 TexReg 4717.

Subchapter D ACQUISITION OF CONTRACT OR BALANCE

7 Tex. Admin. Code § 84.401 Acquisition of Contract or Balance

(a) A person may not acquire a retail installment sales contract or an outstanding balance under a retail installment sales contract unless the person holds a license under Texas Finance Code, Chapter 348 or is exempt from licensing under Texas Finance Code, Chapter 348.

(b) Securitization of transactions. In the case of securitized transactions, such as a transaction in which motor vehicle retail installment sales contracts are held in trust or similar structure with participatory interests in the structure transferred to investors, the licensing requirements may be fulfilled either by the trust or other securitization entity or by the servicer that is responsible for servicing the contracts included in the securitized entity.

History

• Source Note: The provisions of this §84.401 adopted to be effective May 8, 2008, 33 TexReg 3576.

Subchapter E HOLDER'S RIGHTS, DUTIES, AND LIMITATIONS

7 Tex. Admin. Code § 84.501 Payoff Statement or Statement of Payments

(a) Definitions. For purposes of this section, the following terms will have the following meanings:

(1) Holder--A holder with the legal authority to release the security interest, or the holder's designee who has the legal authority to release the security interest.

(2) Calendar days--Every day of the week with the exclusion of legal public holidays as defined by 5 U.S.C. §6103.

(b) Payoff statement. On the written request of the retail buyer or the buyer's designee, a holder must give a payoff statement to the person making the request within a reasonable time.

(c) Statement of payments. On the written request of the retail buyer or the retail buyer's designee, a holder must give a statement of the dates and amounts of payments and the total amount unpaid under the contract to the person making the request within a reasonable time.

(d) Delinquent accounts. A holder must give the information required by this section even if at the time the inquiry is made the account is delinquent.

(e) Requesting statement. A holder may designate a location where the person requesting a payoff statement or statement of payments may submit a request for the statement. The designation may include a mailing address, physical address, telephone number, website address, email address, or another point of contact reasonably accessible to the retail buyer or buyer's designee. A mailing address and telephone number are presumed to be reasonably accessible. A website address or email address is presumed to be reasonably accessible, unless the retail buyer objects in writing. If the holder does not designate a location where the retail buyer or buyer's designee may request a payoff statement or statement of payments, the retail buyer or buyer's designee may submit the written request using the contact information included in the most recent communication from the holder related to payments or the contact information for that holder shown in the retail installment sales contract. If the holder has not provided contact information in either manner described by the preceding sentences, the retail buyer or buyer's designee may submit the request to any physical address or mailing address of the holder.

(f) Verification of retail buyer. The holder may require the retail buyer to provide certain specified information (full name of the retail buyer, social security number, account number, unique password given to the retail buyer) to verify the requester's identity before giving the payoff statement or statement of payments.

(g) Content of payoff statement. The payoff statement must, at a minimum, contain the following information:

(1) the name of the holder;

(2) the address of the holder for use in connection with the payoff statement;

(3) the telephone number of the holder for use in connection with the payoff statement;

(4) the account number or other identifying number of the retail buyer, if applicable;

(5) the date of the payoff statement;

(6) the amount necessary to payoff the account as of the stated date of the payoff statement. If the amount is subject to change after the stated date, the creditor must indicate that fact. The payoff statement may also include a description of the daily accrual of finance charges and known and identified subsequent events;

(7) a statement that specifies how and where to tender the payoff amount to the holder; and

(8) the last date upon which the payoff terms will be honored as specified by subsection (k) of this section.

(h) Delivery of payoff statement or statement of payments. The holder may give the payoff statement or statement of payments to the retail buyer or buyer's designee over the telephone or by mail, email, website address, or other means. If requested by the retail buyer or buyer's designee, the payoff statement or statement of payments must be given in writing. A payoff statement or statement of payments given by email or by website address from which the statement may be printed satisfies the writing requirement of this subsection.

(i) Cost of payoff statement or statement of payments. The retail buyer or buyer's designee is entitled to one written payoff statement or written statement of payments free of charge during a six-month period. The charge for each additional written payoff statement or written statement of payments may not exceed $1.00. A holder may not charge a fee for a payoff statement or statement of payments unless the holder gives the statement in writing.

(j) Reasonable time period. In the case of a motor vehicle retail installment sales contract made under Texas Finance Code, Chapter 348, a presumptively reasonable time in which to give a payoff statement or statement of payments is:

(1) for accounts in litigation, bankruptcy, or repossession status, five (5) calendar days, excluding legal public holidays as defined by 5 U.S.C. §6103; or

(2) for all other accounts not meeting the requirements of paragraph (1) of this subsection, two (2) business days.

(3) The reasonable time period in which to give the payoff statement or statement of payments does not begin to run unless the retail buyer or buyer's designee provides the holder the information necessary for the holder to determine the proper account and verify the requester's identity.

(4) The holder's response is timely if placed in first-class U.S. mail, given by facsimile or email, or otherwise transmitted within the reasonable time period.

(5) The reasonable time periods defined by this subsection are presumed to be reasonable and may only be rebutted by a showing of good cause.

(k) Payoff statement binding. Pursuant to Texas Finance Code, §348.408, a holder who gives the retail buyer or the buyer's designee outstanding balance information in a payoff statement is bound by that information and must honor that information for a reasonable time.

(1) If the holder gives the payoff statement to the retail buyer or buyer's designee by hand-delivery, facsimile, email, or website, a reasonable time is 10 calendar days from the date the payoff statement is given.

(2) If the holder gives the payoff statement to the retail buyer or buyer's designee by first-class mail, registered or certified mail, or any other delivery method not specified by paragraph (1) of this subsection, a reasonable time is 15 calendar days from the date the payoff statement is given.

History

• Source Note: The provisions of this §84.501 adopted to be effective July 10, 2008, 33 TexReg 5281.

7 Tex. Admin. Code § 84.503 Collection Practices

(a) In attempting to collect money due on a motor vehicle retail installment sales contract or to take possession of any property securing a motor vehicle installment sales contract, a licensee or the licensee's agent must not use any means other than appeals to reason or lawful remedies authorized under the laws of this state or other applicable law.

(b) A licensee or the licensee's agent must not use any physical force or violence against any person or use any violence or other force that results in harm or damage to property.

History

• Source Note: The provisions of this §84.503 adopted to be effective July 10, 2008, 33 TexReg 5281.

7 Tex. Admin. Code § 84.504 Collection Contacts

(a) A licensee or the licensee's agent has the right to contact any person in order to secure information concerning a retail buyer, unless any person other than the retail buyer, the retail buyer's spouse, a member of the retail buyer's household, a co-buyer, endorser, surety, or guarantor of the obligation, objects to any contact by a licensee or the licensee's agent. Any objection must specify the retail buyer and the account in question to the licensee or the licensee's agent involved in the collection. Upon receipt of the objection, the licensee or agent must cease and desist from any further deliberate communication with the person objecting relative to the specific retail buyer and account in question.

(b) A licensee or the licensee's agent must not solicit the payment of all or any part of any debt subject to Texas Finance Code, Chapter 348 from any person other than the retail buyer, a co-buyer, endorser, surety, or guarantor of the obligation, retail buyer's designee, trustee, insurance company or service contract provider paying a claim or a refund involving the debtor or motor vehicle, any party having a lawful right or claim to the motor vehicle, any person who may be or is legally obligated to pay all or a portion of the debt, or a guardian, executor, administrator, attorney, agent, or representative of any of the foregoing.

(c) Without the prior written consent of the retail buyer given directly to the licensee or the express permission of a court of competent jurisdiction, a licensee may not communicate with a retail buyer in connection with the collection of amounts due under a motor vehicle retail installment sales contract at any unusual time. In the absence of any knowledge to the contrary, a licensee can assume that the convenient time for communicating with a retail buyer is after 8:00 a.m. and before 9:00 p.m., local time at the retail buyer's location.

(d) A licensee may not knowingly communicate with a retail buyer in connection with the collection of amounts due under a motor vehicle retail installment sales contract at the retail buyer's place of employment if the licensee has received written notification from the retail buyer or the retail buyer's employer to cease communications with the retail buyer while at the place of employment regarding the specific retail buyer and account in question. The licensee may require the retail buyer or retail buyer's employer to place the objection in writing. The objection, if required, should specify the name or names of retail buyers subject to the objection. The prohibition on contact under this subsection may be overridden by court order.

(e) Without the prior written consent of the retail buyer given directly to the licensee or the express permission of a court of competent jurisdiction, in connection with the collection of amounts due under a motor vehicle retail installment sales contract, a licensee may not communicate nonpublic personal information pertaining to a debt or obligation unless the person receiving the information is the retail buyer, the retail buyer's attorney, the retail buyer's designee, a co-buyer, endorser, surety, or guarantor of the obligation, a consumer reporting agency, another creditor, the attorney of the creditor, a guardian, executor, or administrator, or any party that may lawfully receive the information under the Gramm Leach Bliley Act, 15 U.S.C. §§6801 - 6827, and its implementing regulations, or the Fair Credit Reporting Act, 15 U.S.C. §§1681 - 1681x, and its implementing regulations, or other law or regulation. Unless notified pursuant to subsection (a) of this section, this prohibition does not apply to a licensee seeking information about the location of the retail buyer.

(f) Subsections (a) - (e) of this section do not apply to a communication or contact directly relating to a pending court or arbitration proceeding. Subsections (a), (b), (d), and (e) of this section do not apply to providing a notice required by law or contract.

(g) In attempting to collect money due on a contract or to take possession of any property securing a motor vehicle retail installment sales contract, a licensee or the licensee's agent must not use any simulated legal process, simulated legal document, or legal form designed to suggest that legal proceedings have been commenced or completed when in fact they have not.

(h) In attempting to collect money due on a motor vehicle retail installment sales contract, to take possession of any property securing a motor vehicle retail installment sales contract, or to secure information concerning a motor vehicle retail installment sales contract, a licensee or the licensee's agent must not impersonate or attempt to impersonate any law enforcement officer or other agent of federal, state, or local governments. A licensee or a licensee's agent must not use any fictitious name unless the name used is an established or recognized trade name of the licensee or the licensee's agent. The preceding sentence does not apply to individual employees or representatives of the licensee, so long as the licensee maintains a system to determine the identity of the person contacting the obligor.

History

• Source Note: The provisions of this §84.504 adopted to be effective July 10, 2008, 33 TexReg 5281; amended to be effective November 8, 2012, 37 TexReg 8780.

Subchapter F LICENSING

7 Tex. Admin. Code § 84.601 Definitions

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 348, have the same meanings as defined in Chapter 348. The following words and terms, when used in this chapter, will have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--A business entity directly or indirectly through one or more intermediaries that is under common control with the applicant or licensee.

(2) Applicant--An entity that has filed the required forms and fees to operate under a license from the Office of Consumer Credit Commissioner pursuant to Texas Finance Code, Chapter 348.

(3) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(4) Foreign entity--An entity formed under the laws of a jurisdiction other than the State of Texas.

(5) Licensed location--The central or main location of the entity.

(6) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(7) Principal party--An individual with a substantial relationship to the proposed business of the applicant. The following individuals are principal parties:

(A) a proprietor holding a 100% ownership interest;

(B) general partners;

(C) officers of privately held corporations, to include the chief executive officer or president, the chief operating officer or vice president of operations, and those with substantial responsibility for operations or compliance with Texas Finance Code, Chapter 348;

(D) directors of privately held corporations;

(E) individuals associated with publicly held corporations designated by the applicant as follows:

(i) officers as provided by subparagraph (C) of this paragraph (as if the corporation was privately held); or

(ii) three officers or similar employees with significant involvement in the corporation's activities governed by Texas Finance Code, Chapter 348. One of the persons designated must be responsible for assembling and providing the information required on behalf of the applicant and must sign the application for the applicant;

(F) voting members of a limited liability company;

(G) trustees and executors;

(H) officers of nonprofit organizations;

(I) individuals designated as principal parties where necessary to fairly assess the applicant's financial responsibility, experience, character, general fitness, and sufficiency to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly as required by the commissioner; and

(J) individuals may be accepted as principal parties in compliance with this paragraph upon approval by the commissioner for certain privately held entities with complex ownership structures. Three officers or similar employees with significant involvement in the entity's activities governed by Texas Finance Code, Chapter 348 may be designated upon approval by the commissioner.

(8) Privately held corporation--A corporation that is not publicly held.

(9) Publicly held corporation--A corporation:

(A) subject to the registration provisions of the Securities Act of 1933 in order to allow a public offering of voting stock; or

(B) owned directly or indirectly by a parent corporation that is subject to the registration provisions of the Securities Act of 1933.

(10) Registered offices--Each location other than the licensed location where a licensee will originate, service, or collect on retail installment sales contracts subject to Texas Finance Code, Chapter 348. The term also includes any additional assumed name that the licensee uses at a single location to engage in a Chapter 348 transaction.

History

• Source Note: The provisions of this §84.601 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120.

7 Tex. Admin. Code § 84.602 Filing of New Application

An application for issuance of a new motor vehicle sales finance license issued under Texas Finance Code, Chapter 348 or 353 must be submitted in a format prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. Appropriate fees must be filed with the application, and the application must include the following:

(1) Required application information. All questions must be answered.

(A) Application for license.

(i) Location. A physical street address must be listed for the applicant's proposed licensed location. A post office box or a mail box location at a private mail-receiving service generally may not be used. If the address has not yet been determined or if the application is for an inactive license, then the application must so indicate.

(ii) Compliance officer. The application must list a compliance officer. The compliance officer must be an individual responsible for overseeing compliance regarding the OCCC, and must be authorized to receive and respond to communications from the OCCC.

(iii) Registered agent. The registered agent must be designated by each applicant. The registered agent is the person or entity to whom any legal notice may be delivered. The agent must be a Texas resident and list an address for legal service. If the registered agent is a natural person, the address must be a different address than the licensed location address. If the applicant is a corporation or a limited liability company, the registered agent should be the one on file with the Office of the Texas Secretary of State. If the registered agent is not the same as the agent filed with the Office of the Texas Secretary of State, then the applicant must submit a certification from the secretary of the company identifying the registered agent.

(iv) List of registered offices. Each additional location, other than the licensed location shown on the application, must be listed. The applicant should provide the assumed name (DBA), physical address, telephone number, and the person responsible for day-to-day operations for each registered office. A registered office is required for any additional assumed name that the licensee uses at a single location to engage in a Texas Finance Code, Chapter 348 or 353 transaction.

(v) Owners and principal parties.

(I) Proprietorships. The applicant must disclose the name of the individual holding a 100% ownership interest in the business and the name of any individual responsible for operating the business. If requested, the applicant must also disclose the names of the spouses of these individuals.

(II) General partnerships. Each partner must be listed and the percentage of ownership stated. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided. General partnerships that register as limited liability partnerships should provide the same information as that required for general partnerships.

(III) Limited partnerships. Each partner, general and limited, fulfilling the requirements of items (-a-) - (-c-) of this subclause must be listed and the percentage of ownership stated.

(-a-) General partners. The applicant should provide the complete ownership, regardless of percentage owned, for all general partners. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided.

(-b-) Limited partners. The applicant should provide a complete list of all limited partners owning 10% or more of the partnership.

(-c-) Limited partnerships that register as limited liability partnerships. The applicant should provide the same information as that required for limited partnerships.

(IV) Corporations. Each officer and director must be named. Each shareholder holding 10% or more of the voting stock must be named if the corporation is privately held. If a parent corporation is the sole or part owner of the proposed business, a narrative or diagram must be included that describes each level of ownership of 10% or greater.

(V) Limited liability companies. Each "manager," "officer," and "member" owning 10% or more of the company, as those terms are defined in Texas Business Organizations Code, §1.002, and each agent owning 10% or more of the company must be listed. If a member is a legal entity and not a natural person, a narrative or diagram must be included that describes each level of ownership of 10% or greater.

(VI) Trusts or estates. Each trustee or executor, as appropriate, must be listed.

(VII) Nonprofit organizations. Each officer must be listed.

(VIII) All entity types. If a parent entity is a different type of legal business entity than the applicant, the parent entity's owners and principal parties should be disclosed according to the parent's entity type.

(IX) Alternative filings for all entity types. The commissioner may also accept other filings submitted to a governmental authority that the commissioner deems to have information substantially equivalent in coverage and reliability to a filing under subclauses (I) - (VIII) of this clause.

(B) Disclosure questions. All applicable questions must be answered. Questions requiring a "yes" answer must be accompanied by an explanatory statement and any appropriate documentation requested.

(C) Personal information.

(i) Personal affidavit. Each individual meeting the definition of "principal party" as defined in §84.601 of this title (relating to Definitions) must provide a personal affidavit. All requested information must be provided.

(ii) Personal questionnaire. Each individual meeting the definition of "principal party" as defined in §84.601 of this title must provide a personal questionnaire. Each question must be answered. If any question, except question 1, is answered "yes," an explanation must be provided.

(iii) Employment history. Each individual meeting the definition of "principal party" as defined in §84.601 of this title must provide an employment history. Each principal party should provide a continuous 10-year history, accounting for time spent as a student, unemployed, or retired. The employment history must also include the individual's association with the entity applying for the license.

(D) Additional requirements.

(i) Statement of experience. Each applicant should provide information that relates to the applicant's prior experience in the motor vehicle sales finance business. If the applicant or its principal parties do not have significant experience in the same type of business as planned for the prospective licensee, the applicant must provide a written statement explaining the applicant's relevant business experience or education, why the commissioner should find that the applicant has the requisite experience, and how the applicant plans to obtain the necessary knowledge to operate lawfully and fairly.

(ii) Business operating plan. An applicant must attach a brief narrative to the application explaining:

(I) an estimate of how many motor vehicles will be financed by the applicant each year;

(II) whether the applicant will hold the retail installment sales contracts or whether the applicant will assign its retail installment sales contracts;

(III) whether the applicant will only be accepting contracts from another entity (assignor), and, if so, list the types of entities; and

(IV) whether the collections will occur at the licensed location.

(iii) Statement of records. Each applicant must provide a statement of where records of Texas transactions will be maintained. If these records will be maintained at a location outside of Texas, the applicant must acknowledge responsibility for the travel cost associated with examinations in addition to the assessment fees or agree to make all records available for examination in Texas.

(E) Consent form. Each applicant must submit a consent form signed by an authorized individual. Electronic signatures will be accepted in a manner approved by the commissioner. The following are authorized individuals:

(i) If the applicant is a proprietor, the owner must sign.

(ii) If the applicant is a partnership, one general partner must sign.

(iii) If the applicant is a corporation, an authorized officer must sign.

(iv) If the applicant is a limited liability company, an authorized member or manager must sign.

(v) If the applicant is a trust or estate, the trustee or executor, as appropriate, must sign.

(F) Statement regarding previous installment transactions. Each applicant must submit a statement that it has or has not made or collected on any retail installment sales contract or accepted the cash payment for a motor vehicle in one or more installments from September 1, 2002, to date. This includes any contracts signed by applicant as seller that are subsequently assigned to a third party. If the applicant is purchasing another dealership and has permission to operate under an existing license, as described in §84.604 of this title (relating to Transfer of License; New License Application on Transfer of Ownership), the statement outlined by this subparagraph is not required. If the applicant has engaged in any of the referenced activities, the applicant must provide the following information:

(i) A list of all contracts used to finance the sale of a motor vehicle in one or more installments (whether the applicant was the original seller or whether the applicant became a holder). The list should include the name of the buyer, contract date, vehicle cash price, amount of down payment, net trade-in amount, total amount financed, payment frequency (monthly, semi-monthly, bi-weekly, weekly), total number of payments, and payment amount(s).

(ii) From the list provided by the applicant, copies of ten (10) complete files. The complete file includes, but is not limited to, the buyer's order, signed retail installment sales contract, payment history, certificate of title, and other documents related to that transaction. If there are fewer than ten (10) accounts, provide a complete copy of each file.

(2) Other required filings.

(A) Fingerprints.

(i) For all persons meeting the definition of "principal party" as defined in §84.601 of this title, a complete set of legible fingerprints must be provided. All fingerprints should be submitted in a format prescribed by the OCCC and approved by the Texas Department of Public Safety and the Federal Bureau of Investigation.

(ii) For limited partnerships, if the owners and principal parties under paragraph (1)(A)(v)(III)(-a-) of this section does not produce a natural person, the applicant must provide a complete set of legible fingerprints for individuals who are associated with the general partner as principal parties.

(iii) For entities with complex ownership structures that result in the identification of individuals to be fingerprinted who do not have a substantial relationship to the proposed applicant, the applicant may submit a request to fingerprint three officers or similar employees with significant involvement in the proposed business. The request should describe the relationship and significant involvement of the individuals in the proposed business. The agency may approve the request, seek alternative appropriate individuals, or deny the request.

(iv) For individuals who have previously been licensed by the OCCC and principal parties of entities currently licensed, fingerprints are generally not required if the fingerprints are on record with the OCCC, are less than 10 years old, and have been processed by both the Texas Department of Public Safety and the Federal Bureau of Investigation. Upon request, individuals and principal parties previously licensed by the OCCC may be required to submit a new set of fingerprints in order to complete the OCCC's records.

(v) For individuals who have previously submitted fingerprints to another state agency (e.g., Texas Department of Motor Vehicles), fingerprints are still required to be submitted under Texas Finance Code, §14.152. Fingerprints cannot be disclosed to others, except as authorized by Texas Government Code, §560.002.

(B) Contract forms. The applicant must provide information regarding the retail installment sales contract forms it intends to use for retail installment sales transactions involving ordinary vehicles. The applicant does not have to provide retail installment sales contract forms involving commercial vehicles.

(i) Custom forms. If a custom contract form is to be prepared, a preliminary draft or proof that is complete as to format and content and which indicates the number and distribution of copies to be prepared for each transaction must be submitted.

(ii) Stock forms. If an applicant purchases or plans to purchase stock forms from a supplier, the applicant must include a statement that includes the supplier's name and address and a list identifying the forms to be used, including the revision date of the form, if any.

(C) Entity documents.

(i) Partnerships. A partnership applicant must submit a complete and executed copy of the partnership agreement. This copy must be signed and dated by all partners. If the applicant is a limited partnership or a limited liability partnership, provide evidence of filing with the Office of the Texas Secretary of State.

(ii) Corporations. A corporate applicant, domestic or foreign, must provide the following documents:

(I) a complete copy of the certificate of formation or articles of incorporation, with any amendments;

(II) a certification from the secretary of the corporation identifying the current officers and directors as listed in the owners and principal parties section of the application for license form;

(III) if the registered agent is not the same as the one on file with the Office of the Texas Secretary of State, a certification from the secretary of the corporation identifying the registered agent;

(IV) if requested, a copy of the relevant portions of the bylaws addressing the required number of directors and the required officer positions for the corporation;

(V) if requested, a copy of the minutes of corporate meetings that record the election of all current officers and directors as listed in the owners and principal parties section of the application for license form;

(VI) if requested, a certificate of good standing from the Texas Comptroller of Public Accounts.

(iii) Publicly held corporations. In addition to the items required for corporations, a publicly held corporation must file the most recent 10K or 10Q for the applicant or for the parent company.

(iv) Limited liability companies. A limited liability company applicant, domestic or foreign, must provide the following documents:

(I) a complete copy of the articles of organization;

(II) a certification from the secretary of the company identifying the current officers and directors as listed in the owners and principal parties section of the application for license form;

(III) if the registered agent is not the same as the one on file with the Office of the Texas Secretary of State, a certification from the secretary of the company identifying the registered agent;

(IV) if requested, a copy of the relevant portions of the operating agreement or regulations addressing responsibility for operations;

(V) if requested, a copy of the minutes of company meetings that record the election of all current officers and directors as listed in the owners and principal parties section of the application for license form;

(VI) if requested, a certificate of good standing from the Texas Comptroller of Public Accounts.

(v) Trusts. A copy of the relevant portions of the instrument that created the trust addressing management of the trust and operations of the applicant must be filed with the application.

(vi) Estates. A copy of the instrument establishing the estate must be filed with the application.

(vii) Foreign entities. In addition to the items required by this section, a foreign entity must provide a certificate of authority to do business in Texas, if applicable.

(viii) Nonprofit organizations. The applicant must provide a copy of the relevant portions of the instrument creating the nonprofit organization addressing management of the organization and operations of the applicant. A nonprofit applicant must also provide a copy of its filing with the Internal Revenue Service or other evidence to verify that the applicant is a nonprofit organization exempt from taxation under Internal Revenue Code of 1986, §501(c)(3).

(ix) Formation document alternative. As an alternative to the entity-specific formation document applicable to the applicant's entity type (e.g., for a corporation, articles of incorporation), an applicant may submit a "certificate of formation" as defined in Texas Business Organizations Code, §1.002, if the certificate of formation provides the entity formation information required by this section for that entity type.

(D) Assumed name certificates. For any applicant that does business under an "assumed name" as that term is defined in Texas Business and Commerce Code, §71.002, an assumed name certificate must be filed as provided in this subparagraph.

(i) Unincorporated applicants. Unincorporated applicants using or planning to use an assumed name must file an assumed name certificate with the county clerk of the county where the proposed business is located in compliance with Texas Business and Commerce Code, Chapter 71. An applicant must provide a copy of the assumed name certificate that shows the filing stamp of the county clerk or, alternatively, a certified copy.

(ii) Incorporated applicants. Incorporated applicants using or planning to use an assumed name must file an assumed name certificate in compliance with Texas Business and Commerce Code, Chapter 71. Evidence of the filing bearing the filing stamp of the Office of the Texas Secretary of State must be submitted or, alternatively, a certified copy.

(3) Late filing. An applicant who desires to retroactively file a license application may do so by complying with Texas Finance Code, §349.303, and the rules adopted under this chapter.

History

• Source Note: The provisions of this §84.602 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 5, 2009, 34 TexReg 7608; amended to be effective September 8, 2011, 36 TexReg 5670; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.603 New Registered Offices

(a) A licensee may conduct Texas Finance Code, Chapter 348 transactions at different locations or under additional assumed names at a single location by filing notice of a new registered office and paying the applicable fee.

(b) Notice of a new registered office must be filed before a licensee can engage in a Chapter 348 transaction at the different location or under the additional assumed name.

(1) Date registered office began conducting Chapter 348 transactions. If the registered office has commenced business, provide the date the registered office began conducting Texas Finance Code, Chapter 348 transactions. If the notice is filed in advance, provide the date the licensee anticipates commencing business under this registered office.

(2) License number of licensed location. Provide the license number shown on the license of the licensed location issued by the Office of Consumer Credit Commissioner.

(3) Assumed name certificate. If the registered office is using an assumed name, as that term is defined in Texas Business and Commerce Code, §71.002, an assumed name certificate must be filed as provided in this paragraph.

(A) Unincorporated applicants. Unincorporated applicants using or planning to use an assumed name at a new registered office must file an assumed name certificate with the county clerk of the county where the proposed business is located in compliance with Texas Business and Commerce Code, Chapter 71. An applicant must provide a copy of the assumed name certificate that shows the filing stamp of the county clerk or, alternatively, a certified copy.

(B) Incorporated applicants. Incorporated applicants using or planning to use an assumed name at a new registered office must file an assumed name certificate in compliance with Texas Business and Commerce Code, Chapter 71. Evidence of the filing bearing the filing stamp of the Office of the Texas Secretary of State must be submitted or, alternatively, a certified copy.

(c) Late filing. A licensee who desires to retroactively register an office may do so by complying with Texas Finance Code, §349.302, and the rules adopted under this chapter.

History

• Source Note: The provisions of this §84.603 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.604 Transfer of License; New License Application on Transfer of Ownership

(a) Purpose. This section describes the license application requirements when a licensed entity transfers its license or ownership of the entity. If a transfer of ownership occurs, the transferee must submit either a license transfer application or a new license application on transfer of ownership under this section.

(b) Definitions. The following words and terms, when used in this section, will have the following meanings:

(1) Grandparent entity--A direct owner of a parent entity.

(2) License transfer--A sale, assignment, or transfer of a license under Texas Finance Code, Chapter 348 or 353.

(3) Parent entity--A direct owner of a licensee or applicant.

(4) Permission to operate--A temporary authorization from the OCCC, allowing a transferee to operate under a transferor's license while final approval is pending for a license transfer application or a new license application on transfer of ownership.

(5) Transfer of ownership--Any purchase or acquisition of control of a licensed entity (including acquisition by gift, devise, or descent), or a substantial portion of a licensed entity's assets, where a substantial change in management or control of the business occurs. The term does not include a change in proportionate ownership as defined in §84.605 of this title (relating to Change in Form or Proportionate Ownership). The term does not include a change in ownership above the level of the grandparent entity. Transfer of ownership includes the following:

(A) an existing owner of a sole proprietorship relinquishes that owner's entire interest in a license or an entirely new entity has obtained an ownership interest in a sole proprietorship license;

(B) any purchase or acquisition of control of a licensed general partnership, in which a partner relinquishes that owner's entire interest or a new general partner obtains an ownership interest;

(C) any change in ownership of a licensed limited partnership interest in which:

(i) a limited partner owning 10% or more relinquishes that owner's entire interest;

(ii) a new limited partner obtains an ownership interest of 10% or more;

(iii) a general partner relinquishes that owner's entire interest; or

(iv) a new general partner obtains an ownership interest (transfer of ownership occurs regardless of the percentage of ownership exchanged of the general partner);

(D) any change in ownership of a licensed corporation in which:

(i) a new stockholder obtains 10% or more of the outstanding voting stock in a privately held corporation;

(ii) an existing stockholder owning 10% or more relinquishes that owner's entire interest in a privately held corporation;

(iii) any purchase or acquisition of control of 51% or more of a company that is the parent entity or controlling stockholder of a licensed privately held corporation occurs; or

(iv) any stock ownership changes that result in a change of control (i.e., 51% or more) for a licensed publicly held corporation occur;

(E) any change in the membership interest of a licensed limited liability company:

(i) in which a new member obtains an ownership interest of 10% or more;

(ii) in which an existing member owning 10% or more relinquishes that member's entire interest; or

(iii) in which a purchase or acquisition of control of 51% or more of any company that is the parent entity or controlling member of a licensed limited liability company occurs;

(F) any transfer of a substantial portion of the assets of a licensed entity under which a new entity controls business at a licensed location; and

(G) any other purchase or acquisition of control of a licensed entity, or a substantial portion of a licensed entity's assets, where a substantial change in management or control of the business occurs.

(6) Transferee--The entity that controls business at a licensed location after a transfer of ownership.

(7) Transferor--The licensed entity that controls business at a licensed location before a transfer of ownership.

(c) License transfer approval. No license may be sold, transferred, or assigned without the written approval of the OCCC, as provided by Texas Finance Code, §348.512 and §353.512. A license transfer is approved when the OCCC issues its final written approval of a license transfer application.

(d) Timing. No later than 30 days after the event of a transfer of ownership, the transferee must file a complete license transfer application or new license application on transfer of ownership in accordance with subsection (e) of this section. A transferee may file an application before this date.

(e) Application requirements.

(1) Generally. This subsection describes the application requirements for a license transfer application or a new license application on transfer of ownership. A transferee must submit the application in a format prescribed by the OCCC. The OCCC may accept prescribed alternative formats to facilitate multistate uniformity of applications or in order to accept approved electronic submissions. The transferee must pay appropriate fees in connection with the application.

(2) Documentation of transfer of ownership. The application must include documentation evidencing the transfer of ownership. The documentation should include one or more of the following:

(A) a copy of the asset purchase agreement when only the assets have been purchased;

(B) a copy of the purchase agreement or other evidence relating to the acquisition of the equity interest of a licensee that has been purchased or otherwise acquired;

(C) any document that transferred ownership by gift, devise, or descent, such as a probated will or a court order; or

(D) any other documentation evidencing the transfer event.

(3) Application information for new licensee. If the transferee does not hold a license at the time of the application, then the application must include the information required for new license applications under §84.602 of this title (relating to Filing of New Application). The instructions in §84.602 of this title apply to these filings.

(4) Application information for transferee that holds a license. If the transferee holds a license at the time of the application, then the application must include amendments to the transferee's original license application describing the information that is unique to the transfer event, including disclosure questions, owners and principal parties, and a new financial statement, as provided in §84.602 of this title. The instructions in §84.602 of this title apply to these filings. The responsible person at the new location must file a personal affidavit, personal questionnaire, and employment history, if not previously filed. Other information required by §84.602 of this title need not be filed if the information on file with the OCCC is current and valid.

(5) Request for permission to operate. The application may include a request for permission to operate. The request must be in writing and signed by the transferor and transferee. The request must include all of the following:

(A) a statement by the transferor granting authority to the transferee to operate under the transferor's license while final approval of the application is pending;

(B) an acknowledgement that the transferor and transferee each accept responsibility to any consumer and to the OCCC for any acts performed under the license while the permission to operate is in effect; and

(C) if the application is a new license application on transfer of ownership, an acknowledgement that the transferor will immediately surrender or inactivate its license if the OCCC approves the application.

(f) Permission to operate. If the application described by subsection (e) of this section includes a request for permission to operate and all required information, and the transferee has paid all fees required for the application, then the OCCC may issue a permission to operate to the transferee. A request for permission to operate may be denied even if the application contains all of the required information. The denial of a request for permission to operate does not create a right to a hearing. If the OCCC grants a permission to operate, the transferor must cease operating under the authority of the license. Two companies may not simultaneously operate under a single license. A permission to operate terminates if the OCCC denies an application described by subsection (e) of this section.

(g) Transferee's authority to engage in business. If a transferee has filed a complete application including a request for permission to operate as described by subsection (e) of this section, by the deadline described by subsection (d) of this section, then the transferee may engage in business under Texas Finance Code, Chapter 348 or 353, as applicable. However, the transferee must immediately cease doing business if the OCCC denies the request for permission to operate or denies the application. If the OCCC denies the application, then the transferee has a right to a hearing on the denial, as provided by §84.608(d) of this title (relating to Processing of Application).

(h) Responsibility.

(1) Responsibility of transferor. Before the transferee begins performing motor vehicle sales finance activity under a license, the transferor is responsible to any consumer and to the OCCC for all motor vehicle sales finance activity performed under the license.

(2) Responsibility of transferor and transferee. If a transferee begins performing motor vehicle sales finance activity under a license before the OCCC's final approval of an application described by subsection (e) of this section, then the transferor and transferee are each responsible to any consumer and to the OCCC for activity performed under the license during this period.

(3) Responsibility of transferee. After the OCCC's final approval of an application described by subsection (e) of this section, the transferee is responsible to any consumer and to the OCCC for all motor vehicle sales finance activity performed under the license. The transferee is responsible for any transactions that it purchases from the transferor. In addition, if the transferee receives a license transfer, then the transferee's responsibility includes all activity performed under the license before the license transfer.

History

• Source Note: The provisions of this §84.604 adopted to be effective May 5, 2016, 41 TexReg 3120; amended to be effective December 31, 2020, 45 TexReg 9416.

7 Tex. Admin. Code § 84.605 Change in Form or Proportionate Ownership

(a) Organizational form. When any licensee or parent of a licensee desires to change the organizational form of its business (e.g., from proprietorship to corporation; or from corporation to limited partnership), the licensee must advise the commissioner in writing of the change within 14 calendar days by filing a license amendment and paying the required fees as provided in §84.611 of this title (relating to Fees). In addition, the licensee must submit a copy of the relevant portions of the organizational document for the new entity (e.g., articles of incorporation; or articles of conversion and partnership agreement) addressing the ownership and management of the new entity. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

(b) Merger. A merger of a licensee is a change of ownership that results in a new or different surviving entity and requires the filing of a license transfer application or a new license application on transfer of ownership pursuant to §84.604 of this title (relating to Transfer of License; New License Application on Transfer of Ownership). If the merger of the parent entity of a licensee that leads to the creation of a new entity or results in a different surviving parent entity, the licensee must advise the commissioner of the change in writing within 14 calendar days after the change, by filing a license amendment and paying the required fees as provided in §84.611. Mergers or transfers of other entities with a beneficial interest beyond the parent entity level only require notification within 14 calendar days. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

(c) Proportionate ownership.

(1) A change in proportionate ownership that results in the exact same owners still owning the business, and does not meet the requirements described in paragraph (2) of this subsection, does not require a transfer. Such a proportionate change in ownership does not require the filing of a license transfer application or a new license application on transfer of ownership, but does require notification when the cumulative ownership change to a single entity or individual amounts to 10% or greater. No later than 14 calendar days following the actual change, the licensee is required to notify the commissioner in writing of the change in proportionate ownership by filing a license amendment and paying the required fees as provided in §84.611 of this title. This subsection does not apply to a legal entity that has filed with the OCCC the most recent Form 10-K or 10-Q filing of the licensee or of the parent entity, although a license transfer application or a new license application on transfer of ownership may be required under §84.604 of this title.

(2) A proportionate change in which an owner that previously held under 10% obtains an ownership interest of 10% or more, requires a license transfer application or a new license application on transfer of ownership under §84.604 of this title.

(3) Failure to meet the notification filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

History

• Source Note: The provisions of this §84.605 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120.

7 Tex. Admin. Code § 84.606 Amendments to Pending Application

Upon request, each applicant must provide information supplemental to that contained in the applicant's original application documents.

History

• Source Note: The provisions of this §84.606 adopted to be effective May 8, 2008, 33 TexReg 3576.

7 Tex. Admin. Code § 84.607 Updating Application and Contact Information

(a) Applicant's updates to license application information. Before a license application is approved, an applicant must report to the OCCC any information that would require a materially different answer than that given in the original license application and that relates to the qualifications for license within 14 calendar days after the person has knowledge of the information.

(b) Licensee's updates to license application information. A licensee must report to the OCCC any information that would require a different answer than that given in the original license application within 30 calendar days after the licensee has knowledge of the information, if the information relates to any of the following:

(1) the names of principal parties;

(2) criminal history;

(3) actions by regulatory agencies; or

(4) court judgments.

(c) Contact information. Each applicant or licensee is responsible for ensuring that all contact information on file with the OCCC is current and correct, including all mailing addresses, all phone numbers, and all e-mail addresses. It is a best practice for licensees to regularly review contact information on file with the OCCC to ensure that it is current and correct.

History

• Source Note: The provisions of this §84.607 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120.

7 Tex. Admin. Code § 84.608 Processing of Application

(a) Initial review. A response to an incomplete application will ordinarily be made within 14 calendar days of receipt stating that the application is incomplete and specifying the information required for acceptance.

(b) Complete application. An application is complete when:

(1) it conforms to the rules and published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(c) Failure to complete application. If a complete application has not been filed within 30 calendar days after notice of deficiency has been sent to the applicant, the application may be denied.

(d) Notice of intent to deny application. If the OCCC does not find that the eligibility requirements for a license have been met, then the OCCC will send a notice of intent to deny the license application to the applicant.

(e) Hearing. An affected applicant has 30 calendar days from the date of the notice of intent to deny the license application to request in writing a hearing to contest the denial. This hearing will be conducted pursuant to the Administrative Procedure Act, Texas Government Code, Chapter 2001, and the rules of procedure applicable under §9.1(a) of this title (relating to Application, Construction, and Definitions), before an administrative law judge who will recommend a decision to the commissioner. The commissioner will then issue a final decision after review of the recommended decision.

(f) Denial. If an application has been denied, the assessment fee will be refunded to the applicant. The investigation fee and the fingerprint processing fee in §84.611 of this title (relating to Fees) will be forfeited.

(g) Processing time.

(1) A license application will ordinarily be approved or denied within a maximum of 60 calendar days after the date of filing of a completed application.

(2) When a hearing is requested following an initial license application denial, the hearing will be held within 60 calendar days after a request for a hearing is made unless the parties agree to an extension of time. A final decision approving or denying the license application will be made after receipt of the proposal for decision from the administrative law judge.

(3) Exceptions. More time may be taken where good cause exists, as defined by Texas Government Code, §2005.004, for exceeding the established time periods in paragraphs (1) and (2) of this subsection.

History

• Source Note: The provisions of this §84.608 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective January 7, 2016, 41 TexReg 121; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.609 Relocation of Licensed Offices

(a) Relocation of licensed location. A licensee may move a licensed location to any other location by paying the appropriate fees and giving notice of intended relocation to the commissioner not less than 10 calendar days prior to the anticipated moving date.

(b) Relocation of registered office. A licensee may move a registered office from the registered location to any other location by paying the appropriate fees and giving notice of intended relocation to the commissioner not less than 10 calendar days prior to the anticipated moving date.

(c) Notice requirements. Notification must be provided by filing a license amendment or an approved electronic submission as prescribed by the commissioner. The notice must include the contemplated new address of the licensed location or registered office, the approximate date of relocation, and the applicable fee as outlined in §84.611 of this title (relating to Fees). Failure to meet the notification deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

History

• Source Note: The provisions of this §84.609 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.610 License Inactivation or Voluntary Surrender

(a) Inactivation of active license. A licensee may cease operating under a motor vehicle sales finance license and choose to inactivate the license. A license may be inactivated by giving notice of the cessation of operations not less than 10 calendar days prior to the anticipated inactivation date. Registered offices will be designated as closed when a license is inactivated. Notification must be provided by filing a license amendment or an approved electronic submission as prescribed by the OCCC. The notice must include the new mailing address for the license, the effective date of the inactivation, and the fee for amending the license. A licensee must continue to pay the yearly renewal fees for an inactive license as outlined in §84.611 of this title (relating to Fees), or the license will expire.

(b) Activation of inactive license. A licensee may activate an inactive license by giving notice of the intended activation not less than 10 calendar days prior to the anticipated activation date. Registered offices must be listed and appropriate fees paid upon activation of a license. Notification must be provided by filing a license amendment or an approved electronic submission as prescribed by the OCCC. The notice must include the contemplated new address of the licensed office, the approximate date of activation, and the fee for amending the license as outlined in §84.611 of this title.

(c) Voluntary surrender of license. Subject to subsection (e) of this section, a licensee may voluntarily surrender a license by providing written notice of the cessation of operations, a request to surrender the license, and by submitting the license certificate. A voluntary surrender will result in cancellation of the license.

(d) Surrendering to avoid administrative action. A licensee may not surrender a license after an administrative action has been initiated without the written agreement of the OCCC.

History

• Source Note: The provisions of this §84.610 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 5, 2019, 44 TexReg 4717.

7 Tex. Admin. Code § 84.611 Fees

(a) New licenses.

(1) Investigation fees. A $200 nonrefundable investigation fee is assessed each time an application for a new license is filed.

(2) Registered office fees. The fee for each registered office is $25.

(b) License transfers. An applicant must pay a nonrefundable investigation fee of $200 for the transfer of a license.

(c) Fingerprint processing. An applicant must pay a fee to a party designated by the Texas Department of Public Safety for processing fingerprints. The Texas Department of Public Safety and the designated party determine the amount of the fee and whether it is refundable.

(d) License amendments.

(1) License amendment fees. A fee of $25 must be paid each time a licensee amends a license by inactivating a license, activating an inactive license, changing the assumed name of the licensee, changing the organizational form or proportionate ownership, providing notification of a new parent entity, or relocating a licensed location.

(2) Registered office amendment fees. The fee for amending or relocating a registered office is $10.

(e) Annual renewal and assessment fees.

(1) An annual assessment fee is required for each licensee consisting of:

(A) a licensed location fee not to exceed $460;

(B) a registered office fee not to exceed $430 per location; and

(C) if necessary, a variable fee based upon the annual dollar volume of retail installment sales contracts originated, acquired, or serviced during the preceding calendar year, as stated in the annual report under §84.710 of this title (relating to Annual Report).

(2) The maximum annual assessment for each active license will be no more than $1,200 excluding the registered office fees.

(f) Licensed location or registered office duplicate certificates sent by mail. The fee for a duplicate certificate sent by mail is $10.

(g) Costs of hearings. The commissioner may assess the costs of an administrative appeal pursuant to Texas Finance Code, §14.207 for a hearing afforded under §84.608 of this title (relating to Processing of Application), including the cost of the administrative law judge, the court reporter, and agency staff representing the OCCC at a hearing.

History

• Source Note: The provisions of this §84.611 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective March 14, 2010, 35 TexReg 1970; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.612 Implementation Provisions of Licensing

Effective date. The effective date of the statutory licensing requirement is September 1, 2002. After September 1, 2002, a motor vehicle seller may not engage in any retail installment sales transaction without a motor vehicle sales finance license granted under this title. Any motor vehicle seller engaging in a motor vehicle sales finance transaction prior to September 1, 2002, must comply with Texas Finance Code, §348.401 and §348.402, and 7 TAC, Part 1, Chapter 1, Subchapter P, as those provisions were in effect. Failure to comply with previously required registration provisions is grounds for denial of an application made under §84.608 of this title (relating to Processing of Application).

History

• Source Note: The provisions of this §84.612 adopted to be effective May 8, 2008, 33 TexReg 3576.

7 Tex. Admin. Code § 84.613 Denial, Suspension, or Revocation Based on Criminal History

(a) Criminal history record information. After an applicant submits a complete license application, including all required fingerprints, and pays the fees required by §84.611 of this title (relating to Fees), the OCCC will investigate the applicant and its principal parties. The OCCC will obtain criminal history record information from the Texas Department of Public Safety and the Federal Bureau of Investigation based on the applicant's fingerprint submission. The OCCC will continue to receive information on new criminal activity reported after the fingerprints have been initially processed.

(b) Disclosure of criminal history. The applicant must disclose all criminal history information required to file a complete application with the OCCC. Failure to provide any information required as part of the application or requested by the OCCC reflects negatively on the belief that the business will be operated lawfully and fairly. The OCCC may request additional criminal history information from the applicant, including the following:

(1) information about arrests, charges, indictments, and convictions of the applicant and its principal parties;

(2) reliable documents or testimony necessary to make a determination under subsection (c) of this section, including letters of recommendation from prosecution, law enforcement, and correctional authorities;

(3) proof that the applicant has maintained a record of steady employment, has supported the applicant's dependents, and has otherwise maintained a record of good conduct; and

(4) proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid or are current.

(c) Crimes directly related to licensed occupation. The OCCC may deny a license application, or suspend or revoke a license, if the applicant or licensee has been convicted of an offense that directly relates to the duties and responsibilities of a licensee under Texas Finance Code, Chapter 348 or 353, as provided by Texas Occupations Code, §53.021(a)(1).

(1) Originating, acquiring, or servicing retail installment sales contracts under Texas Finance Code, Chapter 348 or 353, involves or may involve making representations to consumers regarding the terms of the contract, receiving money from consumers, remitting money to third parties, maintaining accounts, repossessing property without a breach of the peace, maintaining goods that have been repossessed, and collecting due amounts in a legal manner. Consequently, the following crimes are directly related to the duties and responsibilities of a licensee and may be grounds for denial, suspension, or revocation:

(A) theft;

(B) assault;

(C) any offense that involves misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);

(D) any offense that involves breach of trust or other fiduciary duty;

(E) any criminal violation of a statute governing credit transactions or debt collection;

(F) failure to file a government report, filing a false government report, or tampering with a government record;

(G) any greater offense that includes an offense described in subparagraphs (A) - (F) of this paragraph as a lesser included offense;

(H) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (G) of this paragraph.

(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a license, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a license to engage in the occupation;

(C) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved;

(D) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a licensee; and

(E) any correlation between the elements of the crime and the duties and responsibilities of the licensed occupation.

(3) In determining whether a conviction for a crime renders an applicant or a licensee unfit to be a licensee, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.023:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person before and after the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) evidence of the person's current circumstances relating to fitness to hold a license, which may include letters of recommendation.

(d) Crimes related to character and fitness. The OCCC may deny a license application if the OCCC 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, §348.504(a) and §353.504(a). In conducting its review of character and fitness, the OCCC will consider the criminal history of the applicant and its principal parties. If the applicant or a principal party has been convicted of an offense described by subsections (c)(1) or (f)(1) of this section, this reflects negatively on an applicant's character and fitness. The OCCC may deny a license application based on other criminal history of the applicant or its principal parties if, when the application is considered as a whole, the agency 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. The OCCC will, however, consider the factors identified in subsection (c)(2) - (3) of this section in its review of character and fitness.

(e) Revocation on imprisonment. A license will be revoked 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).

(f) Other grounds for denial, suspension, or revocation. The OCCC may deny a license application, or suspend or revoke a license, based on any other ground authorized by statute, including the following:

(1) a conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054, or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2) - (3);

(2) errors or incomplete information in the license application;

(3) a fact or condition that would have been grounds for denying the license application, and that either did not exist at the time of the application or the OCCC was unaware of at the time of application, as provided by Texas Finance Code, §348.508(3) and §353.508(3); and

(4) any other information warranting the belief that the business will not be operated lawfully and fairly, as provided by Texas Finance Code, §§348.504(a), 348.508, 353.504(a), and 353.5

History

• Source Note: The provisions of this §84.613 adopted to be effective May 5, 2016, 41 TexReg 3120; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.615 Applications and Notices as Public Records

Once a license application or notice is filed with the OCCC, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. In response to a public information request, to the extent permitted by Government Code, Chapter 552 and other applicable law, the OCCC will withhold information deemed confidential by law (e.g., social security numbers, criminal history information). Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a motor vehicle sales finance license application or notice to the applicant or licensee. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

History

• Source Note: The provisions of this §84.615 adopted to be effective May 8, 2008, 33 TexReg 3576.

7 Tex. Admin. Code § 84.616 License Display

If a licensed location or registered office is open to the general public, then the licensee must prominently display the license in the location or office, in a conspicuous location visible to the general public. This requirement does not apply to a location or office that is not open to the general public (e.g., a servicing or collection office that operates exclusively online or by phone).

History

• Source Note: The provisions of this §84.616 adopted to be effective May 8, 2008, 33 TexReg 3576; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.617 License Term, Renewal, and Expiration

(a) License term and renewal. A new license is effective from the date of its issuance until December 31. A license must be renewed annually to remain effective. After renewal, a license is effective for a term of one year, from January 1 to December 31.

(b) Due date for annual assessment fee. The annual assessment fee is due by December 1 of each year.

(c) Notice of delinquency. If a licensee does not pay the annual assessment fee, the OCCC will send a notice of delinquency. Notice of delinquency is given when the OCCC sends the notice:

(1) by mail to the address on file with the OCCC as a master file address; or

(2) by e-mail to the address on file with the OCCC as a master file e-mail address, if the licensee has provided a master file e-mail address.

(d) Expiration. If a licensee does not pay the annual assessment fee, the license will expire on the later of:

(1) December 31 of each year; or

(2) the 16th day after notice of delinquency is given under subsection (c) of this section.

(e) Reinstatement. As provided by Texas Finance Code, §349.301 and §349.303(a), if a license was in good standing when it expired, a person may reinstate the expired license not later than the 180th day after its expiration date by paying the annual assessment fee and a $1,000 late filing fee. The late filing fee for a registered office is $250 under Texas Finance Code, §349.302.

History

• Source Note: The provisions of this §84.617 adopted to be effective September 5, 2019, 44 TexReg 4717; amended to be effective November 14, 2024, 49 TexReg 8853; amended to be effective May 7, 2026, 51 TexReg 2900.

Subchapter G EXAMINATIONS

7 Tex. Admin. Code § 84.702 Prohibited Advertising

(a) Under Texas Finance Code, Subtitle B, Chapter 348, each licensee must comply with Texas Finance Code, §341.403. A licensee may not, in any manner, advertise or cause to be advertised a false, misleading, or deceptive statement or representation relating to a rate, term, or condition of a motor vehicle retail installment sales contract, or advertise credit terms that the licensee does not intend to offer to retail buyers who qualify for those terms.

(b) The licensee must not:

(1) use phrases such as "lowest costs," "lowest rates," or "best rates" in an advertisement, unless the phrase used is accurate; or

(2) make any statement or representation with reference to the ease of procuring a motor vehicle retail installment sales contract, the speed with which it may be effected, or the freedom from credit inquiries addressed to particular sources of information, unless the licensee will comply with the representation made.

(c) A retail seller is prohibited from advertising an offer of cash, rebates, or any other monetary consideration to be provided by the licensee that is not authorized under Chapter 348.

(d) Texas Finance Code, §348.009 requires licensees to comply with federal disclosure requirements. Licensees who advertise rates, terms, or conditions of a motor vehicle installment transaction must comply with the disclosure requirements of 15 U.S.C. §1662 and §1664 and Regulation Z, 12 C.F.R. §226.24 and 12 C.F.R. §1026.24.

History

• Source Note: The provisions of this §84.702 adopted to be effective November 6, 2008, 33 TexReg 8920; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.703 Review of Records

One purpose of examinations by the OCCC is to determine the level of compliance with the law by the licensee. If the examination reveals a pattern or practice that appears to be a systemic violation of the law, the commissioner or the commissioner's representative may direct the licensee to review records and make appropriate changes to bring the licensee's records into compliance with the law. The appropriate changes may include restitution to customers for unlawful charges or unlawful amounts.

History

• Source Note: The provisions of this §84.703 adopted to be effective July 10, 2008, 33 TexReg 5285.

7 Tex. Admin. Code § 84.704 Correction of Errors or Violations

(a) Any amount due a retail buyer because of a correction of an error or a violation may be credited to an amount due under the motor vehicle retail installment sales contract or to the next payment or payments on the existing account of the retail buyer. If the credit is applied to payments not yet due, the licensee must notify the retail buyer in writing of the date and amount of the next payment due after this credit has been given.

(b) In lieu of crediting an existing account, a refund may be made directly to the retail buyer by cash, check, money order, or other negotiable instrument. The licensee must maintain sufficient records that the refund was made.

(1) Cash refunds. If the refund is made directly to the retail buyer in cash, the licensee must obtain a signed or authenticated acknowledgment from the retail buyer. The signed or authenticated acknowledgment must contain the following information:

(A) the retail buyer's full name;

(B) the retail buyer's account number (the account number upon which the refund was made);

(C) the amount of the refund; and

(D) a statement that the retail buyer received the refund in cash and that the licensee has not instructed or required the retail buyer to repay the cash refund.

(2) Refunds made by check, money order, or other negotiable instrument. If the refund is made directly to the retail buyer by check, money order, or other negotiable instrument, the licensee must, at a minimum, mail the refund to the last known address of the retail buyer by first-class mail. The licensee must maintain a complete paper or electronic copy of the check, money order, or other negotiable instrument. The licensee must also maintain sufficient information that could be used to determine whether the check, money order, or other negotiable instrument was successfully negotiated. If the check or money order is drawn from an account that is not under the licensee's control, sufficient information will include the name of the bank or company upon which the refund check or money order is drawn, the account number upon which the refund check or money order is drawn, the amount of the check or money order, check or money order number, and routing or tracking number of the check or money order.

(c) If the error correction or adjustment to an account is related to an improper charge or proceeds improperly held by the licensee on which time price differential has been precomputed (regular transaction using sum of the periodic balances method or scheduled installment earnings method), the licensee may alternatively credit the final maturing installment or installments of the contract. In addition to the error correction or adjustment, a licensee must also deduct from the precomputed balance the proportionate amount of time price differential originally charged on the amount being credited.

(d) If the licensee applies the refund to an existing account of the retail buyer with the licensee, the licensee may be required to refund the amount due a retail buyer plus the amount of accrued time price differential on the correction or adjustment amount or a proportionate amount of time price differential originally charged on the amount being credited. If more than half of the precomputed time balance (regular transaction using the sum of the periodic balances method or scheduled installment earnings method) has been paid before applying the credit to the account, the licensee may be required to refund the proportionate amount of time price differential originally charged on the amount being credited.

(e) If the error correction or adjustment is made to an account where the time price differential charge is earned using the true daily earnings method, the licensee must refund or credit to the account the amount due to the retail buyer for the error correction or adjustment in addition to the amount of accrued time price differential on the correction or adjustment amount.

(f) The commissioner may make adjustments or exceptions to the requirements under this section for unusual situations or when necessary to achieve an appropriate, practical, and workable result.

(g) If the licensee corrects a violation of law in compliance with any instructions on any examination report, that correction will satisfy the requirements of this section with respect to the violation being corrected. Documentation must be maintained regarding all corrections made under this section.

History

• Source Note: The provisions of this §84.704 adopted to be effective July 10, 2008, 33 TexReg 5285; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.705 Unclaimed Funds

(a) Escheat suspense account. The licensee must transfer any amounts due a retail buyer not paid within one year (i.e., unclaimed funds) to an escheat suspense account. The transfer must be noted on the account record of the retail buyer.

(b) Required information. Evidence of a bona fide attempt to pay a refund to a retail buyer must be kept in the licensee's records of the retail buyer's account. The licensee must place with the records of the retail buyer's account any information received by the licensee that indicates the retail buyer has died leaving no will or heirs or has left the community and the retail buyer's whereabouts are unknown. If deemed necessary with respect to a specific retail buyer, a licensee may be required to send the unclaimed funds by registered or certified mail to the last known address of the retail buyer.

(c) Use of unclaimed funds. Use of unclaimed funds within the business is not prohibited until such time as paid to the retail buyer, to the estate of the retail buyer, to the State of Texas if the last known address of the retail buyer as shown on the records of the holder is in this state, or other appropriate state or governmental entity if the address is not in this state; however, funds transferred to an escheat suspense account must not be commingled with the funds of the business.

(d) Escheat to state. At the end of three years, the unclaimed funds must be paid to the Texas Comptroller of Public Accounts, Unclaimed Property Division, as required by Texas Property Code, §72.101 and §74.301, or must be paid to the appropriate state or other governmental entity under the time period provided by the other state's or entity's applicable law.

(e) Record retention. The records of the escheat suspense account must be retained for a period of 10 years.

History

• Source Note: The provisions of this §84.705 adopted to be effective July 10, 2008, 33 TexReg 5285; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.706 Follow-up Examination Fees

If a follow-up examination visit is required within nine months after a written deficiency report has been given as a result of a failure to comply with Texas Finance Code, Chapter 348, this chapter, or the special instruction section of the examination report, an examination fee at the hourly rate of $100 per examiner may be assessed.

History

• Source Note: The provisions of this §84.706 adopted to be effective July 10, 2008, 33 TexReg 5285; amended to be effective November 8, 2012, 37 TexReg 8780.

7 Tex. Admin. Code § 84.707 Files and Records Required (Retail Sellers Assigning Retail Installment Sales Contracts)

(a) Applicability. The recordkeeping requirements of this section apply to retail sellers that immediately assign or transfer all retail installment sales contracts to another authorized creditor. If a retail seller collects any installments, excluding downpayments, on a retail installment sales contract, the retail seller must comply with the recordkeeping requirements established under §84.708 of this title (relating to Files and Records Required (Retail Sellers Collecting Installments on Retail Installment Sales Contracts)). The recordkeeping requirements of this section do not apply to motor vehicle retail installment sales transactions involving commercial vehicles.

(b) Records required for each retail installment sales transaction. Each licensee must maintain records with respect to the licensee's compliance with Texas Finance Code, Chapter 348 for each motor vehicle retail installment sales contract made, acquired, serviced, or held under Chapter 348 and make those records available for examination. This requirement includes any conditional delivery agreement or retail installment sales contract signed by a retail buyer for a vehicle that has been delivered, including contracts that are subsequently voided or canceled after a seller regains possession and ownership of the vehicle.

(c) Recordkeeping systems. The records required by this section may be maintained by using either an electronic recordkeeping system, a legible paper or manual recordkeeping system, or a combination of the preceding types of systems, unless otherwise specified by statute or regulation. Licensees may maintain records on one or more recordkeeping systems, so long as the licensee is able to integrate records pertaining to an account into one or more reports as required by this section. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section.

(d) Records required.

(1) Retail installment sales transaction report.

(A) General requirements. Each licensee must maintain records sufficient to produce a retail installment sales transaction report that contains a listing of each Texas Finance Code, Chapter 348 retail installment sales contract entered into by the licensee. The report is only required to include those retail installment sales contracts that are subject to the record retention period of paragraph (7) of this subsection.

(B) Recordkeeping systems. The retail installment sales transaction report can be maintained either as an electronic system or as a paper record, so long as the licensee can integrate the following information into a report. If the retail installment sales transaction report is maintained under a manual recordkeeping system, the retail installment sales transaction report must be updated within a reasonable time from the date the contract is entered into by the licensee.

(C) Dealer's Motor Vehicle Inventory Tax Statement option.

(i) A licensee may utilize a copy of the Dealer's Motor Vehicle Inventory Tax Statement (VIT Statement) submitted to the Texas Comptroller of Public Accounts to satisfy the requirements of this paragraph if the following two conditions are met when the VIT Statement is provided to the commissioner's representative:

(I) on a copy of the submitted VIT Statement, the licensee identifies (e.g., highlights, marks with abbreviations) which transactions were cash transactions and which were retail installment sales transactions; and

(II) the licensee supplements the VIT Statement with the identification of all transactions in which VIT was not charged or collected.

(ii) A licensee who assigns account numbers and utilizes the Dealer's Motor Vehicle Inventory Tax Statement option must provide the account numbers for all retail installment sales transactions contained in the VIT Statement.

(D) Required information. A retail installment sales transaction report must contain the following information:

(i) the date of contract or date of sale (day, month, and year);

(ii) the retail buyer's name(s);

(iii) a method of identifying the vehicle, such as the last six digits of the vehicle identification number or the stock number; and

(iv) the account number, if the retail seller assigns an account number.

(E) Sorting or filtering. Upon request, if a licensee maintains some or all transaction records electronically, the licensee must be able to sort or filter the retail installment transaction report by each of the following:

(i) the date of contract or date of sale;

(ii) the retail buyer's name(s);

(iii) the status of the transaction (open or closed); and

(iv) whether the transaction has been assigned to another person and the name of any assignee.

(2) Retail installment sales transaction file. A licensee must maintain an electronic or paper copy of a retail installment sales transaction file for each individual retail installment sales contract or be able to produce the same information within a reasonable amount of time. The retail installment sales transaction file must contain documents which show the licensee's compliance with applicable law. The required documents must show the licensee's compliance with Texas Finance Code, Chapter 348 and would accordingly include applicable state and federal laws and regulations, including the Truth in Lending Act. If a substantially equivalent electronic record for any of the following records exists, a paper copy of the record does not have to be included in the retail installment sales transaction file if the electronic record can be accessed upon request. The retail installment sales transaction file must include copies of the following records or documents, unless otherwise specified:

(A) for all retail installment sales transactions:

(i) the retail installment sales contract signed by the retail buyer and the retail seller as required by Texas Finance Code, §348.101;

(ii) if prepared by the retail seller, the purchase or buyer's order reflecting a written computation of the cash price of the vehicle and itemized charges, a description of the motor vehicle being purchased, and a description of each motor vehicle being traded in;

(iii) the credit application and any other written or recorded information used in evaluating the application;

(iv) the Texas Department of Motor Vehicles' Title Application Receipt (Form VTR-500-RTS) or similar document evidencing the disbursement of the sales tax, and fees for license, title, and registration of the vehicle;

(v) copies of other agreements or disclosures signed by the retail buyer applicable to the retail installment sales transaction; and

(vi) any records applicable to the retail installment transaction outlined by subparagraphs (B) - (P) of this paragraph.

(B) for a vehicle titled in Texas, a copy of the completed Texas Department of Motor Vehicles'/Texas Comptroller of Public Accounts' Application for Texas Certificate of Title (Form 130-U) signed by the retail buyer and seller that was filed with the appropriate county tax assessor-collector.

(C) for a vehicle titled outside of Texas, a copy of the application for certificate of title for the buyer or the properly assigned evidence of ownership to the buyer including the Texas Comptroller of Public Accounts' Texas Motor Vehicle Sales Tax Exemption Certificate (Form 14-312).

(D) for a retail installment sales transaction in which a power of attorney is necessary to transfer title to the buyer, a copy of the Texas Department of Motor Vehicles' Power of Attorney to Transfer a Motor Vehicle (Form VTR-271) or any other similar document used as a power of attorney.

(E) for a retail installment sales transaction involving a downpayment, a copy of any document relating to the downpayment including:

(i) receipts for cash downpayments;

(ii) promissory notes or other documents evidencing the retail buyer's agreement to pay the cash downpayment over time;

(iii) documents or forms signed by the retail buyer relating to a manufacturer's or distributor's rebate as permitted by the Texas Finance Code, §348.404(a); and

(iv) documents or forms evidencing the payoff of any trade-in vehicle shown on the retail installment sales contract as required by Texas Finance Code, §348.408(c).

(F) for a retail installment sales transaction involving a trade-in motor vehicle, a copy of the Texas Disclosure of Equity in Trade-In Motor Vehicle required by Texas Finance Code, §348.0091 and §84.204 of this title (relating to Disclosure of Equity in Retail Buyer's Trade-in Motor Vehicle).

(G) for a retail installment sales transaction involving the disbursement of funds for money advanced pursuant to Texas Finance Code, §348.404(b) and (c), a copy of any document relating to the disbursement of funds for money advanced.

(H) for a retail installment sales transaction in which the licensee issues a certificate of insurance regarding insurance policies issued by or through the licensee in connection with the retail installment sales transaction, copies of the certificates of insurance.

(I) for a retail installment sales transaction in which the licensee issues a debt cancellation agreement, a complete copy of the debt cancellation agreement provided to the retail buyer, documentation of disbursement of the debt cancellation agreement fee to the retail seller or a third-party administrator, any written instruction from a holder to make a full or partial refund of the debt cancellation agreement fee, and documentation of any refund provided upon cancellation or termination of the debt cancellation agreement. As an alternative to maintaining a complete copy of the debt cancellation agreement in the retail installment sales transaction file, the licensee may maintain all of the following:

(i) in the retail installment sales transaction file, a copy of any page of the debt cancellation agreement with a signature, a transaction-specific term, the cost of the debt cancellation agreement, or any blank space that has been filled in;

(ii) in the licensee's general business files, a complete master copy of each debt cancellation agreement form used by the licensee during the period described by paragraph (7) of this subsection;

(iii) in the licensee's general business files, policies and procedures that show a verifiable method for ensuring that the master copy of the debt cancellation agreement accurately reflects the debt cancellation agreement used in each individual transaction.

(J) for a retail installment sales transaction in which the licensee issues a certificate of coverage regarding ancillary products issued by or through the licensee in connection with the retail installment sales transaction, records of the ancillary products (motor vehicle theft protection plans, service contracts, maintenance agreements, identity recovery service contracts, etc.) including all certificates of coverage.

(K) for a retail installment sales transaction where separate disclosures are required by federal or state law including the following:

(i) a transaction where disclosures required by the Truth in Lending Act are not incorporated into the text of the retail installment sales contract and the credit was extended for primarily for personal, family, or household purposes, a copy of the Truth in Lending statement required by Regulation Z, Truth in Lending, 12 C.F.R. §226.18;

(ii) a transaction involving a cosigner, the notice to cosigner required by the Federal Trade Commission's Credit Practices Trade regulation, 16 C.F.R. §444.3.

(L) for a retail installment sales contract that has an itemized charge for the inspection of a used motor vehicle, access to a copy of the work order, inspection receipt, or other verifiable evidence that reflects that the inspection was performed including the date and cost of the inspection.

(M) for a retail installment sales transaction involving the sale of a trade-in credit agreement under Texas Finance Code, §348.125:

(i) a copy of the trade-in credit agreement and any written notice or disclosure provided to the retail buyer;

(ii) evidence of the contractual liability reimbursement policy in effect at the time of the trade-in credit agreement, as required by Texas Finance Code, §348.125(c); and

(iii) documentation of any refund provided upon cancellation of a trade-in credit agreement.

(N) for a retail installment sales transaction in which a retail buyer requests or receives a benefit under a trade-in credit agreement under Texas Finance Code, §348.125:

(i) a copy of the trade-in credit agreement;

(ii) evidence of the amount of any credit applied under the trade-in credit agreement; and

(iii) any documentation used to process a claim, including:

(I) any proof of insurance settlement documents obtained from the retail buyer;

(II) any accident record or vehicle condition report obtained to process a claim; and

(III) any supplemental claim records supporting the approval or denial of the claim.

(O) for a retail installment sales transaction in which a retail buyer requests or receives a benefit under a depreciation benefit optional member program under Texas Occupations Code, §1304.003(a)(2)(C):

(i) evidence of the amount of any credit applied under the depreciation benefit optional member program; and

(ii) any documentation obtained by the licensee to process the benefit.

(P) any conditional delivery agreement signed by the retail buyer or provided to the retail buyer.

(3) Assignment information.

(A) Required information. Assignment information must cover any Texas Finance Code, Chapter 348 retail installment sales contract made by or acquired by the licensee that is assigned from its licensed or registered location. The assignment information must show the name of the retail buyer, the account number or other unique number given to the retail buyer, the date of assignment, and the name and address to which the accounts are assigned.

(B) Electronic recordkeeping systems. If a licensee is able to produce an assignment report containing the required information provided in subparagraph (A) of this paragraph electronically without any additional programming costs, the licensee must produce the report upon request. If the licensee's software programs are unable to produce an assignment report containing the required information provided in subparagraph (A) of this paragraph, the licensee may maintain assignment information for each individual retail installment sales transaction in the retail installment sales transaction file. A licensee must be able to access assignment information for a specific transaction as requested by the commissioner's representative.

(C) Manual recordkeeping systems. If a licensee is not able to produce an assignment report as provided in subparagraph (B) of this paragraph, the licensee may maintain assignment information for each individual retail installment sales transaction in the retail installment sales transaction file. A licensee must be able to access assignment information for a specific transaction as requested by the commissioner's representative.

(4) General business and accounting records. General business and accounting records concerning retail installment sales transactions must be maintained. The licensee is not required to produce information protected under the attorney-client privilege or work product privilege. The business and accounting records must include receipts, documents, or other records for each disbursement made by the licensee at the retail buyer's direction or request, on his behalf, or for his benefit, that is charged to the retail buyer, including:

(A) Texas Comptroller of Public Accounts' Dealer Motor Vehicle Inventory Tax Statement (Form 50-246); and

(B) Texas Comptroller of Public Accounts' Texas Motor Vehicle Seller-Financed Sales Tax Report (Form 14-117).

(5) Adverse action records. Each licensee must maintain adverse action records regarding all applications relating to Texas Finance Code, Chapter 348 retail installment sales transactions. Adverse action records must be maintained according to the record retention requirements contained in Regulation B, Equal Credit Opportunity Act, 12 C.F.R. §1002.12(b). The current retention periods are 25 months for consumer credit and 12 months for business credit.

(6) Trade-in credit agreement records. Each licensee that enters a trade-in credit agreement or provides a benefit in connection with a trade-in credit agreement must:

(A) maintain a copy of any contractual liability reimbursement policy related to the trade-in credit agreement, as required by Texas Finance Code, §348.125(c); and

(B) maintain a register or be able to generate a report, paper or electronic, that reflects agreements that were either satisfied or denied. This register or report must show the name of the retail buyer, the account number, and the date of satisfaction or denial.

(7) Retention and availability of records. All books and records required by this subsection must be available for inspection at any time by Office of Consumer Credit Commissioner staff, and must be retained for a period of four years from the date of the contract, two years from the date of the final entry made thereon by the licensee, whichever is later, or a different period of time if required by federal law. For licensees who assign retail installment sales contracts, the final entry may be the date of the assignment if the licensee makes no other entries on the account after the assignment. Upon notification of an examination pursuant to Texas Finance Code, §348.514(f), the licensee must be able to produce or access required books and records within a reasonable time at the licensed location or registered office specified on the license. The records required by this subsection must be available or accessible at an office in the state designated by the licensee except when the retail installment sales transactions are transferred under an agreement which gives the commissioner access to the documents. Documents may be maintained out of state if the licensee has in writing acknowledged responsibility for either making the records available within the state for examination or by acknowledging responsibility for additional examination costs associated with examinations conducted out of state.

(8) Information security program. A licensee must maintain written policies and procedures for an information security program to protect retail buyers' customer information, as required by the Federal Trade Commission's Safeguards Rule, 16 C.F.R. part 314. If a licensee maintains customer information concerning 5,000 or more consumers, then the licensee must maintain a written incident response plan and written risk assessments, as required by 16 C.F.R. §314.4.

(9) Data breach notifications. A licensee must maintain the text of any data breach notification provided to retail buyers, including any notification under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification. A licensee must maintain any data breach notification provided to a government agency, including any notification provided to the Office of the Attorney General under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification.

History

• Source Note: The provisions of this §84.707 adopted to be effective November 6, 2008, 33 TexReg 8922; amended to be effective November 5, 2009, 34 TexReg 7608; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective May 10, 2018, 43 TexReg 2747; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective January 4, 2024, 48 TexReg 8332; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.708 Files and Records Required (Retail Sellers Collecting Installments on Retail Installment Sales Contracts)

(a) Applicability. The recordkeeping requirements of this section apply to retail sellers that service or collect installments on retail installment sales contracts involving ordinary vehicles. The recordkeeping requirements of this section do not apply to motor vehicle retail installment sales transactions involving commercial vehicles.

(b) Records required for each retail installment sales transaction. Each licensee must maintain records with respect to the licensee's compliance with Texas Finance Code, Chapter 348 for each motor vehicle retail installment sales contract made, acquired, serviced, or held under Chapter 348 and make those records available for examination. This requirement includes any conditional delivery agreement or retail installment sales contract signed by a retail buyer for a vehicle that has been delivered, including contracts that are subsequently voided or canceled after a seller regains possession and ownership of the vehicle.

(c) Recordkeeping systems. The records required by this section may be maintained by using either an electronic recordkeeping system, a legible paper or manual recordkeeping system, or a combination of the preceding types of systems, unless otherwise specified by statute or regulation. Licensees may maintain records on one or more recordkeeping systems, so long as the licensee is able to integrate records pertaining to an account into one or more reports as required by this section. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section.

(d) Record search requirements.

(1) Open retail installment sales transactions. A licensee must be able to access or produce a list of all open retail installment sales transactions. If the list of open transactions is accessed through an electronic system, the licensee must be able to generate a separate report of open transactions. Alternatively, a licensee may provide a list containing open and closed retail installment sales transactions as long as the open transactions are designated as "open."

(2) Alphabetical search. A licensee must be able to access records in alphabetical order by retail buyer name for open and closed transactions during the record retention period required by subsection (e)(10) of this section. A licensee may comply with the alphabetical requirement by providing the commissioner's representative files by retail buyer name upon request by the commissioner's representative.

(3) Sorting or filtering. Upon request, if a licensee maintains some or all transaction records electronically, a licensee must be able to sort or filter a records search by each of the following:

(A) the date of contract or date of sale;

(B) the retail buyer's name(s);

(C) the status of the transaction (open or closed); and

(D) whether the transaction has been assigned to another person and the name of any assignee.

(e) Records required.

(1) Retail installment sales transaction report.

(A) General requirements. Each licensee must maintain records sufficient to produce a retail installment sales transaction report that contains a listing of each Texas Finance Code, Chapter 348 retail installment sales contract made or acquired by the licensee. The report is only required to include those retail installment sales contracts that are subject to the record retention period of paragraph (10) of this subsection.

(B) Recordkeeping systems. The retail installment sales transaction report can be maintained either an electronic system or as a paper record, so long as the licensee can integrate the following information into a report. If the retail installment sales transaction report is maintained under a manual recordkeeping system, the retail installment sales transaction report must be updated within a reasonable time from the date the contract is made or acquired.

(C) Dealer's Motor Vehicle Inventory Tax Statement option.

(i) A licensee may utilize a copy of the Dealer's Motor Vehicle Inventory Tax Statement (VIT Statement) submitted to the Texas Comptroller of Public Accounts to satisfy the requirements of this paragraph if the following two conditions are met when the VIT Statement is provided to the commissioner's representative:

(I) on a copy of the submitted VIT Statement, the licensee identifies (e.g., highlights, marks with abbreviations) which transactions were cash transactions and which were retail installment sales transactions; and

(II) the licensee supplements the VIT Statement with the identification of all transactions in which VIT was not charged or collected.

(ii) A licensee who assigns account numbers and utilizes the Dealer's Motor Vehicle Inventory Tax Statement option must provide the account numbers for all retail installment sales transactions contained in the VIT Statement.

(D) Required information. A retail installment sales transaction report must contain the following information:

(i) the date of contract or date of sale (day, month, and year);

(ii) the retail buyer's name(s);

(iii) a method of identifying the vehicle, such as the last six digits of the vehicle identification number or the stock number; and

(iv) the account number.

(E) Sorting or filtering. Upon request, a licensee must be able to sort or filter the retail installment transaction report by each of the following:

(i) the date of contract or date of sale;

(ii) the retail buyer's name(s);

(iii) the status of the transaction (open or closed); and

(iv) whether the transaction has been assigned to another person and the name of any assignee.

(2) Retail installment sales transaction file. A licensee must maintain an electronic or paper copy of a retail installment sales transaction file for each individual retail installment sales contract or be able to produce the same information within a reasonable amount of time. The retail installment sales transaction file must contain documents which show the licensee's compliance with applicable law. The required documents must show the licensee's compliance with Texas Finance Code, Chapter 348 and would accordingly include applicable state and federal laws and regulations, including the Truth in Lending Act. If a substantially equivalent electronic record for any of the following records exists, a paper copy of the record does not have to be included in the retail installment sales transaction file if the electronic record can be accessed upon request. The retail installment sales transaction file must include copies of the following records or documents, unless otherwise specified:

(A) for all retail installment sales transactions:

(i) the retail installment sales contract signed by the retail buyer and the retail seller as required by Texas Finance Code, §348.101;

(ii) if prepared by the retail seller, the purchase or buyer's order reflecting a written computation of the cash price of the vehicle and itemized charges, a description of the motor vehicle being purchased, and a description of each motor vehicle being traded in;

(iii) the credit application and any other written or recorded information used in evaluating the application;

(iv) the original certificate of title to the vehicle, a certified copy of the negotiable certificate of title, or a copy of the front and back of either the original or certified copy of the title;

(v) the Texas Department of Motor Vehicles' Title Application Receipt (Form VTR-500-RTS) or similar document evidencing the disbursement of the sales tax, and fees for license, title, and registration of the vehicle;

(vi) copies of other agreements or disclosures signed by the retail buyer applicable to the retail installment sales transaction; and

(vii) any records applicable to the retail installment transaction outlined by subparagraphs (B) - (U) of this paragraph.

(B) for a vehicle titled in Texas, a copy of the completed Texas Department of Motor Vehicles'/Texas Comptroller of Public Accounts' Application for Texas Certificate of Title (Form 130-U) signed by the retail buyer and seller that was filed with the appropriate county tax assessor-collector.

(C) for a vehicle titled outside of Texas, a copy of the application for certificate of title for the buyer or the properly assigned evidence of ownership to the buyer including the Texas Comptroller of Public Accounts' Texas Motor Vehicle Sales Tax Exemption Certificate (Form 14-312).

(D) for a retail installment sales transaction in which a power of attorney is necessary to transfer title to the buyer, a copy of the Texas Department of Motor Vehicles' Power of Attorney to Transfer a Motor Vehicle (Form VTR-271) or any other similar document used as a power of attorney.

(E) for a retail installment sales transaction involving a downpayment, a copy of any record or document relating to the downpayment including:

(i) receipts for cash downpayments;

(ii) promissory notes or other documents evidencing the retail buyer's agreement to pay the cash downpayment over time;

(iii) documents or forms signed by the retail buyer relating to a manufacturer's or distributor's rebate as permitted by Texas Finance Code, §348.404(a); and

(iv) documents or forms evidencing the payoff of any trade-in vehicle shown on the retail installment sales contract as required by Texas Finance Code, §348.408(c).

(F) for a retail installment sales transaction involving a trade-in motor vehicle, a copy of the Texas Disclosure of Equity in Trade-In Motor Vehicle required by Texas Finance Code, §348.0091 and §84.204 of this title (relating to Disclosure of Equity in Retail Buyer's Trade-in Motor Vehicle).

(G) for a retail installment sales contract that has an itemized charge for the inspection of a new or used motor vehicle, a copy of or access to the work order, inspection receipt, or other verifiable evidence that reflects that the inspection was performed including the date and cost of the inspection.

(H) for a retail installment sales transaction involving the disbursement of funds for money advanced pursuant to Texas Finance Code, §348.404(b) and (c), a copy of any document, form, or agreement relating to the disbursement of funds for money advanced.

(I) for a retail installment sales transaction in which the licensee issues a certificate of insurance regarding insurance policies issued by or through the licensee in connection with the retail installment sales transaction, copies of the certificates of insurance.

(J) for a retail installment sales transaction in which the licensee issues a debt cancellation agreement, a complete copy of the debt cancellation agreement provided to the retail buyer, documentation of disbursement of the debt cancellation agreement fee to the retail seller or a third-party administrator, any written instruction to another person to make a full or partial refund of the debt cancellation agreement fee, and documentation of any refund provided upon cancellation or termination of the debt cancellation agreement. As an alternative to maintaining a complete copy of the debt cancellation agreement in the retail installment sales transaction file, the licensee may maintain all of the following:

(i) in the retail installment sales transaction file, a copy of any page of the debt cancellation agreement with a signature, a transaction-specific term, the cost of the debt cancellation agreement, or any blank space that has been filled in;

(ii) in the licensee's general business files, a complete master copy of each debt cancellation agreement form used by the licensee during the period described by paragraph (10) of this subsection;

(iii) in the licensee's general business files, policies and procedures that show a verifiable method for ensuring that the master copy of the debt cancellation agreement accurately reflects the debt cancellation agreement used in each individual transaction.

(K) for a retail installment sales transaction in which the licensee issues a certificate of coverage regarding ancillary products issued by or through the licensee in connection with the retail installment sales transaction, records of the ancillary products (motor vehicle theft protection plans, service contracts, maintenance agreements, identity recovery service contracts, etc.) including all certificates of coverage.

(L) for a retail installment sales transaction involving insurance claims for credit life, credit accident and health, credit property, credit involuntary unemployment, collateral protection, or credit gap insurance:

(i) if the licensee does not negotiate or transact insurance claims on behalf of the retail buyer, records are not required to be maintained under this subparagraph.

(ii) if the licensee negotiates or transacts insurance claims on behalf of the retail buyer, supplemental insurance records, to the extent received by the licensee, supporting the settlement or denials of claims reported in the insurance loss records provided by paragraph (6) of this subsection including:

(I) Credit life insurance claims. The supplemental insurance records for credit life insurance claims must include the death certificate or other written records relating to the death of the retail buyer; proof of loss or claim form that discloses the amount of indebtedness at the time of death; check copies or electronic payment receipts that reflect the gross amount of the claim paid, including the amount of insurance benefits paid to beneficiaries other than the licensee which is in excess of the net amount necessary to pay the indebtedness; and the amount that is paid to beneficiaries other than the licensee.

(II) Credit accident and health insurance claims. The supplemental insurance records for credit accident and health insurance claims must include any written records relating to the disability, including statements from the physician, employer, and retail buyer; the proof of loss or claim form filed by the retail buyer; and copies of the checks or electronic payment receipts reflecting disability payments paid by the insurance carrier.

(III) Credit involuntary unemployment insurance claims. The supplemental insurance records for credit involuntary unemployment insurance claims must include any written document relating to the termination, layoff, or dismissal of the retail buyer; the proof of loss or claim form filed by the retail buyer; copies of the checks or electronic payment receipts reflecting the payment of the claim by the insurance carrier; and any other pertinent written record relating to the involuntary unemployment insurance claim.

(IV) Collateral protection insurance claims. The supplemental insurance records for collateral protection insurance claims must include the law enforcement report, fire department report, or other written record reflecting the loss or destruction of any covered motor vehicle; the proof of loss or claim form filed by the retail buyer; copies of the checks or electronic payment receipts reflecting the payment of the claim by the insurance carrier; and any other pertinent written record relating to the collateral protection insurance claim.

(V) Credit gap insurance claims. The supplemental insurance records for credit gap insurance claims must include the gap insurance claim form; proof of loss and settlement check from the retail buyer's basic comprehensive, collision, or uninsured/underinsured policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle; documents that provide verification of the retail buyer's primary insurance deductible; if the accident was investigated by a law enforcement officer, a copy of the offense or police report filed in connection with the total loss of the motor vehicle; if the accident was not investigated by a law enforcement officer, a copy of any law enforcement crash report form filed in connection with the total loss of the motor vehicle; and copies of the checks reflecting the settlement amount paid by the licensee for the gap insurance claim.

(M) for a retail installment sales transaction involving the cancellation of a full or partial balance under a debt cancellation agreement for total loss or theft of an ordinary vehicle:

(i) the licensee must maintain copies of the following records on debt cancellation agreements for total loss or theft of ordinary vehicles that include insurance coverage as part of the retail buyer's responsibility to the holder:

(I) supplemental claim records supporting the settlement or denials of claims reported in the debt cancellation agreement loss records provided by paragraph (7) of this subsection including the debt cancellation request form;

(II) proof of loss and settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle;

(III) documents that provide verification of the retail buyer's primary insurance deductible;

(IV) if the accident was investigated by a law enforcement officer, a copy of the offense or police report filed in connection with the total loss of the motor vehicle;

(V) if the accident was not investigated by a law enforcement officer, a copy of the Texas Department of Public Safety's "Crash Report" (Form CR-2) filed in connection with the total loss of the motor vehicle; and

(VI) evidence of the credit for the debt cancellation applied to the account or a copy of the check reflecting the balance canceled by the licensee; or

(ii) the licensee must maintain copies of the following records on debt cancellation agreements for total loss or theft of ordinary vehicles in which the holder bears complete responsibility for the balance canceled after the total loss or theft:

(I) if the accident was investigated by a law enforcement officer, a copy of the offense or police report filed in connection with the total loss of the motor vehicle;

(II) if the accident was not investigated by a law enforcement officer, a copy of the Texas Department of Public Safety's "Crash Report" (Form CR-2) filed in connection with the total loss of the motor vehicle; and

(III) any records relating to the denial of the cancellation of the balance under the debt cancellation agreement for total loss or theft of any ordinary vehicle.

(N) for a retail installment sales transaction where separate disclosures are required by federal or state law including the following:

(i) a transaction where disclosures required by the Truth in Lending Act are not incorporated into the text of the retail installment sales contract and the credit was extended for primarily for personal, family, or household purposes, a copy of the Truth in Lending statement required by Regulation Z, Truth in Lending, 12 C.F.R. §1026.18;

(ii) a transaction involving a cosigner, the notice to cosigner required by the Federal Trade Commission's Credit Practices Trade regulation, 16 C.F.R. §444.3.

(O) for a retail installment sales transaction that has been repaid in full, evidence of the discharge or release of lien as prescribed by 43 TAC §217.106 (relating to Discharge of Lien).

(P) for a retail installment sales transaction involving a repossession, the records required by subsection (f) of this section.

(Q) for a retail installment sales transaction in which the licensee agrees to defer all or part of one or more payments:

(i) a copy of any written deferment agreement; and

(ii) any written notice to the retail buyer regarding a deferment under Texas Finance Code, §348.114(c).

(R) for a retail installment sales transaction involving the sale of a trade-in credit agreement under Texas Finance Code, §348.125:

(i) a copy of the trade-in credit agreement and any written notice or disclosure provided to the retail buyer;

(ii) evidence of the contractual liability reimbursement policy in effect at the time of the trade-in credit agreement, as required by Texas Finance Code, §348.125(c); and

(iii) documentation of any refund provided upon cancellation of a trade-in credit agreement.

(S) for a retail installment sales transaction in which a retail buyer requests or receives a benefit under a trade-in credit agreement under Texas Finance Code, §348.125:

(i) a copy of the trade-in credit agreement;

(ii) evidence of the amount of any credit applied under the trade-in credit agreement; and

(iii) any documentation used to process a claim, including:

(I) any proof of insurance settlement documents obtained from the retail buyer;

(II) any accident record or vehicle condition report obtained to process a claim; and

(III) any supplemental claim records supporting the approval or denial of the claim.

(T) for a retail installment sales transaction in which a retail buyer requests or receives a benefit under a depreciation benefit optional member program under Texas Occupations Code, §1304.003(a)(2)(C):

(i) evidence of the amount of any credit applied under the depreciation benefit optional member program; and

(ii) any documentation obtained by the licensee to process the benefit.

(U) any conditional delivery agreement signed by the retail buyer or provided to the retail buyer.

(3) Account record for each retail installment sales contract (including payment and collection contact history). A separate electronic or paper record must be maintained covering each retail installment sales contract. The electronic or paper account record must be readily available by reference to either a retail buyer's name or account number.

(A) Required information. The account record for each retail installment sales contract must contain at least the following information, unless stated otherwise:

(i) account number as recorded in the retail installment sales transaction report;

(ii) date of contract;

(iii) name and address of retail buyer;

(iv) payment history information:

(I) itemized payment entries showing date payment received; dual postings are acceptable if date of posting is other than date of receipt;

(II) for a transaction using the true daily earnings method, if requested during an examination or investigation, a breakdown for each payment showing the amount applied toward principal, time price differential, late charges, and any other charges;

(III) if requested during an examination or investigation, a payoff amount that denotes amounts applied to principal, time price differential, default, deferment, or other authorized charges;

(v) for a retail installment sales contract where the licensee receives or issues a refund of insurance charges, debt cancellation agreements, or authorized ancillary products, a licensee is responsible for maintaining sufficient documentation of any refund including final entries and is also responsible for providing refunds to the retail buyer or correctly applying refunds to the retail buyer's account. Refund amounts must be itemized to show:

(I) time price differential refunded, if any;

(II) the amount of any insurance charges refunded;

(III) the amount of any debt cancellation agreement fees refunded;

(IV) the amount of any authorized ancillary products charges refunded;

(vi) collection contact history, including a written record of:

(I) all collection contacts made by a licensee with the retail buyer or any other person in connection with the collection of amounts due under a motor vehicle retail installment sales contract;

(II) all collection contacts made by the retail buyer with the licensee in connection with the collection of amounts due under a motor vehicle retail installment sales contract;

(III) for the collection contacts in subclauses (I) and (II) of this clause, the written record must include the date, method of contact, contacted party, person initiating the contact, and a summary of the contact;

(IV) copies of individual collection notices or letters or references to standard collection letters sent to the retail buyer.

(B) Recommended information. In addition to the required information under subparagraph (A) of this paragraph, it is recommended that the account record for each retail installment sales contract contain the following information:

(i) retail installment sales contract payment schedule and terms itemized to show:

(I) number of installments;

(II) due date of installments;

(III) amount of each installment; and

(IV) maturity date;

(ii) telephone number of retail buyer;

(iii) names and addresses of co-retail buyer or other obligors, if any;

(iv) amount financed;

(v) total time price differential charge;

(vi) total of payments;

(vii) amount of premium charges for insurance products;

(viii) amount of fees charged for debt cancellation agreements.

(C) Corrective entries. A licensee may make corrective entries to the account record for each retail installment sales contract if the corrective entry is justified. A licensee must maintain the reason and supporting documentation for each corrective entry made to the account record. The reason for the corrective entry may be recorded in the collection contact history of the account record. The supporting documentation justifying the corrective entry can be maintained in the individual account record for each retail installment sales contract or properly stored and indexed in a licensee's optically imaged recordkeeping system. If a licensee manually maintains the account record, the licensee must properly correct an improper entry by drawing a single line through the improper entry and entering the correct information above or below the improper entry. No erasures or other obliterations may be made on the payments received or collection contact history section of the manual account record for each retail installment sales contract.

(4) Assignment information.

(A) Required information. Assignment information must cover any Texas Finance Code, Chapter 348 retail installment sales contract made by or acquired by the licensee that is assigned from its licensed or registered location. The assignment information must show the name of the retail buyer, the account number or other unique number given to the retail buyer, the date of assignment, and the name and address to which the accounts are assigned.

(B) Electronic recordkeeping systems. If a licensee is able to produce an assignment report containing the required information provided in subparagraph (A) of this paragraph electronically without any additional programming costs, the licensee must produce the report upon request. If the licensee's software programs are unable to produce an assignment report containing the required information provided in subparagraph (A) of this paragraph, the licensee may maintain assignment information for each individual retail installment sales transaction in the retail installment sales transaction file. A licensee must be able to access assignment information for a specific transaction as requested by the commissioner's representative.

(C) Manual recordkeeping systems. If a licensee is not able to produce an assignment report as provided in subparagraph (B) of this paragraph, the licensee may maintain assignment information for each individual retail installment sales transaction in the retail installment sales transaction file. A licensee must be able to access assignment information for a specific transaction as requested by the commissioner's representative.

(D) Securitization or financing exception. If the servicing rights are retained by the licensee, then the licensee is not required to include in the assignment report retail installment sales transactions that were assigned to a legal entity as part of a securitization agreement. A licensee is also not required to include in the assignment report retail installment sales transactions that have been pledged as collateral for a bona fide financing arrangement to the licensee.

(5) General business and accounting records. General business and accounting records concerning retail installment sales transactions must be maintained. The licensee is not required to produce information protected under the attorney-client privilege or work product privilege. The business and accounting records must include receipts, documents, or other records for each disbursement made by the licensee at the retail buyer's direction or request, on his behalf, or for his benefit, that is charged to the retail buyer, including:

(A) Texas Comptroller of Public Accounts' Dealer Motor Vehicle Inventory Tax Statement (Form 50-246);

(B) Texas Comptroller of Public Accounts' Texas Motor Vehicle Seller-Financed Sales Tax Report (Form 14-117); and

(C) repossession, sequestration, disposition, or legal fees relating to repossession, sequestration, or disposition.

(6) Insurance loss records. Each licensee who negotiates or transacts the filing of insurance claims must maintain a register or be able to generate a report, electronic or paper, reflecting information to the extent received by the licensee on credit life, credit accident and health, credit property, credit involuntary unemployment, and single-interest insurance claims whether paid or denied by the insurance carrier. If the reason for the denial of a credit life insurance or credit accident and health insurance claim is based upon the medical records of the retail buyer, supplemental records supporting the denial of the claim must be made available upon request.

(7) Debt cancellation agreement for total loss or theft loss records. Each licensee who cancels entire balances or who cancels only partial balances under debt cancellation agreements must maintain a register or be able to generate a report, paper or electronic, that reflects agreements that were either satisfied or denied. This register or report must show the name of the retail buyer, the account number, an indication of whether the agreement was satisfied or denied (e.g., "paid," "denied"), and the date of satisfaction or denial.

(8) Adverse action records. Each licensee must maintain adverse action records regarding all applications relating to Texas Finance Code, Chapter 348 retail installment sales transactions. Adverse action records must be maintained according to the record retention requirements contained in Regulation B, Equal Credit Opportunity Act, 12 C.F.R. §1002.12(b). The current retention periods are 25 months for consumer credit and 12 months for business credit.

(9) Trade-in credit agreement records. Each licensee that enters a trade-in credit agreement or provides a benefit in connection with a trade-in credit agreement must:

(A) maintain a copy of any contractual liability reimbursement policy related to the trade-in credit agreement, as required by Texas Finance Code, §348.125(c); and

(B) maintain a register or be able to generate a report, paper or electronic, that reflects agreements that were either satisfied or denied. This register or report must show the name of the retail buyer, the account number, and the date of satisfaction or denial.

(10) Retention and availability of records. All books and records required by this subsection must be available for inspection at any time by Office of Consumer Credit Commissioner staff, and must be retained for a period of four years from the date of the contract, two years from the date of the final entry made thereon, whichever is later, or a different period of time if required by federal law. Upon notification of an examination pursuant to Texas Finance Code, §348.514(f), the licensee must be able to produce or access required books and records within a reasonable time at the licensed location or registered office specified on the license. The records required by this subsection must be available or accessible at an office in the state designated by the licensee except when the retail installment sales transactions are transferred under an agreement which gives the commissioner access to the documents. Documents may be maintained out of state if the licensee has in writing acknowledged responsibility for either making the records available within the state for examination or by acknowledging responsibility for additional examination costs associated with examinations conducted out of state.

(f) Repossession records.

(1) Repossession report. A licensee must be able to access or produce a list of all retail installment sales transactions involving repossession by the licensee. If the list of repossessions is accessed through an electronic system, the licensee must be able to generate a separate report of repossessions. If the repossession report is maintained under a manual recordkeeping system, the licensee must maintain a current list of accounts in repossession. A manual repossession report must be updated within a reasonable time from the date of repossession. The repossession report must include the retail buyer's name, account number, and date of repossession. If accounts have been subsequently assigned, the assignment must be noted in the repossession report as well as on the record of assigned accounts as prescribed in subsection (e)(4) of this section.

(2) Required information. For a retail installment sales transaction involving the repossession of the vehicle, the following records must be maintained, unless otherwise specified:

(A) a condition report indicating the condition of the collateral, if prepared by the licensee, the licensee's agent, or any independent contractor hired to perform the repossession;

(B) any invoices or receipts for any reasonable and authorized out-of-pocket expenses that are assessed to the buyer and incurred in connection with the repossession or sequestration of the vehicle including cost of storing, reconditioning, and reselling the vehicle;

(C) for a vehicle disposed of in a public or private sale as permitted by the Texas Business and Commerce Code, §9.610, the following documents:

(i) one of the three following notices:

(I) for a transaction not involving consumer goods, a copy of any Notification of Disposition of Collateral letter sent to the retail buyer and other obligors as required by Texas Business and Commerce Code, §9.613;

(II) for a transaction involving consumer goods, a copy of any Notice of Our Plan to Sell Property as sent to the retail buyer and other obligors as required by Texas Business and Commerce Code, §9.614; or

(III) a copy of the waiver of the notice of intended disposition prescribed by subclause (I) or (II) of this clause, as applicable, signed by the retail buyer and other obligors after default;

(ii) copies of evidence of the type or manner of private sale that was conducted. These records must show that the manner of the disposition was commercially reasonable, such as circumstances surrounding a dealer only auction, internet sale or other type of private disposition;

(iii) copies of evidence of the type or manner of public sale that was conducted. These records must show that the manner of the disposition was commercially reasonable, such as documentation of the date, place, manner of sale of the vehicle, and amounts received for disposition of the vehicle;

(iv) the bill of sale showing the name and address of the purchaser of the repossessed collateral and the purchase price of the vehicle;

(v) for a disposition or sale of collateral creating a surplus balance, a copy of the check representing the payment of the surplus balance paid to the retail buyer or other person entitled to the surplus;

(vi) for a disposition or sale of collateral resulting in a surplus or deficiency, a copy of the explanation of calculation of surplus or deficiency as required by Texas Business and Commerce Code, §9.616, if applicable;

(vii) a copy of the waiver of the deficiency letter if the retail seller elects to waive the deficiency balance in lieu of sending the explanation of calculation of surplus or deficiency form, if applicable;

(D) for a vehicle disposed of using the strict foreclosure method as permitted by the Texas Business and Commerce Code, §9.620 and §9.621, the following documents:

(i) one of the three following notices;

(I) for a transaction not involving consumer goods and where less than 60% of the cash price of the vehicle has been paid, a copy of the notice of proposal to accept collateral in full or partial satisfaction of the obligation;

(II) for a transaction involving consumer goods, a copy of the notice of proposal to accept collateral in full satisfaction of the obligation; or

(III) for a transaction where more than 60% of the cash price of the vehicle has been paid, a copy of the debtor or obligor's waiver of compulsory disposition of collateral signed by the retail buyers and other obligors after default;

(ii) for a transaction where the retail buyer rejects the offer under clause (i)(I) or (II) of this subparagraph, a copy of the retail buyer's signed objection to retention of the collateral;

(iii) copies of the records reflecting the partial or total satisfaction of the obligation; and

(E) for a vehicle disposed by another authorized method pursuant to the Texas Business and Commerce Code, Chapter 9, a copy of any and all records or documents relating to the disposition of the collateral

(g) Information security program. A licensee must maintain written policies and procedures for an information security program to protect retail buyers' customer information, as required by the Federal Trade Commission's Safeguards Rule, 16 C.F.R. part 314. If a licensee maintains customer information concerning 5,000 or more consumers, then the licensee must maintain a written incident response plan and written risk assessments, as required by 16 C.F.R. §314.4.

(h) Data breach notifications. A licensee must maintain the text of any data breach notification provided to retail buyers, including any notification under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification. A licensee must maintain any data breach notification provided to a government agency, including any notification provided to the Office of the Attorney General under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification.

History

• Source Note: The provisions of this §84.708 adopted to be effective November 6, 2008, 33 TexReg 8922; amended to be effective January 7, 2010, 35 TexReg 66; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective May 10, 2018, 43 TexReg 2747; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective January 4, 2024, 48 TexReg 8332; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.709 Files and Records Required (Holders Taking Assignment of Retail Installment Sales Contracts)

(a) Applicability. The recordkeeping requirements of this section apply to holders who are not retail sellers that service or collect installments on retail installment sales contracts involving ordinary vehicles. The recordkeeping requirements of this section do not apply to motor vehicle retail installment sales transactions involving commercial vehicles.

(b) Records required for each retail installment sales transaction. Each licensee must maintain records with respect to the licensee's compliance with Texas Finance Code, Chapter 348 for each motor vehicle retail installment sales contract made, acquired, serviced, or held under Chapter 348 and make those records available for examination.

(c) Recordkeeping systems. The records required by this section may be maintained by using either an electronic recordkeeping system, a legible paper or manual recordkeeping system, or a combination of the preceding types of systems, unless otherwise specified by statute or regulation. Licensees may maintain records on one or more recordkeeping systems, so long as the licensee is able to integrate records pertaining to an account into one or more reports as required by this section. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section.

(d) Record search requirements.

(1) Open retail installment sales transactions. A licensee must be able to access or produce a list of all open retail installment sales transactions. If the list of open transactions is accessed through an electronic system, the licensee must be able to generate a separate report of open transactions. Alternatively, a licensee may provide a list containing open and closed retail installment sales transactions as long as the open transactions are designated as "open."

(2) Alphabetical search. A licensee must be able to access records in alphabetical order by retail buyer name for open and closed transactions during the record retention period required by subsection (e)(9) of this section. A licensee may comply with the alphabetical requirement by providing the commissioner's representative files by retail buyer name upon request by the commissioner's representative.

(3) Sorting or filtering. Upon request, if a licensee maintains some or all transaction records electronically, a licensee must be able to sort or filter a records search by each of the following:

(A) the date of contract or date of sale;

(B) the retail buyer's name(s);

(C) the status of the transaction (open or closed); and

(D) whether the transaction has been assigned to another person and the name of any assignee.

(e) Records required.

(1) Retail installment sales transaction report. Each licensee must maintain records sufficient to produce a retail installment sales transaction report that contains a listing of each Texas Finance Code, Chapter 348 retail installment sales contract acquired by the licensee. The report is only required to include those retail installment sales contracts that are subject to the record retention period of paragraph (9) of this subsection. The retail installment sales transaction report can be maintained either as a paper record or may be generated from an electronic system or systems so long as the licensee can integrate the following information into a report. If the retail installment sales transaction report is maintained under a manual recordkeeping system, the retail installment sales transaction report must be updated within a reasonable time from the date the contract is acquired.

(A) A retail installment sales transaction report must contain the following information:

(i) the date of contract (day, month, and year);

(ii) the retail buyer's name(s);

(iii) a method of identifying the vehicle, such as the last six digits of the vehicle identification number or the stock number; and

(iv) the account number.

(B) Sorting or filtering. Upon request, a licensee must be able to sort or filter the retail installment transaction report by each of the following:

(i) the date of contract or date of sale;

(ii) the retail buyer's name(s);

(iii) the status of the transaction (open or closed); and

(iv) whether the transaction has been assigned to another person and the name of any assignee.

(2) Retail installment sales transaction file. A licensee must maintain an electronic or paper copy of a retail installment sales transaction file for each individual retail installment sales contract or be able to produce the same information within a reasonable amount of time. The retail installment sales transaction file must contain documents which show the licensee's compliance with applicable law. The required documents must show the licensee's compliance with Texas Finance Code, Chapter 348 and would accordingly include applicable state and federal laws and regulations, including the Truth in Lending Act. If a substantially equivalent electronic record for any of the following records exists, a paper copy of the record does not have to be included in the retail installment sales transaction file if the electronic record can be accessed upon request. The retail installment sales transaction file must include copies of the following records or documents, unless otherwise specified:

(A) for all retail installment sales transactions:

(i) the retail installment sales contract signed by the retail buyer and the retail seller as required by Texas Finance Code, §348.101;

(ii) the credit application and any other written or recorded information used in evaluating the application;

(iii) the original certificate of title to the vehicle, a certified copy of the negotiable certificate of title, or a copy of the front of either the original or certified copy of the title; and

(iv) any records applicable to the retail installment transaction outlined by subparagraphs (B) - (J) of this paragraph.

(B) for a vehicle titled in Texas, a copy of the completed Texas Department of Motor Vehicles'/Texas Comptroller of Public Accounts' Application for Texas Certificate of Title (Form 130-U) signed by the retail buyer and seller that was filed with the appropriate county tax assessor-collector.

(C) for a retail installment sales transaction in which insurance policies are issued by or through the licensee in connection with the retail installment sales transaction, copies of the certificates of insurance.

(D) for a retail installment sales transaction in which the licensee issues or takes assignment of a debt cancellation agreement, a complete copy of the debt cancellation agreement provided to the retail buyer and any written instruction to another person to make a full or partial refund of the debt cancellation agreement fee, and any documentation that comes into the licensee's possession regarding a refund provided upon cancellation or termination of the debt cancellation agreement. As an alternative to maintaining a complete copy of the debt cancellation agreement in the retail installment sales transaction file, the licensee may maintain all of the following:

(i) in the retail installment sales transaction file, a copy of any page of the debt cancellation agreement with a signature, a transaction-specific term, the cost of the debt cancellation agreement, or any blank space that has been filled in;

(ii) in the licensee's general business files, a complete master copy of each debt cancellation agreement form used by the licensee during the period described by paragraph (9) of this subsection;

(iii) in the licensee's general business files, policies and procedures that show a verifiable method for ensuring that the master copy of the debt cancellation agreement accurately reflects the debt cancellation agreement used in each individual transaction.

(E) for a retail installment sales transaction involving insurance claims for credit life, credit accident and health, credit property, credit involuntary unemployment, collateral protection, or credit gap insurance:

(i) if the licensee does not negotiate or transact insurance claims on behalf of the retail buyer, records are not required to be maintained under this subparagraph.

(ii) if the licensee negotiates or transacts insurance claims on behalf of the retail buyer, supplemental insurance records, to the extent received by the licensee, supporting the settlement or denials of claims reported in the insurance loss records provided by paragraph (6) of this subsection including:

(I) Credit life insurance claims. The supplemental insurance records for credit life insurance claims must include the death certificate or other written records relating to the death of the retail buyer; proof of loss or claim form that discloses the amount of indebtedness at the time of death; check copies or electronic payment receipts that reflect the gross amount of the claim paid, including the amount of insurance benefits paid to beneficiaries other than the licensee which is in excess of the net amount necessary to pay the indebtedness; and the amount that is paid to beneficiaries other than the licensee.

(II) Credit accident and health insurance claims. The supplemental insurance records for credit accident and health insurance claims must include any written records relating to the disability, including statements from the physician, employer, and retail buyer; the proof of loss or claim form filed by the retail buyer; and copies of the checks or electronic payment receipts reflecting disability payments paid by the insurance carrier.

(III) Credit involuntary unemployment insurance claims. The supplemental insurance records for credit involuntary unemployment insurance claims must include any written document relating to the termination, layoff, or dismissal of the retail buyer; the proof of loss or claim form filed by the retail buyer; copies of the checks or electronic payment receipts reflecting the payment of the claim by the insurance carrier; and any other pertinent written record relating to the involuntary unemployment insurance claim.

(IV) Collateral protection insurance claims. The supplemental insurance records for collateral protection insurance claims must include the law enforcement report, fire department report, or other written record reflecting the loss or destruction of any covered motor vehicle; the proof of loss or claim form filed by the retail buyer; copies of the checks or electronic payment receipts reflecting the payment of the claim by the insurance carrier; and any other pertinent written record relating to the collateral protection insurance claim.

(V) Credit gap insurance claims. The supplemental insurance records for credit gap insurance claims must include the gap insurance claim form; proof of loss and settlement check from the retail buyer's basic comprehensive, collision, or uninsured/underinsured policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle; documents that provide verification of the retail buyer's primary insurance deductible; if the accident was investigated by a law enforcement officer, a copy of the offense or police report filed in connection with the total loss of the motor vehicle; if the accident was not investigated by a law enforcement officer, a copy of any law enforcement crash report form filed in connection with the total loss of the motor vehicle; and copies of the checks reflecting the settlement amount paid by the licensee for the gap insurance claim.

(F) for a retail installment sales transaction involving the cancellation of a full or partial balance under a debt cancellation agreement for total loss or theft of an ordinary vehicle, or involving the cancellation or termination of a debt cancellation agreement, the licensee must:

(i) maintain any documents that come into its possession relating to the creation, processing, resolution, cancellation, or termination of a debt cancellation agreement; and

(ii) upon request of the agency, cooperate in requesting and obtaining access to the type of documents described in clause (i) of this subparagraph that are not in its possession.

(G) for a retail installment sales transaction where separate disclosures are required by federal or state law including the following:

(i) a transaction where disclosures required by the Truth in Lending Act are not incorporated into the text of the retail installment sales contract and the credit was extended for primarily for personal, family, or household purposes, a copy of the Truth in Lending statement required by Regulation Z, Truth in Lending, 12 C.F.R. §1026.18;

(ii) a transaction involving a cosigner, the notice to cosigner required by the Federal Trade Commission's Credit Practices Trade regulation, 16 C.F.R. §444.3.

(H) for a retail installment sales transaction that has been repaid in full, evidence of the discharge or release of lien as prescribed by 43 TAC §217.106 (relating to Discharge of Lien).

(I) for a retail installment sales transaction involving repossession, the records required by subsection (f) of this section.

(J) for a retail installment sales transaction in which the licensee agrees to defer all or part of one or more payments:

(i) a copy of any written deferment agreement; and

(ii) any written notice to the retail buyer regarding a deferment under Texas Finance Code, §348.114(c).

(3) Account record for each retail installment sales contract (including payment and collection contact history). A separate electronic or paper record must be maintained covering each retail installment sales contract. The electronic or paper account record must be readily available by reference to either a retail buyer's name or account number.

(A) Required information. The account record for each retail installment sales contract must contain at least the following information, unless stated otherwise:

(i) account number as recorded in the retail installment sales transaction report;

(ii) date of contract;

(iii) name and address of retail buyer;

(iv) payment history information:

(I) itemized payment entries showing date payment received; dual postings are acceptable if date of posting is other than date of receipt;

(II) for a transaction using the true daily earnings method, if requested during an examination or investigation, a breakdown for each payment showing the amount applied toward principal, time price differential, late charges, and any other charges;

(III) if requested during an examination or investigation, a payoff amount that denotes amounts applied to principal, time price differential, default, deferment, or other authorized charges;

(v) for a retail installment sales contract where the licensee receives or issues a refund of insurance charges, debt cancellation agreements or authorized ancillary products, a licensee is responsible for maintaining sufficient documentation of any refund including final entries and is also responsible for providing refunds to the retail buyer or correctly applying refunds to the retail buyer's account. Refund amounts must be itemized to show:

(I) time price differential refunded, if any;

(II) the amount of any insurance charges refunded;

(III) the amount of debt cancellation agreement fees refunded;

(IV) the amount of any authorized ancillary products charges refunded;

(vi) collection contact history, including a written record of:

(I) all collection contacts made by a licensee with the retail buyer or any other person in connection with the collection of amounts due under a motor vehicle retail installment sales contract;

(II) all collection contacts made by the retail buyer with the licensee in connection with the collection of amounts due under a motor vehicle retail installment sales contract;

(III) for the collection contacts in subclauses (I) and (II) of this clause, the written record must include the date, method of contact, contacted party, person initiating the contact, and a summary of the contact;

(IV) copies of individual collection notices or letters or references to standard collection letters sent to the retail buyer.

(B) Recommended information. In addition to the required information under subparagraph (A) of this paragraph, it is recommended that the account record for each retail installment sales contract contain the following information:

(i) retail installment sales contract payment schedule and terms itemized to show:

(I) number of installments;

(II) due date of installments;

(III) amount of each installment; and

(IV) maturity date;

(ii) telephone number of retail buyer;

(iii) names and addresses of co-retail buyer or other obligors, if any;

(iv) amount financed;

(v) total time price differential charge;

(vi) total of payments;

(vii) amount of premium charges for insurance products;

(viii) amount of fees charged for debt cancellation agreements.

(C) Corrective entries. A licensee may make corrective entries to the account record for each retail installment sales contract if the corrective entry is justified. A licensee must maintain the reason and supporting documentation for each corrective entry made to the account record. The reason for the corrective entry may be recorded in the collection contact history of the account record. The supporting documentation justifying the corrective entry can be maintained in the individual account record for each retail installment sales contract or properly stored and indexed in a licensee's optically imaged recordkeeping system. If a licensee manually maintains the account record, the licensee must properly correct an improper entry by drawing a single line through the improper entry and entering the correct information above or below the improper entry. No erasures or other obliterations may be made on the payments received or collection contact history section of the manual account record for each retail installment sales contract.

(4) Assignment report.

(A) Required information. A licensee must maintain or produce an assignment report, whether paper or electronic, including any Texas Finance Code, Chapter 348 retail installment sales contract made by or acquired by the licensee that is assigned from its licensed or registered location. The assignment report must show the name of the retail buyer, the account number or other unique number given to the retail buyer, the date of assignment, and the name and address to which the accounts are assigned.

(B) Securitization or financing exception. If the servicing rights are retained by the licensee, then the licensee is not required to include in the assignment report retail installment sales transactions that were assigned to a legal entity as part of a securitization agreement. A licensee is also not required to include in the assignment report retail installment sales transactions that have been pledged as collateral for a bona fide financing arrangement to the licensee.

(5) General business and accounting records. General business and accounting records concerning retail installment sales transactions must be maintained. The business and accounting records must include receipts, documents, or other records for each disbursement made by the licensee at the retail buyer's direction or request, on his behalf, or for his benefit, that is charged to the retail buyer, including repossession, sequestration, disposition, or legal fees relating to repossession, sequestration, or disposition. The licensee is not required to produce information protected under the attorney-client privilege or work product privilege.

(6) Insurance loss records. Each licensee who negotiates or transacts the filing of insurance claims must maintain a register or be able to generate a report, electronic or paper, reflecting information to the extent received by the licensee on credit life, credit accident and health, credit property, credit involuntary unemployment, and single-interest insurance claims whether paid or denied by the insurance carrier. If the reason for the denial of a credit life insurance or credit accident and health insurance claim is based upon the medical records of the retail buyer, supplemental records supporting the denial of the claim must be made available upon request.

(7) Debt cancellation agreement for total loss or theft loss records. Each licensee who cancels entire balances or who cancels only partial balances under debt cancellation agreements must maintain a register or be able to generate a report, paper or electronic, that reflects agreements that were either satisfied or denied. This register or report must show the name of the retail buyer, the account number, an indication of whether the agreement was satisfied or denied (e.g., "paid," "denied"), and the date of satisfaction or denial.

(8) Adverse action records. Each licensee must maintain adverse action records regarding all applications relating to Texas Finance Code, Chapter 348 retail installment sales transactions. Adverse action records must be maintained according to the record retention requirements contained in Regulation B, Equal Credit Opportunity Act, 12 C.F.R. §1002.12(b). The current retention periods are 25 months for consumer credit and 12 months for business credit.

(9) Retention and availability of records. All books and records required by this subsection must be available for inspection at any time by Office of Consumer Credit Commissioner staff, and must be retained for a period of four years from the date of the contract, two years from the date of the final entry made thereon, whichever is later, or a different period of time if required by federal law. Upon notification of an examination pursuant to Texas Finance Code, §348.514(f), the licensee must be able to produce or access required books and records within a reasonable time at the licensed location or registered office specified on the license. The records required by this subsection must be available or accessible at an office in the state designated by the licensee except when the retail installment sales transactions are transferred under an agreement which gives the commissioner access to the documents. Documents may be maintained out of state if the licensee has in writing acknowledged responsibility for either making the records available within the state for examination or by acknowledging responsibility for additional examination costs associated with examinations conducted out of state.

(f) Repossession records.

(1) Repossession report. A licensee must be able to access or produce a list of all retail installment sales transactions involving repossession by the licensee. If the list of repossessions is accessed through an electronic system, the licensee must be able to generate a separate report of repossessions. If the repossession report is maintained under a manual recordkeeping system, the licensee must maintain a current list of accounts in repossession. A manual repossession report must be updated within a reasonable time from the date of repossession. The repossession report must include the retail buyer's name, account number, and date of repossession. If accounts have been subsequently assigned, the assignment must be noted in the repossession report as well as on the record of assigned accounts as prescribed in subsection (e)(4) of this section.

(2) Required information. For a retail installment sales transaction involving the repossession of the vehicle, the following records must be maintained, unless otherwise specified:

(A) a condition report indicating the condition of the collateral, if prepared by the licensee, the licensee's agent, or any independent contractor hired to perform the repossession;

(B) any invoices or receipts for any reasonable and authorized out-of-pocket expenses that are assessed to the buyer and incurred in connection with the repossession or sequestration of the vehicle including cost of storing, reconditioning, and reselling the vehicle;

(C) for a vehicle disposed of in a public or private sale as permitted by the Texas Business and Commerce Code, §9.610, the following documents:

(i) one of the three following notices:

(I) for a transaction not involving consumer goods, a copy of any Notification of Disposition of Collateral letter sent to the retail buyer and other obligors as required by Texas Business and Commerce Code, §9.613;

(II) for a transaction involving consumer goods, a copy of any Notice of Our Plan to Sell Property as sent to the retail buyer and other obligors as required by Texas Business and Commerce Code, §9.614; or

(III) a copy of the waiver of the notice of intended disposition prescribed by subclause (I) or (II) of this clause, as applicable, signed by the retail buyer and other obligors after default;

(ii) copies of evidence of the type or manner of private sale that was conducted. These records must show that the manner of the disposition was commercially reasonable, such as circumstances surrounding a dealer only auction, internet sale or other type of private disposition;

(iii) copies of evidence of the type or manner of public sale that was conducted. These records must show that the manner of the disposition was commercially reasonable, such as documentation of the date, place, manner of sale of the vehicle, and amounts received for disposition of the vehicle;

(iv) the bill of sale showing the name and address of the purchaser of the repossessed collateral and the purchase price of the vehicle;

(v) for a disposition or sale of collateral creating a surplus balance, a copy of the check representing the payment of the surplus balance paid to the retail buyer or other person entitled to the surplus;

(vi) for a disposition or sale of collateral resulting in a surplus or deficiency, a copy of the explanation of calculation of surplus or deficiency as required by Texas Business and Commerce Code, §9.616, if applicable;

(vii) a copy of the waiver of the deficiency letter if the retail seller elects to waive the deficiency balance in lieu of sending the explanation of calculation of surplus or deficiency form, if applicable;

(D) for a vehicle disposed of using the strict foreclosure method as permitted by the Texas Business and Commerce Code, §9.620 and §9.621, the following documents:

(i) one of the three following notices;

(I) for a transaction not involving consumer goods and where less than 60% of the cash price of the vehicle has been paid, a copy of the notice of proposal to accept collateral in full or partial satisfaction of the obligation;

(II) for a transaction involving consumer goods, a copy of the notice of proposal to accept collateral in full satisfaction of the obligation; or

(III) for a transaction where more than 60% of the cash price of the vehicle has been paid, a copy of the debtor or obligor's waiver of compulsory disposition of collateral signed by the retail buyers and other obligors after default;

(ii) for a transaction where the retail buyer rejects the offer under clause (i)(I) or (II) of this subparagraph, a copy of the retail buyer's signed objection to retention of the collateral;

(iii) copies of the records reflecting the partial or total satisfaction of the obligation; and

(E) for a vehicle disposed by another authorized method pursuant to the Texas Business and Commerce Code, Chapter 9, a copy of any and all records or documents relating to the disposition of the collateral.

(g) Information security program. A licensee must maintain written policies and procedures for an information security program to protect retail buyers' customer information, as required by the Federal Trade Commission's Safeguards Rule, 16 C.F.R. part 314. If a licensee maintains customer information concerning 5,000 or more consumers, then the licensee must maintain a written incident response plan and written risk assessments, as required by 16 C.F.R. §314.4.

(h) Data breach notifications. A licensee must maintain the text of any data breach notification provided to retail buyers, including any notification under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification. A licensee must maintain any data breach notification provided to a government agency, including any notification provided to the Office of the Attorney General under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification.

History

• Source Note: The provisions of this §84.709 adopted to be effective November 6, 2008, 33 TexReg 8922; amended to be effective January 7, 2010, 35 TexReg 66; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective May 5, 2016, 41 TexReg 312; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective May 10, 2018, 43 TexReg 2747; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective January 4, 2024, 48 TexReg 8332; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.710 Annual Report

(a) Generally. Each licensee must file an annual report with the OCCC. The annual report is due June 30 of each year for the prior calendar year's transaction activity. The licensee must provide the annual report in a format prescribed by the OCCC and in accordance with the OCCC's instructions.

(b) Required information. The statement must include the annual dollar volume and number of retail installment sales contracts originated, acquired, or serviced during the preceding calendar year, calculated in accordance with the OCCC's instructions, and any other information required under the OCCC's instructions.

(c) Confidentiality. The annual report is collected under the OCCC's examination authority, as provided by Texas Finance Code, §348.514. A licensee's annual report relates to the examination process and is confidential under Texas Finance Code, §14.2015(a) and §348.514(d). However, the OCCC may publish aggregated reports based on the annual reports that it collects.

History

• Source Note: The provisions of this §84.710 adopted to be effective November 14, 2024, 49 TexReg 8853.

Subchapter H RETAIL INSTALLMENT SALES CONTRACT PROVISIONS

7 Tex. Admin. Code § 84.801 Purpose

(a) Purpose.

(1) Model provisions applicable to ordinary vehicles. The purpose of this subchapter is to provide model provisions and a model plain language contract in English for Texas Finance Code, Chapter 348 motor vehicle installment sales contract provisions for ordinary vehicles. The establishment of model provisions for these transactions will encourage the use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a seller is not mandatory. Except for retail installment sales contracts involving commercial vehicles, the seller, however, may not use a contract other than a model contract unless the seller has submitted the contract to the OCCC in compliance with §84.802 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with this section or rules adopted under this section. A seller may not claim the OCCC's failure to disapprove a contract constitutes approval.

(2) Model provisions applicable to ordinary vehicles, but may be used for commercial vehicles if not prohibited by law. This subchapter only applies to retail installment sales transactions involving ordinary vehicles. A retail seller or holder of retail installment sales contracts involving commercial vehicles is not required or obligated to comply with the provisions of this subchapter. A retail seller or holder of retail installment sales contracts involving commercial vehicles may utilize some or all of the model provisions of this subchapter in creating a retail installment sales contract. However, a retail seller or holder that utilizes any of the model provisions from this subchapter will be bound by the provisions utilized.

(b) These provisions are intended to constitute a complete plain language motor vehicle installment sales contract; however, a seller is not limited to the contract provisions contained in these rules.

History

• Source Note: The provisions of this §84.801 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 5, 2015, 40 TexReg 7624.

7 Tex. Admin. Code § 84.802 Non-Standard Contract Filing Procedures

(a) Non-standard contracts. A non-standard contract is a contract that uses clauses other than the model contract provisions. Before a licensee uses a non-standard contract, the contract must be submitted to the OCCC for review under Texas Finance Code, §341.502(c). A non-standard contract:

(1) must be written in plain language designed to be easily understood by the average consumer, as required by Texas Finance Code, §341.502(a);

(2) must be printed in an easily readable font and type size, as required by Texas Finance Code, §341.502(a) and §84.806 of this title (relating to Format);

(3) must be consistent with Texas law and federal law;

(4) must include a notice with the OCCC's contact information, as required by Texas Finance Code, §14.104 and §86.101 of this title (relating to Consumer Notifications);

(5) must comply with the requirements described in subsection (c) of this section, including the maximum Flesch-Kincaid Grade Level score; and

(6) must be accompanied by a complete submission form containing the information required by subsection (d) of this section.

(b) Disapproval. If a non-standard contract filing fails to comply with one or more of the requirements listed in subsection (a) of this section, then the OCCC may disapprove the filing under Texas Finance Code, §341.502(c). A licensee must cease using a disapproved contract immediately after an order of disapproval takes effect, as provided by Texas Finance Code, §341.502(d).

(c) Contract filing requirements. Copies of the retail installment sales contract must be submitted in accordance with the OCCC's instructions and the following requirements:

(1) Microsoft Word format. One copy must be submitted in a Microsoft Word format with the document having either a .doc or .docx extension. The Flesch-Kincaid Grade Level score of the contract must be based on the Microsoft Word readability statistics function for the Microsoft Word version of the contract.

(2) PDF format. One copy must be submitted in a text-searchable PDF format so that the contract may be visually reviewed in its entirety. The page size must be 8.5 inches by 11 inches or 8.5 inches by 14 inches. The PDF may not be locked or restricted in a way that prohibits comparison of different versions of the contract.

(3) No other formats permitted. The OCCC will not accept paper filings or any other unlisted formats for non-standard contract filings.

(4) Maximum Flesch-Kincaid score. The maximum Flesch-Kincaid Grade Level score for a Chapter 348 contact filing is grade 11.

(d) Submission form. A non-standard contract must be accompanied by a written submission form prescribed by the OCCC. The submission form must be completed in accordance with the OCCC's instructions and the following requirements:

(1) Transaction chapter. The submission form must specify that the contract will be used under Texas Finance Code, Chapter 348.

(2) Contact person. The submission form must identify an individual as the contact person for the contract filing, and must include the individual's name, address, phone number, and email address. If a contract is submitted by a person other than a licensee, then the contract must be accompanied by a dated letter that contains a description of the anticipated users of the contract, and designates the legal counsel or other designated contact person for that filing.

(3) Certification of readability. The submission form must include a certification signed by an officer of the licensee or the entity submitting the form on behalf of the licensee. The certification must state that the contract is written in plain language and that the contract can be easily understood by the average consumer. The certification must also state that the contract is printed in an easily readable font and type size, including a list of the typefaces used in the contract, the font sizes used in the contract, and the Flesch-Kincaid Grade Level score of the contract. The OCCC will prescribe the form of the certification.

(e) Commercial vehicle. Pursuant to Texas Finance Code, §341.502(a), a motor vehicle retail installment sales contract involving a commercial vehicle does not have to be submitted in accordance with this section

History

• Source Note: The provisions of this §84.802 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 5, 2015, 40 TexReg 7623; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.803 Relationship with Federal Law

(a) Applicability of federal law. The disclosure requirements of the Truth in Lending Act, 15 U.S.C. §§1601 - 1667f, and its implementing regulation, Regulation Z, 12 C.F.R. Parts 226 and 1026, and specifically 12 C.F.R. §226.18(f) and §1026.18(f), regarding variable rate disclosures, apply according to their terms to some retail installment transactions subject to this chapter.

(b) Inconsistency. In the event of any inconsistency or conflict between the disclosure or notice requirements in these provisions and any current or future federal law, regulation, or interpretation, the requirements of the federal law, regulation, or interpretation will control to the extent of the inconsistency.

(c) Amount financed. In the model clauses provided by this subchapter, a licensee may replace the term "principal balance" with "amount financed" whenever the amount financed, computed in accordance with federal Regulation Z, is the same as the principal balance computed in accordance with the Texas Finance Code.

(d) Annual percentage rate. In the model clauses provided by this subchapter, a licensee may replace the term "contract rate" with "annual percentage rate" whenever the annual percentage rate, computed in accordance with federal Regulation Z, is the same as the contract rate computed in accordance with the Texas Finance Code.

History

• Source Note: The provisions of this §84.803 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective December 31, 2020, 45 TexReg 9416.

7 Tex. Admin. Code § 84.804 Disclosures and Contract Provisions Required by Texas Finance Code

A retail installment sales contract must include all provisions required by Texas Finance Code, Chapter 348, and other law. The contract must include the following disclosures and provisions, as applicable:

(1) The consumer warning required by Texas Finance Code, §348.102(d).

(2) The cash price as required by Texas Finance Code, §348.102(a)(5). The cash price may be disclosed as a separate item in the Itemization of Amount Financed or elsewhere in the contract. The cash price is the price at which the seller offers in the ordinary course of business to sell for cash the goods or services that are subject to the transaction.

(3) The amount of any downpayment, specifying the amounts paid in money and in goods traded in, as required by Texas Finance Code, §348.102(a)(6). An amount paid by the seller under Texas Finance Code, §348.404 to retire an amount owed (including amounts owed under a vehicle lease) against a motor vehicle used as a trade-in ("payoff") may be disclosed in several ways. The approaches outlined in the Regulation Z Staff Commentary, as from time to time updated, are permissible.

(4) The amounts of any itemized charges not included in the cash price, as required by Texas Finance Code, §348.102(a)(7). Itemized charges may include the following charges as applicable and any other charges that are authorized to be included in the itemized charges under Texas Finance Code, Chapter 348:

(A) State inspection fee;

(B) Documentary fee;

(C) Dealer's inventory tax;

(D) Sales tax;

(E) Other taxes not included in the cash price (the seller may disclose one aggregate amount for all taxes or may separately itemize one or more of the taxes);

(F) Deputy service fee;

(G) Title fee;

(H) License fee;

(I) Vehicle property insurance;

(J) Credit life and credit disability insurance;

(K) GAP insurance, as authorized by Texas Finance Code, §348.208(b)(4);

(L) Debt cancellation agreement;

(M) Theft protection plan;

(N) Service contract;

(O) Warranty contract;

(P) Identity recovery service contract;

(Q) Automobile club membership;

(R) Trade-in credit agreement;

(S) Depreciation benefit optional member program.

(5) The insurance statement required by Texas Finance Code, §348.204.

(6) Notice of exclusion of bodily injury and property damage insurance, if excluded, as required by Texas Finance Code, §348.205.

(7) Any documentary fee charged must be separately disclosed, either in the itemization or elsewhere, along with the description required by Texas Finance Code, §348.006 in reasonable proximity to the disclosure of the documentary fee. Any foreign language translation of this disclosure that is required under Texas Finance Code, §348.006 may be given in a separate document.

(8) A disclosure that the buyer may refinance the final scheduled payment upon the terms previously agreed or for any other period of time and payment schedule to which the buyer and holder may agree for a contract described in Texas Finance Code, §348.123(b)(5).

History

• Source Note: The provisions of this §84.804 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462.

7 Tex. Admin. Code § 84.805 Other Disclosures Required by Commission Rule

(a) The OCCC notice required by §86.101 of this title (relating to Consumer Notifications) must be disclosed.

(b) In a contract using the true daily earnings method, a brief description of the method of earning finance charge must be given. In a contract using the scheduled installment earnings method or the sum of the periodic balances method of refunding precomputed finance charges, the name of the method used must be given, and at the creditor's option, a description of that method may be given. If in the same contract form, the creditor uses the scheduled installment earnings method in certain circumstances and the sum of the periodic balances method in other circumstances, the creditor must provide a brief description of the circumstances under which each method will be used, along with the name of the method.

History

• Source Note: The provisions of this §84.805 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 5, 2015, 40 TexReg 7623.

7 Tex. Admin. Code § 84.806 Format

(a) Generally. Plain language contracts must be printed in an easily readable font and type size pursuant to Texas Finance Code, §341.502(a). If other state or federal law requires a different type size for a specific disclosure or contractual provision, the type size specified by the other law should be used.

(b) Typeface readability. The text of the document must be set in an easily readable typeface. Typefaces considered to be readable include Arial, Calibri, Georgia, Helvetica, Times New Roman, and Verdana.

(c) Titles and headings. 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.

(d) Typeface size. Typeface size is referred to in points. Because different typefaces in the same point size are not of equal size, typeface is not strictly defined but is expressed as a minimum size in the Times New Roman typeface for visual comparative purposes. Use of a larger typeface is encouraged. The typeface for the federal disclosure box or other disclosures required under federal law must be legible, but no minimum typeface is required. Generally, the typeface for the remainder of the contract must be at least as large as 8 point in the Times New Roman typeface. A point is generally viewed as 1/72nd of an inch.

(e) Arrangement of model clauses. The model clauses may be arranged in any order. Additionally, the seller has considerable flexibility in the formatting and arrangement of the information contained in the model clauses.

History

• Source Note: The provisions of this §84.806 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective November 14, 2024, 49 TexReg 8853.

7 Tex. Admin. Code § 84.807 Contract Provisions

A Texas Finance Code, Chapter 348 motor vehicle installment sales contract may include the following contract provisions to the extent not prohibited by law or regulation. If the seller desires to assess certain charges or exercise certain rights under one of the following provisions, except provisions relating to default, repossessions, acceleration, and assignment of the contract, the seller must include the provision in the contract. A seller may delete inapplicable provisions. A seller who does not desire to apply a provision is not required to include it in the contract. For example, the seller may omit the balloon payment provisions if there is no balloon payment. A seller may also exclude non-relevant portions of a model clause. For example, a seller who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Texas Finance Code, Chapter 348 motor vehicle installment sales contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the buyer and the seller;

(2) An assignment of contract provision;

(3) A buyer's affirmation and promise to pay provision;

(4) An inspection acknowledgment provision;

(5) An identification of the motor vehicle;

(6) A description of the trade-in vehicle;

(7) A Truth in Lending Act (TILA) disclosure box;

(8) An itemization of amount financed box;

(9) A documentary fee notice provision;

(10) A deferred downpayments provision;

(11) A required physical damage insurance provision;

(12) Optional insurance coverages and debt cancellation agreement provision;

(13) Optional credit life and accident and health insurance provision;

(14) A liability insurance provision;

(15) A provision prohibiting oral modification of the contract;

(16) A provision stating the finance charge earnings method;

(17) A consumer warning provision;

(18) A buyer's acknowledgment of receipt of the retail installment contract as permitted under Texas Finance Code, §348.112;

(19) OCCC notice;

(20) A provision stating the finance charge refund method;

(21) A provision describing the application of payments;

(22) A provision describing the effect of early and late payments;

(23) A provision providing for interest on any matured amount at any rate permitted by law;

(24) Balloon payment provisions;

(25) An agreement to keep the motor vehicle insured;

(26) An agreement authorizing the creditor to purchase required insurance if the buyer fails to keep the motor vehicle insured;

(27) Physical damage insurance proceeds provision;

(28) Returned insurance premiums and service contract charges provision;

(29) An application of credits provision;

(30) A transfer of rights provision;

(31) An agreement granting a security interest in collateral;

(32) Agreements regarding the use and transfer of the motor vehicle, including prohibiting unauthorized transfer and transfer of equity fee limitations;

(33) Agreements regarding the care of the motor vehicle, which may include: keeping the motor vehicle in good working order and repair; keeping the vehicle free from liens and encumbrances; not exposing the motor vehicle to seizure, confiscation, or other involuntary transfer; and repaying the creditor for any amounts paid to satisfy liens or encumbrances;

(34) Default rights and repossession provisions, including consequences of default, collection costs, late charges, buyer's right to redeem, disposition of the motor vehicle, cancellation of optional contracts, and acceleration;

(35) A waiver of any right to receive notice of the intent to accelerate or notice of acceleration;

(36) A provision describing a refund of unearned finance charge upon acceleration;

(37) An integration provision and severability clause;

(38) Provision expressing no waiver and limitations on creditor's rights and usury savings clause;

(39) A provision stating Texas law and federal law will apply to the contract;

(40) Disclaimer of express or implied warranties;

(41) Preservation of consumers' claims and defenses provision;

(42) Used car buyer's guide provision;

(43) A guarantee provision;

(44) An arbitration provision; and

(45) A negotiation and assignment provision.

History

• Source Note: The provisions of this §84.807 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective November 5, 2015, 40 TexReg 7623.

7 Tex. Admin. Code § 84.808 Model Clauses

The following model clauses provide the plain language equivalent of provisions found in contracts subject to Texas Finance Code, Chapter 348.

(1) Identification of parties. This information identifies the parties to the contract.

(A) The model identification clause lists the name and address of the creditor, the date of the contract, and the name and address of the buyer. At the creditor's option, a creditor may include an account number or contract number. The model clause reads:

Attached Graphic

(B) The Buyer is referred to as "I" or "me." The Seller is referred to as "you" or "your."

(2) Assignment of contract. The model clause regarding assignment of contract reads: "This contract may be transferred by the Seller."

(3) Buyer's affirmation and promise to pay. The model clause regarding buyer's affirmation and promise to pay reads: "The credit price is shown below as the "Total Sales Price." The "Cash Price" is also shown below. By signing this contract, I choose to purchase the motor vehicle on credit according to the terms of this contract. I agree to pay you the Amount Financed, Finance Charge, and any other charges in this contract. I agree to make payments according to the Payment Schedule in this contract. If more than one person signs as a buyer, I agree to keep all the promises in this agreement even if the others do not."

(4) Inspection acknowledgment. The model clause regarding inspection acknowledgment reads: "I have thoroughly inspected, accepted, and approved the motor vehicle in all respects."

(5) Identification of motor vehicle. The motor vehicle identification information provision should contain the following information about the motor vehicle: the seller's stock number; the manufacturer's year model; the manufacturer's make; the manufacturer's model type or number; the vehicle identification number; the license plate number (if applicable); a new/used designation; and the primary purpose designation. The primary purpose designation may be used to determine whether the vehicle was purchased primarily for commercial purposes or primarily for personal, family or household purposes. Unless the retail seller or holder has actual knowledge that the representation is not true, the retail seller or holder may rely upon the representation made in the primary purpose designation, as permitted by Texas Finance Code, §348.0015(b). The seller's stock number and the license number are both optional; the omission will not make a contract non-standard. The motor vehicle identification information provision may include additional information about the vehicle including, odometer reading, color, the designation as a heavy commercial vehicle, and key code. If the creditor includes this additional information about the motor vehicle, the change will not make the provision a non-standard provision. The model clause regarding identification of the motor vehicle reads:

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(6) Trade-in vehicle description. The model clause regarding trade-in vehicle description reads:

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(7) Truth in Lending Act disclosure. The model clause regarding Truth in Lending Act disclosure reads:

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(8) Itemization of amount financed. The creditor drafting the contract is given considerable flexibility regarding the itemization of amount financed disclosure so long as the itemization of amount financed disclosure complies with the Truth in Lending Act. As an example, a creditor may disclose the manufacturer's rebate either as: a component of the downpayment; or a deduction from the cash price of the motor vehicle. The model contract provision for the itemization of the amount financed discloses the manufacturer's rebate as a component of the downpayment. If the creditor elected to disclose the manufacturer's rebate as a deduction from the cash price of the motor vehicle, the cash price component of the itemization of amount financed would be amended to reflect the dollar amount of the manufacturer's rebate being deducted from the cash price of the motor vehicle.

(A) The model clause regarding itemization of amount financed-sales tax advance reads:

Attached Graphic

(B) The model clause regarding itemization of amount financed-sales tax deferred reads:

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(C) Plate transfer fee. Under Texas Transportation Code, §502.453, the creditor may charge under the itemization of amount financed a $5.00 fee for transferring license plates and receiving new registration insignia. The creditor may document the plate transfer fee in the Other Charges section with the following language: "to State for Plate Transfer Fee."

(D) Compliance fee prohibited. Under Texas Transportation Code, §503.0631(f), the creditor is prohibited from assessing an itemized charge under the itemization of amount financed for costs associated with complying with the temporary tag database.

(E) Inspection program replacement fee. Under Texas Transportation Code, §548.509 and §548.510, at the time of registration, the Texas Department of Motor Vehicles or a county assessor-collector will collect an inspection program replacement fee to be remitted to the state. The creditor may disclose the inspection program replacement fee on a line labeled "Government vehicle inspection program replacement fee."

(F) Emissions inspection fee. A creditor may disclose a vehicle emissions inspection fee prescribed by law under Texas Health and Safety Code, Chapter 382, on a line labeled "Vehicle emissions inspection fee."

(G) Benefit under trade-in credit agreement. A benefit provided under a trade-in credit agreement must be included in the downpayment, and must be listed in the line labeled "other (describe)," with a description such as "trade-in credit agreement benefit."

(H) Benefit under depreciation benefit optional member program. A benefit provided under a depreciation benefit optional member program must be included in the downpayment, and must be listed in the line labeled "other (describe)," with a description such as "depreciation benefit."

(9) Documentary fee.

(A) The following notice satisfies the requirements of Texas Finance Code, §348.006 if printed in type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous and within reasonable proximity to the place at which the fee is disclosed. The model clause is contained in the Itemization of Amount Financed. The documentary fee clause reads: "A documentary fee is not an official fee. A documentary fee is not required by law, but may be charged to buyers for handling documents relating to the sale. A documentary fee may not exceed a reasonable amount agreed to by the parties. This notice is required by law."

(B) The following notices are sufficient Spanish translations of the documentary fee disclosure required by Texas Finance Code, §348.006. The Spanish translation may read:

(i) "Un honorario de documentación no es un honorario ofícial. Un honorario de documentación no es requerido por la ley, pero puede ser cargada al comprador como gastos de manejo de documentos relacionados con una venta. Un honorario de documentación no puede exceder una cantidad razonable acordada por las partes. Esta notifícación es requerida por la ley."; or

(ii) "Un cargo documental no es un cargo ofícial. La ley no exige que se imponga un cargo documental. Pero éste podría cobrarse a los compradores por el manejo de la documentación en relación con la venta. Un cargo documental no puede exceder una cantidad razonable acordada por las partes. Esta notifícación se exige por ley."

(10) Deferred downpayments. The creditor has considerable flexibility in disclosing the deferred downpayments. The model provision discloses the deferred downpayments by placing the information, the due date and dollar amount of the deferred downpayments, in several boxes. If a creditor uses this model provision, the creditor would enter the due date and dollar amount of each deferred downpayment in the appropriate boxes. As an alternative to this model provision, a creditor may disclose the deferred downpayments in the Payment Schedule of the Amount Financed in the federal disclosure box. If a creditor elects this option, the due date and the dollar amount of the deferred downpayment must be shown. If the total amount of the deferred downpayment is not satisfied by the date of the second regularly scheduled installment, the deferred downpayment must be included in the Payment Schedule. As another alternative, the creditor may disclose the deferred downpayment amount in the Payment Schedule. If the deferred downpayment amount is disclosed in the Payment Schedule, then the dollar amount of the deferred downpayment must be included in the Total of Payments. The model clause regarding deferred downpayments reads:

Attached Graphic

(11) Required physical damage insurance. The creditor may choose to omit the statement of the retail buyer's right to obtain substitute coverage from another source. The model clause regarding required physical damage insurance reads:

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(12) Optional insurance coverages and debt cancellation agreement.

(A) The model clause regarding optional insurance coverages and debt cancellation agreement reads:

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(B) A retail seller at its option may create a separate disclosure for the authorization of the debt cancellation agreement.

(13) Optional credit life and accident and health insurance. The model clause regarding optional credit life and accident and health insurance reads:

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(14) Liability insurance. If liability insurance coverage is not included in the contract, any of the following notices are sufficient to satisfy the requirements of Texas Finance Code, §348.205 if printed in a size equal to at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous:

(A) "THIS CONTRACT DOES NOT INCLUDE INSURANCE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."

(B) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, LIABILITY INSURANCE COVERAGE FOR BODILY INJURY AND PROPERTY DAMAGE CAUSED TO OTHERS IS NOT INCLUDED IN THIS CONTRACT."

(C) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, ANY INSURANCE REFERRED TO IN THIS CONTRACT DOES NOT INCLUDE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."

(15) Prohibition against oral modifications. The contract may include a provision barring oral modifications of the contract. A unilateral change to a contract may nevertheless occur as prescribed by the procedures in Texas Finance Code, Chapter 349, Subchapter C. The model clause regarding prohibition against oral modifications reads:

Attached Graphic

(16) Finance charge earnings methods:

(A) Regular transaction using sum of the periodic balances method.

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the add-on method as defined by the Texas Finance Commission Rule. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract." Or

(II) "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00 per year. This rate is not the same as the Annual Percentage Rate."

(ii) Deferred sales tax. The model clause regarding deferred sales tax reads: "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance subject to a finance charge and added as a lump sum to the unpaid principal balance subject to a Finance Charge for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00 per year. This rate is not the same as the Annual Percentage Rate."

(B) True daily earnings method.

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the true daily earnings method as defined by the Texas Finance Code. Under the true daily earnings method, the Finance Charge will be figured by applying the daily rate to the unpaid portion of the Amount Financed for the number of days the unpaid portion of the Amount Financed is outstanding. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or

(II) If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is not deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. The daily rate is 1/365th of the contract rate. The unpaid principal balance does not include the late charges or returned check charges."

(ii) Deferred sales tax: If sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. The daily rate is 1/365th of the contract rate. The unpaid principal balance subject to a finance charge does not include the late charges, sales tax, or returned check charges."

(C) Scheduled installment earnings method.

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the scheduled installment earnings method as defined by the Texas Finance Code. Under the scheduled installment earnings method, the Finance Charge is figured by applying the daily rate to the unpaid portion of the Amount Financed as if each payment will be made on its scheduled payment date. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or

(II) If sales tax is advanced, and the retail seller either discloses the annual percentage rate using a method other than a 365/365 basis or requires a retail buyer to purchase credit life or credit accident and health insurance, then the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance does not include the late charges or returned check charges."

(ii) Deferred sales tax. If sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You figured the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance subject to a Finance Charge does not include the late charges, sales tax, or returned check charges."

(17) Consumer warning. The following notices satisfy the requirements of Texas Finance Code §348.102(d) if printed in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous.

(A) For contracts using the sum of the periodic balances method (Rule of 78s) or the scheduled installment earnings method, the notice may read:

(i) "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS." Or

(ii) "NOTICE TO THE BUYER--THE BUYER SHOULD NOT SIGN THIS CONTRACT BEFORE READING IT OR IF IT CONTAINS ANY BLANK SPACES. THE BUYER IS ENTITLED TO A COPY OF THE SIGNED CONTRACT. UNDER THE LAW, THE BUYER HAS THE RIGHT TO PAY OFF IN ADVANCE ALL THAT THE BUYER OWES AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. THE BUYER SHOULD KEEP THIS CONTRACT TO PROTECT ITS LEGAL RIGHTS."

(B) For contracts using the true daily earnings method, the notice may read: "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY SAVE A PORTION OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS."

(18) Buyer's acknowledgment of contract receipt.

(A) The following acknowledgments conform to the requirements of Texas Finance Code, §348.112 if they appear directly above the place for the buyer's signature in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous. A creditor may choose the most appropriate option:

(i) If the buyer's signature is dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. A reasonable period of time would ordinarily be three days, excluding Sundays and holidays. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. WHEN I SIGN THE CONTRACT, I WILL RECEIVE THE COMPLETED CONTRACT. IF NOT, I UNDERSTAND THAT A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."

(ii) If the buyer's signature is not dated. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT. I RECEIVED THE COMPLETED CONTRACT ON ___________ (MO.) (DAY) (YR.)."

(iii) If the buyer's signature is not dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. The model acknowledgment may read: "I SIGNED THIS CONTRACT ON _________ AND A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."

(iv) If the buyer's signature is not dated but the contract contains the date of the transaction. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT AND ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF IT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT."

(B) Acceptance of contract receipt. The model clause regarding acceptance of contract receipt reads:

Attached Graphic

(19) OCCC notice. The following notice satisfies the requirements of Texas Finance Code, §14.104 and §86.101 of this title (relating to Consumer Notifications). The telephone number of the retail seller, creditor, or holder may be printed in conjunction with the name and address of the retail seller, creditor, or holder elsewhere on the contract or agreement provided the notice required by Texas Finance Code, §14.104 is amended to direct the reader's attention to the area of the contract where the telephone number may be found. The OCCC notice reads: "For questions or complaints about this contract, contact (insert name of creditor) at (insert creditor's phone number and, at creditor's option, one or more of the following: mailing address, fax number, website, e-mail address). The Office of Consumer Credit Commissioner (OCCC) is a state agency, and it enforces certain laws that apply to this contract. If a complaint or question cannot be resolved by contacting the creditor, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(20) Finance charge refund method. If a contract uses either the sum of the periodic balances method or the scheduled installment earnings method to calculate a refund of the unearned finance charge, the finance charge refund provision reads: "If I prepay in full, I may be entitled to a refund of part of the Finance Charge." On contracts using the true daily earnings method, this finance charge refund provision should not be disclosed because it is not applicable.

(A) Contracts using the sum of the periodic balances method.

(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by using the sum of the periodic balances method as defined by the Texas Finance Commission rule."

(ii) Optional description of method. The creditor may include the following additional description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge Refund will be computed upon the entire Finance Charge minus the Acquisition Cost. I will not get a refund if it is less than $1.00."

(iii) Optional description of method for use in contracts for heavy commercial vehicles. At the creditor's option, a contract for a heavy commercial vehicle, as defined in the Texas Finance Code, may include the following description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge refund will be computed based upon the entire Finance Charge calculated using the sum of the periodic balances method. Then you will subtract the Acquisition Cost from that amount. I will not get a refund if it is less than $1.00."

(B) Contracts using the scheduled installment earnings method.

(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by the scheduled installment earnings method as defined by the Texas Finance Commission rule."

(ii) Optional description of method for sales tax advance. If sales tax is advanced, then the creditor may include the following additional description of the method: "You will figure my refund by deducting earned finance charges from the total Finance Charge. You will figure earned finance charges by applying a daily rate to the unpaid principal balance as if I paid all my payments on the date due. If I prepay between payment due dates, you will figure earned finance charges for the partial payment period. You do this by counting the number of days from the due date of the prior payment through the date I prepay. You then multiply that number of days times the daily rate. The daily rate is 1/365th of the Annual Percentage Rate. You will also add the acquisition cost of $25 (or $150 for a heavy commercial vehicle) to the earned finance charge, so long as the total of the earned finance charge and the acquisition cost does not exceed the total Finance Charge disclosed in the contract. I will not get a refund if it is less than $1.00."

(iii) Optional description of method for deferred sales tax. If sales tax is deferred, then the creditor may include the following additional description of the method: "You will figure my refund by deducting earned finance charges from the total Finance Charge. You will figure earned finance charges by applying a daily rate to the unpaid principal balance subject to a finance charge as if I paid all my payments on the date due. If I prepay between payment due dates, you will figure earned finance charges for the partial payment period. You do this by counting the number of days from the due date of the prior payment through the date I prepay. You then multiply that number of days times the daily rate. The daily rate is 1/365th of the contract rate shown on the contract. You will also add the acquisition cost of $25 (or $150 for a heavy commercial vehicle) to the earned finance charge, so long as the total of the earned finance charge and the acquisition cost does not exceed the total Finance Charge disclosed in the contract. I will not get a refund if it is less than $1.00."

(C) Flexible contract forms designed to accommodate alternative methods. Creditors may use a flexible contract form with alternative earnings methods, so long as the method used on a particular contract is permissible for that contract. The following clause illustrates one way that this flexibility may be accomplished: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule if: this contract is a Regular Payment Contract as defined by the Texas Finance Commission rule, and this contract does not have a term greater than 61 months. If this contract is not a Regular Payment Contract or if it has a term greater than 61 months, you will figure the Finance Charge refund using the scheduled installment earnings method as defined by the Texas Finance Commission rule. I will not get a refund if it is less than $1.00."

(21) Application of payments. In this provision, the term "finance charge" should not be construed to have the same meaning as Finance Charge as defined by the Truth in Lending Act. A default or late charge is considered to be a finance charge under Texas law; therefore, a default or late charge can be charged and collected as part of the earned finance charge. At the creditor's option the creditor may modify the application of payments language by adding "and late charges" following the phrase "earned but unpaid finance charge." The model clause reads:

Attached Graphic

(22) Effect of early and late payments. For contracts using the true daily earnings method, the model clause reads: "You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. If I do not timely make all my payments in at least the correct amount, I will have to pay more Finance Charge and my last payment will be more than my final scheduled payment. If I make scheduled payments early, my Finance Charge will be reduced (less). If I make my scheduled payments late, my Finance Charge will increase."

(23) Interest on matured amount. For contracts using the scheduled installment earnings method or the sum of the periodic balances method, the model provision for interest on any matured amount at any rate permitted by law reads: "If I don't pay all I owe when the final payment becomes due, or I do not pay all I owe if you demand payment in full under this contract, I will pay an interest charge on the amount that is still unpaid. That interest charge will be the higher rate of 18% per year or the maximum rate allowed by law, if that rate is higher. The interest charge for this amount will begin the day after the final payment becomes due." In this provision, the maximum rate allowed by law refers to the rate found in Texas Finance Code, Chapter 303.

(24) Balloon payments. If the contract has a balloon payment, the creditor must include a provision in the contract that allows the buyer to refinance the balloon payment over time. The provision must comply with Texas Finance Code, §348.123. The model provision for defining the balloon payment reads: "A balloon payment is a scheduled payment more than twice the amount of the average of my scheduled payments, other than the downpayment, that are due before the balloon payment."

(A) Paying the balloon payment. If a retail installment contract contains a balloon payment that is the final payment, the contract must also provide the right for the retail buyer to pay the balloon payment. The model provision for paying the amount of the final scheduled balloon payment reads: "I can pay all I owe when the balloon payment is due and keep my motor vehicle."

(B) Balloon payment alternatives. If the retail installment contract contains the right for a retail buyer to refinance a balloon installment, the contract provision to refinance the installment must comply with either clause (i) or (ii) of this subparagraph. A contract under clause (ii) of this subparagraph must also contain the right of the retail buyer to sell the motor vehicle back to the holder or the retail seller.

(i) The model clause to describe a buyer's right to refinance a balloon installment under Texas Finance Code, §348.123(a), when applicable reads: "If I buy the motor vehicle primarily for personal, family, or household use, I can enter into a new written agreement to refinance the balloon payment when due without a refinancing fee. If I refinance the balloon payment, my periodic payments will not be larger or more often than the payments in this contract. The annual percentage rate in the new agreement will not be more than the Annual Percentage Rate in this contract. This provision does not apply if my Payment Schedule has been adjusted to my seasonal or irregular income."

(ii) If the contract contains a balloon payment and the seller intends Texas Finance Code, §348.123(b)(5) to apply to the contract:

(I) Special right to refinance balloon payment under Texas Finance Code, §348.123(b)(5)(B)(iii). The model clause reads: "I can enter into a new agreement to refinance my last installment if I am not in default. I can refinance at an annual percentage rate up to 5 points greater than the Annual Percentage Rate shown in this contract. The rate will not be more than applicable law allows. The new agreement will allow me to refinance the last installment for at least 24 months with equal monthly payments. You and I can also agree to refinance the last installment over another time period or on a different payment schedule."

(II) Repurchase option. If the contract includes a balloon payment, the creditor must draft a provision addressing the repurchase option.

(25) Agreement to keep motor vehicle insured. The model clause regarding agreement to keep the motor vehicle insured reads: "I agree to have physical damage insurance covering loss or damage to the motor vehicle for the term of this contract. The insurance must cover your interest in the vehicle. The insurer must be authorized to do business in Texas." The creditor may include one or both of the following optional provisions:

(A) "The insurance must include collision coverage and either comprehensive or fire, theft, and combined additional coverage."

(B) "The maximum deductible is $________."

(26) Creditor's right to purchase required insurance if buyer fails to keep motor vehicle insured. The model clause regarding agreement to allow the creditor to purchase required insurance if the buyer fails to keep the motor vehicle insured reads: "If I fail to give you proof that I have insurance, you may buy physical damage insurance. You may buy insurance that covers my interest and your interest in the motor vehicle, or you may buy insurance that covers your interest only. I will pay the premium for the insurance and a finance charge at the contract rate. If you obtain collateral protection insurance, you will mail notice to my last known address shown in your file."

(27) Physical damage insurance proceeds. The model clause regarding physical damage insurance proceeds reads: "I must use physical damage insurance proceeds to repair the motor vehicle, unless you agree otherwise in writing. However, if the motor vehicle is a total loss, I must use the insurance proceeds to pay what I owe you. I agree that you can use any proceeds from insurance to repair the motor vehicle, or you may reduce what I owe under this contract. If you apply insurance proceeds to the amount I owe, they will be applied to my payments in the reverse order of when they are due. If my insurance on the motor vehicle or credit insurance doesn't pay all I owe, I must pay what is still owed. Once all amounts owed under this contract are paid, any remaining proceeds will be paid to me."

(28) Returned insurance premiums and service contract charges. The contract may authorize a creditor to apply charges returned to the creditor for canceled insurance, service contract, and extended warranty charges to the buyer's obligation under the agreement as permitted by law, regardless of whether or not the buyer is in default under the contract.

(A) The model clause for contracts using the true daily earnings method reads: "If you get a refund on insurance or service contracts, or other contracts included in the cash price, you will subtract it from what I owe. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."

(B) For contracts using the scheduled installment earnings or sum of the periodic balances methods, the creditor may substitute the following clause: "If you get a refund of insurance or service contract charges, you will apply it and the unearned finance charges on it in the reverse order of the payments to as many of my payments as it will cover. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."

(29) Application of credits. The model clause regarding application of credits reads: "Any credit that reduces my debt will apply to my payments in the reverse order of when they are due, unless you decide to apply it to another part of my debt. The amount of the credit and all finance charge or interest on the credit will be applied to my payments in the reverse order of my payments."

(30) Transfer of rights. The seller does not have a duty to disclose the terms on which a contract or a balance under a contract is acquired, including any discount or difference between the rates, charges, or balance under the contract and the rates, charges, or balance acquired as provided by Texas Finance Code, §348.301. The model clause regarding transfer of rights reads: "You may transfer this contract to another person. That person will then have all your rights, privileges, and remedies."

(31) Grant of security interest in collateral. The model clause regarding a description of a security interest granted in a typical motor vehicle installment sale reads:

Attached Graphic

(32) Agreements regarding use and transfer of motor vehicle. The contract may contain a provision prohibiting a buyer from transferring any interest in the motor vehicle without the creditor's written permission, requiring the buyer to notify the seller of change of address, or prohibiting the removal of the motor vehicle from Texas. The transfer fee limitation establishes the maximum fee that a creditor could contract for, charge, or collect for transferring the buyer's equity in the motor vehicle to another party. If desired, a creditor may amend the model provision to reflect a lower transfer fee amount. The model clause concerning agreements regarding the use and transfer of the motor vehicle reads: "I will not sell or transfer the motor vehicle without your written permission. If I do sell or transfer the motor vehicle, this will not release me from my obligations under this contract, and you may charge me a transfer of equity fee of $25 ($50 for a heavy commercial vehicle). I will promptly tell you in writing if I change my address or the address where I keep the motor vehicle. I will not remove the motor vehicle (Optional: motor vehicle or other collateral) from Texas for more than 30 days unless I first get your written permission."

(33) Care of motor vehicle. The contract may obligate the buyer to keep the motor vehicle free of liens and encumbrances, require the buyer to keep the motor vehicle in good working order and repair, or prohibit the buyer from allowing the motor vehicle to be exposed to seizure, confiscation, or other involuntary transfer. The model clause regarding care of the motor vehicle reads: "I agree to keep the motor vehicle free from all liens and claims except those that secure this contract. I will timely pay all taxes, fines, or charges pertaining to the motor vehicle. I will keep the motor vehicle in good repair. I will not allow the motor vehicle to be seized or placed in jeopardy, or use it illegally. I must pay all I owe even if the motor vehicle is lost, damaged or destroyed. If a third party takes a lien or claim against or possession of the motor vehicle, you may pay the third party any cost required to free the motor vehicle from all liens or claims. You may immediately demand that I pay you the amount paid to the third party for the motor vehicle. If I do not pay this amount, you may repossess the motor vehicle and add that amount to the amount I owe. If you do not repossess the motor vehicle, you may still demand that I pay you, but you cannot compute a finance charge on this amount."

(34) Default rights and repossession provisions. This paragraph details agreements allowing acceleration of the buyer's obligation upon the buyer's default or upon the creditor's determination of insecurity as permitted by Texas Business and Commerce Code, §1.309. The following provisions are samples of model clauses regarding some of the default rights and remedies of a creditor in a typical motor vehicle installment sale transaction:

(A) Acceleration and default. The model clause regarding acceleration and default reads:

Attached Graphic

(B) Late charge. The model clause regarding late charge reads: "I will pay you a late charge as agreed to in this contract when it accrues."

(C) Repossession. At the creditor's option, a creditor may choose one of the following model provisions pertaining to repossession. The model clauses regarding repossession read:

(i) "If I default, you may repossess the motor vehicle from me if you do so peacefully. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle." In this provision, the term "peacefully" is intended to have the same meaning as "without breaching the peace," as determined by the Texas courts, and as found under clause (ii) of this subparagraph. Or

(ii) "If I default, you may repossess the motor vehicle from me if you do so without breaching the peace. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle."

(D) Buyer's right to redeem. The model clause regarding buyer's right to redeem reads: "If you take my motor vehicle, you will tell me how much I have to pay to get it back. If I do not pay you to get the motor vehicle back, you can sell it or take other action allowed by law. My right to redeem ends when the motor vehicle is sold or you have entered into a contract for sale or accepted the collateral as full or partial satisfaction of a contract."

(E) Disposition of motor vehicle. The model clause regarding disposition of the motor vehicle reads: "If I don't pay you to get the motor vehicle back, you can sell it or take other action allowed by law. If you sell the motor vehicle in a public or private sale, you will send me notice at least 10 days before you sell it. You can use the money you get from selling it to pay allowed expenses and to reduce the amount I owe. Allowed expenses are expenses you pay as a direct result of taking the motor vehicle, holding it, preparing it for sale, and selling it. If any money is left, you will pay it to me unless you must pay it to someone else. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest. If you take or sell the motor vehicle, I will give you the certificate of title and any other document required by state law to record transfer of title."

(F) Collection costs. The model clause regarding collection costs reads: "If you hire an attorney who is not your employee to enforce this contract, I will pay reasonable attorney's fees and court costs as the applicable law allows."

(G) Cancellation of optional insurance or service contracts. The model clause regarding cancellation of optional insurance or service contracts reads: "This contract may contain charges for insurance or service contracts or for services included in the cash price. If I default, I agree that you can claim benefits under these contracts to the extent allowable, and terminate them to obtain refunds of unearned charges to reduce what I owe or repair the motor vehicle."

(35) Acceleration, waiver of notice of intent to accelerate, and notice of acceleration. A model clause regarding the holder's right to accelerate maturity of the contract and to waive the buyer's or co-buyer's common law right to notice of intent to accelerate, notice of acceleration, or both reads: "If I default, or you believe in good faith that I am not going to keep any of my promises, you can demand that I immediately pay all that I owe. You don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(36) Refund upon acceleration. For contracts using the sum of the periodic balances or scheduled installment earnings methods, the model clause regarding the buyer's right to a finance charge refund upon acceleration of the contract reads: "If you demand that I pay you all that I owe, you will give me a credit of part of the Finance Charge as if I had prepaid in full."

(37) Servicing and collection contact. The Telephone Consumer Protection Act, 47 U.S.C. §227(b)(1)(A) - (B), generally prohibits creditors and other persons from calling a residential telephone line using an automatic telephone dialing system or an artificial or prerecorded message without the prior express consent of the called party. The model clause for servicing and collection contact reads: "You may try to contact me at any mailing address, e-mail address, or phone number I give you, as the law allows. You may try to contact me in writing (including mail, e-mail, and text messages) and by phone (including prerecorded or artificial voice messages and automatic telephone dialing systems)."

(38) Dishonored check fee. Under Texas Business and Commerce Code, §3.506, the holder of a payment device (including a check) may charge a processing fee up to $30 if the payment device is dishonored. The model clause for a dishonored check fee reads: "I agree to pay you a fee of up to $30 for a returned check. You can add the fee to the amount I owe or collect it separately."

(39) Integration and severability.

(A) The contract may include an integration clause indicating that the parties to the contract intend it to be the final written expression of their agreement. The model clause regarding integration reads: "This contract contains the entire agreement between you and me relating to the sale and financing of the motor vehicle."

(B) The contract may also include a severability clause providing that the invalidity of any portion of the contract does not render invalid other parts of the contract that would otherwise be valid. The model clause regarding severability reads: "If any part of this contract is not valid, all other parts stay valid."

(40) No waiver and limitations on creditor's rights and usury savings.

(A) A model clause to prevent a creditor's delay in enforcing rights under the contract from affecting a waiver of those rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(B) A provision establishing limitations on the creditor's rights reads: "You will exercise all of your rights in a lawful way."

(C) The model clause regarding usury savings reads: "I don't have to pay finance charge or other amounts that are more than the law allows. This provision prevails over all other parts of this contract and over all your other acts."

(41) Applicable law.

(A) General model clause. A model clause to establish the law that will apply to the contract reads: "Federal law and Texas law apply to this contract."

(B) Additional clause for commercial vehicles. Under Texas Finance Code, §353.009(b), if a commercial vehicle retail installment sales contract does not state that Texas Finance Code, Chapter 353 applies, then the contract is subject to Texas Finance Code, Chapter 348. In a commercial vehicle retail installment sales contract, the creditor may include the following clause to specify that Chapter 353 applies: "Chapter 353 of the Texas Finance Code applies to this contract."

(42) Warranty disclaimer. The disclaimer of express and implied warranties should be set out from the surrounding text so that the disclosure is conspicuous. A disclaimer of express and implied warranties, such as the following, is permitted by Texas Business and Commerce Code, §2.316, and reads: "Unless the seller makes a written warranty, or enters into a service contract within 90 days from the date of this contract, the seller makes no warranties, express or implied, on the motor vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. This provision does not affect any warranties covering the motor vehicle that the motor vehicle manufacturer may provide."

(43) Preservation of consumer's claims and defenses notice. This notice only applies if the motor vehicle financed in the contract was purchased for personal, family, or household use. The preservation of consumer's claims and defenses notice disclosure should be set out from the surrounding text so that the disclosure is in all capitals, boldfaced and in at least 10-point type. The preservation of consumer's claims and defenses notice, as required by the Federal Trade Commission's Holder in Due Course Rule, 16 C.F.R. §433.2, reads: "NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. This provision applies to this contract only if the motor vehicle financed in the contract was purchased for personal, family, or household use."

(44) Used car buyer's guide. The used car buyer's guide disclosure should be set out from the surrounding text so that the disclosure is conspicuous. The disclosure should be prefaced by the words "In this box only, the word "you" refers to the Buyer." The used car buyer's guide disclosure, as required by the Federal Trade Commission's Used Car Rule, 16 C.F.R. Part 455, reads:

(A) "Used Car Buyer's Guide. The information you see on the window form for this vehicle is part of this contract. Information on the window form overrides any contrary provisions in the contract of sale."

(B) Spanish Translation: "Guía para compradors de vehículos usados. La información que ve en el formulario de la ventanilla para este vehículo forma parte del presente contrato. La información del formulario de la ventanilla deja sin efecto toda disposición en contrario contenida en el contrato de venta."

(45) Negotiability and assignment. The disclosure of the negotiability of the contract should be placed on the front side of the contract and may read:

(A) "The Annual Percentage Rate may be negotiated with the Seller. The Seller may assign this contract and retain its right to receive a part of the Finance Charge";

(B) "The rates of this contract are negotiable. The seller may assign or otherwise sell this contract and receive a discount or other payment for the difference between the rate, charges, or balance"; or

(C) "A customer may obtain their own financing. The finance charge may be negotiable. The dealership may assign the retail installment contract. There is no duty to disclose the terms for the sale of this contract (for example, price paid to retail seller to purchase retail installment contract)."

History

• Source Note: The provisions of this §84.808 adopted to be effective July 10, 2008, 33 TexReg 5287; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective November 5, 2015, 40 TexReg 7624; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective September 7, 2017, 42 TexReg 4462; amended to be effective January 1, 2025, 49 TexReg 8853.

7 Tex. Admin. Code § 84.809 Model Contract; Permissible Changes

(a) Creditors may make the following types of changes to the model clauses and the model contracts and may still be eligible for the defenses provided by Texas Finance Code, §349.101:

(1) Deleting inapplicable disclosures;

(2) Using a line for the consumer to initial, rather than a checkbox;

(3) Adding a signature line to the insurance disclosures to reflect joint policies;

(4) Substituting another term for "buyer," "seller," or "creditor" that has the same meaning, or use of pronouns such as "you," "we," and "us" or "it";

(5) Changing the person of the pronouns to refer to the seller as "I" or "me" and the buyer as "you" or "your";

(6) Substituting the word "vehicle" for the term "motor vehicle";

(7) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(8) Inserting descriptive headings or number provisions;

(9) Changing the case of a word if otherwise permitted by the Texas Finance Code;

(10) Omitting references to different provisions for heavy commercial vehicles where the creditor elects to treat buyers of heavy commercial vehicles under the rules applicable to other vehicles;

(11) Moving provisions from one side of the form to the other and directing the buyer to see the other side, or placing all of the provisions on the same side of the form; or

(12) Changing any provision to comply with federal law.

(b) A sample model motor vehicle retail installment sales contract is presented in the following example.

Attached Graphic

(c) A contract may include other provisions that are not prohibited by law, but the contract including the other provisions must be submitted to the OCCC under §84.802 of this title (relating to Non-Standard Contract Filing Procedures).

(d) Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the buyer than those that would result from the use of a model clause.

History

• Source Note: The provisions of this §84.809 adopted to be effective May 8, 2008, 33 TexReg 3584; amended to be effective November 5, 2009, 34 TexReg 7610; amended to be effective November 5, 2015, 40 TexReg 7624; amended to be effective May 5, 2016, 41 TexReg 3120; amended to be effective December 31, 2020, 45 TexReg 9416; amended to be effective January 1, 2025, 49 TexReg 8853.

Chapter 86 RETAIL CREDITORS AND COMMERCIAL SALES-BASED FINANCING

Subchapter A REGISTRATION OF RETAIL CREDITORS

7 Tex. Admin. Code § 86.101 Consumer Notifications

(a) OCCC notice. When a written contract or agreement is made under the authority of Texas Finance Code, Chapter 345, 347, or 348, the contract must contain as a separate section or otherwise conspicuously set out from the surrounding written material, the following statement: "For questions or complaints about this contract, contact (insert name of creditor) at (insert creditor's phone number and, at creditor's option, one or more of the following: mailing address, fax number, website, e-mail address). The Office of Consumer Credit Commissioner (OCCC) is a state agency, and it enforces certain laws that apply to this contract. If a complaint or question cannot be resolved by contacting the creditor, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(b) Creditor information. The telephone number of the retail seller, creditor, or holder may be printed in conjunction with the name and address of the retail seller, creditor, or holder elsewhere on the contract or agreement provided the notice in subsection (a) of this section is amended to direct the reader's attention to the area of the contract where the telephone number may be found.

History

• Source Note: The provisions of this §86.101 adopted to be effective November 9, 2006, 31 TexReg 9017; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 86.102 Fees

(a) Locations requiring registration. An annual registration fee is required for each location operated by a retail seller, creditor, holder or assignee.

(b) Annual fee. An annual fee is required under the provisions of Texas Finance Code, §345.351 or §347.451 and will be payable as follows:

(1) The annual fee is $10 for a registration under Texas Finance Code, Chapter 345.

(2) The annual fee is $15 for a registration under Texas Finance Code, Chapter 347.

(3) A retail seller, creditor, holder, or assignee must pay an annual fee for every chapter under which business is conducted.

(4) The registration is not transferable between locations. A retail seller, creditor, holder, or assignee must obtain a registration for each new location.

(5) No annual fee is required for a location operated by a retail seller, creditor, holder, or assignee operating under the provisions of Texas Finance Code, Chapter 345 or 347, provided the personnel at the location are not conducting regulated business with the consumer (e.g., storage, web-hosting, or data processing facility).

(c) Late filing fee. As provided by Texas Finance Code, §349.302(b), a person must pay a $250 late filing fee for each registered location if the person:

(1) obtains a new registration after the person has begun engaging in business under Texas Finance Code, Chapter 345 or 347; or

(2) obtains a renewal more than 30 days after expiration.

(d) Evidence of registration. The Office of Consumer Credit Commissioner (OCCC) will issue a certificate evidencing registration under the provisions of Texas Finance Code, Chapter 345 or 347, and this section. A registrant may print a copy of its registration certificate through the OCCC's online licensing portal.

(e) Registration duplicates sent by mail. If a registrant does not print its registration certificate online, the registrant may request that the OCCC mail a registration duplicate for a fee of $10 per certificate mailed.

History

• Source Note: The provisions of this §86.102 adopted to be effective November 9, 2006, 31 TexReg 9017; amended to be effective March 12, 2015, 40 TexReg 1067; amended to be effective September 5, 2019, 44 TexReg 4723; amended to be effective September 7, 2023, 48 TexReg 4850.

7 Tex. Admin. Code § 86.103 Registration Term, Renewal, and Expiration

(a) Registration term and renewal. An initial registration is effective from the date of its issuance until November 30. A registration must be renewed annually to remain effective. After renewal, a registration is effective for a term of one year, from December 1 of a calendar year to November 30 of the next calendar year.

(b) Due date for annual fee. The annual fee described by §86.102(b) of this title (relating to Fees) is due by November 30 of each year.

(c) Expiration. If a registrant does not pay the annual fee, the registration will expire on November 30.

(d) Late renewal. A person may renew an expired registration by December 30 by paying the annual fee. In order to renew an expired registration after December 30, a person must pay any registration fee for a prior year and the late filing fee described by §86.102 of this title.

History

• Source Note: The provisions of this §86.103 adopted to be effective September 5, 2019, 44 TexReg 4723; amended to be effective September 7, 2023, 48 TexReg 4850.

Subchapter B RETAIL INSTALLMENT CONTRACT

7 Tex. Admin. Code § 86.201 Documentary Fee

(a) Purpose. The purpose of this section is to specify the maximum documentary fee in a retail installment transaction for the sale of a motorcycle, moped, all-terrain vehicle, boat, boat motor, boat trailer, or towable recreational vehicle, as provided by Texas Finance Code, §345.251.

(b) Definitions.

(1) All-terrain vehicle--Has the meaning provided by Texas Transportation Code, §551A.001(1).

(2) Boat--A vessel, as described by Texas Parks and Wildlife Code, §31.003(2).

(3) Boat motor--An outboard motor, as described by Texas Parks and Wildlife Code, §31.003(13).

(4) Covered land vehicle--A motorcycle, moped, all-terrain vehicle, boat trailer, or towable recreational vehicle.

(5) Covered watercraft--A boat or boat motor.

(6) Moped--Has the meaning provided by Texas Transportation Code, §541.201(8).

(7) Motorcycle--Has the meaning provided by Texas Transportation Code, §541.201(9).

(8) Retail installment contract--Has the meaning provided by Texas Finance Code, §345.001(6) and refers to one or more instruments entered into that evidence a secured or unsecured retail installment transaction for the sale of goods under Texas Finance Code, Chapter 345.

(9) Towable recreational vehicle--Has the meaning provided by Texas Finance Code, §348.001(10-a).

(c) Contract for covered land vehicles only. For a retail installment contract for the purchase of one or more covered land vehicles, the reasonable maximum amount of the documentary fee is $200.

(d) Contract for covered watercraft only. For a retail installment contract for the purchase of one or more covered watercraft, the reasonable maximum amount of the documentary fee is $200.

(e) Contract for both covered land vehicles and covered watercraft. For a retail installment contract for the purchase of one or more covered land vehicles and one or more covered watercraft, the reasonable maximum amount of the documentary fee is $250.

History

• Source Note: The provisions of this §86.201 adopted to be effective September 5, 2013, 38 TexReg 5706; amended to be effective November 7, 2019, 44 TexReg 6530; amended to be effective May 7, 2020, 45 TexReg 2830; amended to be effective September 5, 2024, 49 TexReg 6736.

7 Tex. Admin. Code § 86.202 Debt Cancellation Agreements

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 of this title (relating to Debt Cancellation Agreements Requiring Insurance).

History

• Source Note: The provisions of this §86.202 adopted to be effective September 7, 2017, 42 TexReg 4465.

Subchapter C COMMERCIAL SALES-BASED FINANCING

7 Tex. Admin. Code § 86.301 Purpose and Scope

(a) Purpose. The purposes of this subchapter are to implement Texas Finance Code, Chapter 398, and to assist in the administration and enforcement of Chapter 398.

(b) Scope. This subchapter applies to any person who engages in business as a provider or broker of commercial sales-based financing, unless specifically exempted by Texas Finance Code, Chapter 398.

History

• Source Note: The provisions of this §86.301 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.302 Definitions

Words and terms used in this subchapter that are defined in Texas Finance Code, Chapter 398, have the same meanings as defined in Chapter 398. The following words and terms, when used in this subchapter, will have the following meanings, unless the context clearly indicates otherwise.

(1) Key individual--An individual owner, officer, director, or employee with a substantial relationship to the business of an applicant or registrant. The following are key individuals:

(A) any individual who is a direct owner of 10% or more of an applicant or registrant; and

(B) any individual who is a control person or executive officer of an applicant or registrant, including individual who has the power to direct management or policies of a company (e.g., president, chief executive officer, general partner, managing member, vice president, treasurer, secretary, chief operating officer, chief financial officer); and

(C) an individual designated as a key individual where necessary to show that the business will be operated lawfully and fairly.

(2) NMLS--The Nationwide Multistate Licensing System.

(3) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(4) Registrant--A person who has been issued a commercial sales-based financing registration under Texas Finance Code, Chapter 398.

History

• Source Note: The provisions of this §86.302 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.303 Filing of New Application

(a) NMLS. To submit a commercial sales-based financing registration application, an applicant must submit a complete, accurate, and truthful registration application through NMLS (or a successor system designated by the OCCC). An application is complete when it conforms to the written instructions and necessary fees have been paid.

(b) Company registration application. A company registration application will include the following information and any other information listed in the written instructions:

(1) A company form including the name of the applicant entity, contact information, registered agent, location of books and records, legal status, and responses to disclosure questions.

(2) An individual form for each key individual, including name, contact information, and responses to disclosure questions.

(3) A business operating plan describing the source of customers, purpose of transactions, anticipated size of transactions, and source of working capital.

(4) A certificate of formation or other formation document.

(5) Any assumed names or other trade names that the applicant will use, and an assumed name certificate for each assumed name or other trade name.

(6) Franchise tax account information showing that the applicant entity is authorized to do business in Texas.

(7) An explanation and supporting documents for any judgment, memorandum of understanding, enforcement order, or conviction against the applicant or a key individual, related to a violation of law, act of fraud, breach of trust, or money laundering.

(c) Amendments to pending application. An applicant must immediately amend a pending application if any information changes requiring a materially different response from information provided in the original application.

History

• Source Note: The provisions of this §86.303 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.304 Processing of Registration Application

(a) Complete application. A registration application is complete when:

(1) the application conforms to the rules and published instructions; and

(2) all fees have been paid.

(b) Effectiveness. A registration is effective on receipt of a completed registration application and required fees.

History

• Source Note: The provisions of this §86.304 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.305 Required Notifications

(a) Advance change notice. No later than the date of the change (or an earlier date specified in the written instructions), a registrant must notify the OCCC of a change to any of the following information provided in the original registration application:

(1) legal name of entity;

(2) any assumed names of entity;

(3) legal status of entity;

(4) names of direct owners or indirect owners;

(5) names of affiliates or subsidiaries;

(6) names of any key individuals; or

(7) main address.

(b) Other required notifications. No later than 30 days after the registrant has knowledge of the information, a registrant must report the following information to the OCCC:

(1) any civil or regulatory actions against the registrant or key individuals that were not disclosed in the original application and would require a different answer than that given in the original registration application;

(2) criminal history of the registrant or key individuals that was not disclosed in the original application;

(3) any bankruptcy of the registrant or a direct owner; or

(4) any breach of system security under Texas Business & Commerce Code, §521.053, affecting at least 250 residents of this state.

(c) Contact information. Each applicant or registrant is responsible for ensuring that all contact information on file with the OCCC is current and correct, including all mailing addresses, all phone numbers, and all email addresses. The OCCC may send notices to the mailing address or email address on file. It is a best practice for registrants to regularly review contact information on file to ensure that it is current and correct.

History

• Source Note: The provisions of this §86.305 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.306 Registration Term, Renewal, and Expiration

(a) Registration term and renewal. A registration must be renewed annually during a specified renewal period to remain effective. After renewal, a registration is effective for a term of one year.

(b) NMLS. To maintain and renew a registration, a registrant must maintain an active account in NMLS (or a successor system designated by the OCCC). The OCCC may make renewal unavailable to a registrant that fails to maintain an active account.

(c) Expiration. If a registrant does not pay the annual fee during the renewal period, the registration will expire.

History

• Source Note: The provisions of this §86.306 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.307 Fees

(a) Initial registration. For an initial registration, an applicant must pay a $1,000 initial registration fee.

(b) Annual renewal. To renew a registration, a registrant must pay a $1,000 annual fee.

(c) Registration amendment. The OCCC may require a registrant to pay a fee up to $75 to amend registration information.

(d) Late renewal. The OCCC may allow late renewal of a registration for a specified period. To renew a registration late, a person must pay a late renewal fee up to $1,000 in addition to the annual fee.

(e) Periodic adjustment. Starting July 1, 2027, and each July 1 thereafter, the OCCC may revise the dollar amounts in subsections (a) and (b) of this section based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (or an equivalent measure of inflation if this measure is unavailable). The OCCC will use December 2025 as a base year and adjust fee amounts based on the percentage change from December 31, 2025, to the December 31 preceding the year of adjustment, rounding to the nearest $5 increment. No later than May 1, the OCCC will publish the amount of any periodic adjustment.

(f) Discount. The OCCC may discount or reduce the amount of a fee described by this section. The commissioner is authorized to determine the amount of a discount.

(g) Fees nonrefundable and nontransferable. Fees described by this section are nonrefundable and nontransferable.

History

• Source Note: The provisions of this §86.307 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.310 Disclosures

(a) Timing. A provider must provide a recipient with any disclosures required by Texas Finance Code, §398.051, in writing at or before the time the provider extends a specific offer to the recipient.

(b) Accuracy. All terms and dollar amounts disclosed under Texas Finance Code, §398.051, must accurately reflect the terms of the provider's specific offer to the recipient.

(c) Revised disclosures in case of inaccuracy. At any time after providing required disclosures under Texas Finance Code, §398.051, if the provider learns that any information on the disclosures was inaccurate or did not correctly reflect the terms of the transaction at closing, then the provider must promptly notify the recipient of the inaccuracy and must promptly provide revised, accurate disclosures to the recipient.

(d) OCCC notice. A contract for services under Texas Finance Code, Chapter 398 must contain the following statement as a separate section or otherwise conspicuously set out from surrounding written material: "The Office of Consumer Credit Commissioner (OCCC) is a state agency that enforces certain laws that apply to this contract. If a complaint cannot be resolved by contacting the provider, a commercial sales-based financing recipient can contact the OCCC to file a complaint. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Website: occc.texas.gov."

History

• Source Note: The provisions of this §86.310 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.311 Recordkeeping

(a) Generally. A provider or broker must maintain records for each transaction entered or brokered under Texas Finance Code, Chapter 398, and must make those records available for investigation. Records may be maintained using an electronic system, a paper or manual system, or a combination of these types of systems, unless otherwise specified by statute or rule.

(b) Provider's transaction file. A provider must maintain a transaction file for each recipient of a transaction under Texas Finance Code, Chapter 398. The transaction file must include the following:

(1) a complete copy of the written agreement between the provider and the recipient;

(2) each disclosure made to the recipient, including disclosures under Texas Finance Code, §398.051;

(3) each additional document, addendum, or authorization signed by the recipient;

(4) any documentation showing attachment, perfection, or release of a lien;

(5) an account history showing the application of each payment made by the recipient; and

(6) any written documentation of collection, repossession, foreclosure, or litigation against the recipient.

(c) Broker's transaction file. A broker must maintain a transaction file for each recipient of brokering services under Texas Finance Code, Chapter 398. The transaction file must include any disclosures provided by the broker to the recipient and any agreement that the broker entered with the recipient.

(d) Time to maintain transaction file. A registrant must maintain the transaction file under subsection (b) or (c) of this section until the later of:

(1) four years from the date of the transaction; or

(2) two years from the date of the final entry on the account.

(e) Application and adverse action records. If a prospective recipient applies for commercial sales-based financing and does not enter a commercial sales-based financing transaction, then a registrant must maintain the application and any written adverse action notice for one year from the date of the application, or one year from the date of the adverse action notice, whichever is later.

(f) Advertising and solicitation. A registrant must maintain each advertisement or solicitation for one year from the date of the advertisement or solicitation.

(g) Third-party agreements. A registrant must maintain any written agreements with third parties that relate to services under Texas Finance Code, Chapter 398, including any agreement between a provider and a broker, until one year after the date the agreement terminates.

(h) Data security policies and procedures. A registrant must maintain policies and procedures to maintain the security of customer information and protect information from unauthorized access.

(i) Data breach notifications. A registrant must maintain the following for data breach notifications:

(1) the text of any data breach notification provided to recipients, including any notification under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification; and

(2) any data breach notification provided to a government agency, including any notification provided to the Office of the Attorney General under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification.

History

• Source Note: The provisions of this §86.311 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.312 Prohibition of Unfair, Deceptive, and Abusive Acts

(a) Generally. A provider or broker may not engage in an unlawful, unfair, deceptive, or abusive act or practice related to a transaction under Texas Finance Code, Chapter 398.

(b) Acts and practices identified. The following are unlawful, unfair, deceptive, or abusive acts or practices:

(1) false, misleading, or inaccurate statements in advertisements, solicitations, disclosures, contracts, or communications with the recipient or other parties, including:

(A) inaccurate descriptions of contracted-for services;

(B) claiming a legal right to take an action that the person does not have the authority to take; and

(C) a statement that there is no personal guarantee, if this is inaccurate;

(2) failure to perform contracted-for services;

(3) charging fees or other amounts that were not specifically disclosed and contracted for;

(4) failure to make accurate disclosures under Texas Finance Code, Chapter 398 and this subchapter;

(5) a confession of judgment in violation of Texas Finance Code, §398.055;

(6) an automatic debit in violation of Texas Finance Code, §398.056 and this subchapter;

(7) a waiver of a recipient's statutory rights under Texas Finance Code, Chapter 398;

(8) filing a lien on a debtor's property without first obtaining a security agreement authenticated by the debtor under Texas Business & Commerce Code, §9.203;

(9) foreclosure of collateral without complying with applicable requirements (e.g., Texas Business & Commerce Code, Chapter 9);

(10) debiting amounts from a person's account or deposit account without the person's authorization;

(11) failure to maintain records required by this subchapter;

(12) instructing a recipient or a recipient's customer to redirect payment amounts to the provider, where the amounts were previously scheduled to be paid to another person (e.g., a creditor or factor), unless:

(A) the other person has consented to payment being redirected to the provider; or

(B) the payment is for debt that has been validly assigned to the provider.

(13) a provider's material violation of a written intercreditor agreement, if the provider is a party to the agreement;

(14) improperly characterizing a transaction as a "business" or "commercial" transaction when the advanced funds are extended primarily for individual, family, or household use; and

(15) a device or subterfuge to evade statutory or regulatory requirements.

History

• Source Note: The provisions of this §86.312 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.313 Prohibition of Certain Automatic Debits

(a) Generally. As provided by Texas Finance Code, §398.056, a provider or broker may not establish a mechanism for automatically debiting a recipient's deposit account unless the provider or broker holds a validly perfected security interest in the recipient's account under Chapter 9, Business & Commerce Code, with a first priority against the claims of all other persons.

(b) Automatic debit. For purposes of this section, debits are automatic if they are authorized in advance to occur more than one time or on a recurring basis. A mechanism for automatically debiting a deposit account includes a situation in which a recipient provides more than one prewritten check to a provider in advance for payments under a commercial sales-based financing transaction.

(c) Security interest in accounts receivable. For purposes of this section, in order to automatically debit a deposit account, a provider or broker must hold a validly perfected, first-priority security interest in all accounts receivable of the recipient.

(d) Perfection and priority of security interest. Texas Business & Commerce Code, Chapter 9 governs perfection and priority of a security interest in accounts receivable. Generally, a UCC-1 financing statement must be filed in order to perfect a security interest, as provided by Texas Business & Commerce Code, §9.310(a). Priority is generally determined by the time of filing or perfection, as provided by Texas Business & Commerce Code, §9.322(a)(1).

(e) Violation by third party. A provider or broker may not accept payment of a debit in violation of this section and may not direct a third party to complete a debit that violates this section.

History

• Source Note: The provisions of this §86.313 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.320 Complaints and Investigations

(a) Complaints. The OCCC may accept complaints regarding transactions under Texas Finance Code, Chapter 398 and this subchapter.

(b) Request for information and investigation. On receipt of a written complaint or other reasonable cause to believe that a person is violating Texas Finance Code, Chapter 398 or this subchapter, the OCCC may:

(1) require the person to furnish information regarding a specific transaction to which the violation relates; and

(2) conduct an investigation to determine whether a violation exists.

(c) Access to records. In an investigation under subsection (b) of this section, a person subject to investigation must allow the OCCC to:

(1) access the person's place of business;

(2) investigate the person's transactions and records relating to business under Texas Finance Code, Chapter 398; and

(3) make a copy of transactions and records relating to business under Texas Finance Code, Chapter 398.

History

• Source Note: The provisions of this §86.320 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.321 Enforcement

(a) Informal resolution. The OCCC may agree to an informal resolution of a complaint, investigation, enforcement case, or other matter with a provider or broker.

(b) Injunction. If the OCCC has reasonable cause to believe that a person is violating Texas Finance Code, Chapter 398 or this subchapter, then the OCCC may issue an injunction to enforce compliance.

(1) An injunction may include an order to cease and desist from a violation, an order to take affirmative action, or both.

(2) An injunction may include an order to provide restitution to an identifiable person.

(3) If a person against whom an injunction is issued under this section requests a hearing not later than the 30th day after the injunction is served, the OCCC will set a hearing under Texas Government Code, Chapter 2001. If a hearing is not timely requested, the injunction is considered final and enforceable.

(c) Administrative penalty. After notice and an opportunity for hearing, the OCCC may impose an administrative penalty up to $1,000 for each day of violation, with a maximum of $10,000 per violation, against a person who:

(1) violates an injunction under subsection (a) of this section; or

(2) knowingly and willfully violates Texas Finance Code, Chapter 398 or this subchapter.

(d) Suspension or revocation. After notice and an opportunity for hearing, the OCCC may suspend or revoke a registration if the OCCC finds that:

(1) the registrant, knowingly or without exercise of due care, violated Texas Finance Code, Chapter 398, this subchapter, or an order issued under this section; or

(2) a fact or condition warrants the belief that the business will not be operated lawfully and fairly.

(e) Administrative Procedure Act. An enforcement order under this section is subject to Texas Government Code, Chapter 2001 (the Texas Administrative Procedure Act).

History

• Source Note: The provisions of this §86.321 adopted to be effective July 9, 2026, 51 TexReg 4363.

7 Tex. Admin. Code § 86.322 Suspension or Revocation Based on Criminal History

(a) Disclosure of criminal history. An applicant must disclose all criminal history information required to file a complete application. Failure to provide information described in the disclosure questions or written instructions is a violation of this subchapter and is grounds for suspending or revoking a registration.

(b) Crimes directly related to registered occupation. The OCCC may suspend or revoke a registration if the registrant or a key individual has been convicted of an offense that directly relates to the duties and responsibilities of a registrant under Texas Finance Code, Chapter 398, as provided by Texas Occupations Code, §53.021(a)(1).

(1) Originating or servicing transactions under Texas Finance Code, Chapter 398 involves or may involve making representations to a recipient regarding transaction terms, receiving money from recipients, remitting money to third parties, maintaining accounts, repossessing property without a breach of the peace, maintaining repossessed property, collecting due amounts in a legal manner, and foreclosing on property in compliance with state and federal law. Consequently, the following crimes are directly related to the duties and responsibilities of a registrant and may be grounds for suspension or revocation:

(A) theft;

(B) assault;

(C) any offense that involves misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);

(D) money laundering;

(E) any offense that involves breach of trust or other fiduciary duty;

(F) any criminal violation of a statute governing credit transactions or debt collection;

(G) failure to file a government report, filing a false government report, or tampering with a government record;

(H) any greater offense that includes an offense described in subparagraphs (A) - (G) of this paragraph as a lesser included offense;

(I) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (H) of this paragraph.

(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a registration, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a registration to engage in the occupation;

(C) the extent to which a registration might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved;

(D) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a registrant; and

(E) any correlation between the elements of the crime and the duties and responsibilities of the registered occupation.

(3) In determining whether a conviction for a crime renders a registrant unfit to hold a registration, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.023:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person before and after the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) evidence of the person's current circumstances relating to fitness to hold a registration, which may include letters of recommendation.

(c) Revocation on imprisonment. A registration will be revoked on the registrant'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).

(d) Other grounds for suspension or revocation. The OCCC may suspend or revoke a registration based on any other ground authorized by law, including a registrant's or key individual's conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054, or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2) - (3).

History

• Source Note: The provisions of this §86.322 adopted to be effective July 9, 2026, 51 TexReg 4363.

Chapter 87 TAX REFUND ANTICIPATION LOANS

Subchapter A REGISTRATION PROCEDURES

7 Tex. Admin. Code § 87.102 Filing of New Application

(a) New application. An application for issuance of a new tax refund anticipation loan facilitator registration must be submitted in accordance with the instructions of the Office of Consumer Credit Commissioner (OCCC).

(b) Required information. The application must include the following required information. All questions must be answered.

(1) Application for Registration of Tax Refund Anticipation Loan Facilitator.

(A) Each location in this state at which e-file providers authorized by the Internal Revenue Service file tax returns on behalf of borrowers for whom the facilitator acts to allow the making of a tax refund anticipation loan must be separately registered.

(B) The person responsible for the day-to-day operation of the applicant's proposed business location must be named.

(2) Assumed names. For any applicant that does business under an assumed name as that term is defined in Texas Business and Commerce Code, §71.002, the applicant must provide all assumed names used.

History

• Source Note: The provisions of this §87.102 adopted to be effective November 8, 2007, 32 TexReg 7916; amended to be effective March 8, 2012, 37 TexReg 1505; amended to be effective September 8, 2016, 41 TexReg 6683.

7 Tex. Admin. Code § 87.103 Completion of Application and Effective Period of Registration

(a) Complete application. An application is complete when it:

(1) conforms to the rules and the published instructions of the Office of Consumer Credit Commissioner (OCCC);

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(b) Effective period. An applicant may apply for a registration for the current year or a registration for the following year.

(1) A registration for the current year is effective beginning on the date the application is complete, and expires on December 31 of the current year.

(2) A registration for the following year is effective beginning on January 1 of the following year, and expires on December 31 of the following year.

(c) Contact information. Each applicant or registrant is responsible for ensuring that all contact information on file with the OCCC is current and correct, including all mailing addresses, all phone numbers, and all e-mail addresses. It is a best practice for registrants to regularly review contact information on file with the OCCC to ensure that it is current and correct.

History

• Source Note: The provisions of this §87.103 adopted to be effective November 8, 2007, 32 TexReg 7916; amended to be effective September 8, 2016, 41 TexReg 6683.

7 Tex. Admin. Code § 87.104 Relocation of Registered Location

A registered tax refund anticipation loan facilitator may move the business office from the registered location to any other location by giving notice of intended relocation to the Office of Consumer Credit Commissioner (OCCC). The notice must include the present address of the registered location, the contemplated new address of the registered location, and the approximate date of relocation.

History

• Source Note: The provisions of this §87.104 adopted to be effective November 8, 2007, 32 TexReg 7916; amended to be effective September 8, 2016, 41 TexReg 6683.

7 Tex. Admin. Code § 87.105 Fees

(a) New registrations. For a new registration, the applicant must pay a $50 nonrefundable fee for each registered location.

(b) Registration amendments. A registered facilitator must pay a fee of $25 to amend a registration by changing the assumed name of the registrant or relocating an office.

(c) Renewals. For a renewal, the registered facilitator must pay an annual fixed fee of $50 for each registered location.

(d) Late filing fee. As provided by Texas Finance Code, §349.302(b), a facilitator must pay a $250 late filing fee for each registered location if the facilitator:

(1) obtains a new registration after the facilitator has begun engaging in business as a facilitator; or

(2) obtains a renewal for the current year after January 30.

History

• Source Note: The provisions of this §87.105 adopted to be effective November 8, 2007, 32 TexReg 7916; amended to be effective July 8, 2010, 35 TexReg 5806; amended to be effective September 8, 2016, 41 TexReg 6683.

7 Tex. Admin. Code § 87.106 Applications and Notices as Public Records

Once a registration application or notice is filed with the Office of Consumer Credit Commissioner (OCCC), it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a tax refund anticipation loan facilitator application or notice to the applicant or registered facilitator. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

History

• Source Note: The provisions of this §87.106 adopted to be effective November 8, 2007, 32 TexReg 7916.

7 Tex. Admin. Code § 87.107 Registration Term, Renewal, and Expiration

(a) Registration term and renewal. An initial registration is effective from the date of its issuance until December 31. A registration must be renewed annually to remain effective. After renewal, a registration is effective for a term of one year, from January 1 to December 31.

(b) Renewal requirements. A registered tax refund anticipation loan facilitator may renew its registration by providing the following:

(1) the renewal fees required by §87.105(c) of this title (relating to Fees);

(2) any late filing fees required by §87.105(d) of this title; and

(3) any other information required by the OCCC.

(c) Due date for renewal fee. The annual renewal fee and information described by subsection (b) of this section are due by December 31 of each year.

(d) Expiration. If a facilitator does not pay the annual renewal fee, the registration will expire on December 31. A facilitator may not renew a registration that has been expired for more than one year. If a facilitator's registration has been expired for more than one year, then the facilitator must apply for a new registration under §87.102 of this title (relating to Filing of New Application) in order to obtain a registration.

History

• Source Note: The provisions of this §87.107 adopted to be effective November 8, 2007, 32 TexReg 7916; amended to be effective September 8, 2016, 41 TexReg 6683; amended to be effective September 5, 2019, 44 TexReg 4723.

Subchapter B DISCLOSURES

7 Tex. Admin. Code § 87.201 OCCC Notice

(a) Required notice. A refund anticipation loan facilitator must provide the following notice to each consumer: "For questions or complaints about this transaction, contact the loan facilitator, (insert name of facilitator), at (insert facilitator's phone number and, at facilitator's option, one or more of the following: mailing address, fax number, website, e-mail address). The Office of Consumer Credit Commissioner (OCCC) is a state agency, and it enforces certain laws that apply to the facilitator. If a complaint or question cannot be resolved by contacting the facilitator, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(b) Location of notice. A facilitator must provide the notice described by subsection (a) by one or both of the following methods:

(1) including the notice on each privacy notice that the facilitator is required to provide to a consumer under state or federal law; or

(2) including the notice on each written disclosure that the facilitator is required to provide to a borrower under Texas Finance Code, §352.004.

History

• Source Note: The provisions of this §87.201 adopted to be effective September 8, 2016, 41 TexReg 6683.

Chapter 88 CONSUMER DEBT MANAGEMENT SERVICES

Subchapter A REGISTRATION PROCEDURES

7 Tex. Admin. Code § 88.101 Definitions

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 394, Subchapter C, have the same meanings as defined in Chapter 394. The following terms, when used in this chapter, will have the following meaning, unless the context clearly indicates otherwise.

(1) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(2) OCCC--The Office of Consumer Credit Commissioner.

(3) Principal party--All adult individuals with a substantial relationship to the proposed debt management services business of the applicant. Individuals with a substantial relationship to the proposed debt management services business of the applicant include:

(A) corporate officers, including the Chief Executive Officer or President, the Chief Financial Officer or Treasurer, and those with substantial responsibility for debt management services operations or compliance with the Finance Code;

(B) shareholders owning 10% or more of the outstanding voting stock; or

(C) owners, trustees, or governing persons of other organizational entities applying for registration under this chapter.

History

• Source Note: The provisions of this §88.101 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.102 Filing of New Application

(a) An application for issuance of a new debt management services provider registration must be submitted as prescribed by the OCCC at the date of filing and in accordance with the OCCC's instructions. Applications may be submitted electronically.

(b) The application must include the following required forms and filings. All questions must be answered.

(1) Application for registration.

(A) Required names and addresses. An applicant for a debt management services provider registration must provide the following:

(i) the applicant's name;

(ii) all other names under which the applicant conducts business;

(iii) a physical street address for the applicant's principal business address and that location's telephone number;

(iv) the address of each location in this state at which the applicant will provide debt management services, or if the applicant will have no such location, a statement to that effect;

(v) all other business addresses of the applicant in this state;

(vi) the e-mail address of the applicant's responsible person listed in subparagraph (B) of this paragraph; and

(vii) the applicant's primary Internet website address.

(B) Responsible person. The person responsible for the day-to-day operation of the applicant's proposed business location must be named.

(C) Authentication. An officer must authenticate the application.

(2) Application questionnaire. All applicable questions must be answered.

(3) Owners and principal parties.

(A) Detailed ownership and for-profit affiliate disclosure of nonprofit or tax exempt organizations. If the applicant is a nonprofit or tax exempt organization, a detailed description of the ownership interest of each officer, director, agent, or employee of the applicant must be provided. Any member of the immediate family of an officer, director, agent, or employee of the applicant, in a for-profit affiliate or subsidiary of the applicant, or in any other for-profit business entity that provides services to the applicant or to a consumer in relation to the applicant's debt management services business must also be provided.

(B) Ownership disclosure. The section inquiring about owners requires an answer based upon the applicant's entity type.

(i) All entity types. All applicants must disclose the name and home address of each officer and director of the applicant and each person that holds at least a 10% ownership interest in the applicant.

(ii) Corporations. All shareholders holding 10% or more voting stock must be named. If a parent corporation is the sole or part owner of the proposed business, a narrative or diagram must be provided that describes each level of ownership and management. This narrative or diagram must include the names of all officers, directors, and stockholders owning 10% or more stock at each level.

(iii) Limited liability companies. Each "manager," "officer," and "member" owning 10% or more of the company, as those terms are defined in Texas Business Organizations Code, §1.002, and each agent owning 10% or more of the company must be listed. If a member is a legal entity and not a natural person, a narrative or diagram must be included that describes each level of ownership of 10% or greater.

(iv) Proprietorships. The applicant must disclose the name of any individual holding an ownership interest in the business and the name of any individual responsible for operating the business. If requested, the applicant must also disclose the names of the spouses of these individuals.

(v) General partnerships. Each partner must be listed and the percentage of ownership stated. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided. General partnerships that register as limited liability partnerships should provide the same information as that required for general partnerships.

(vi) Limited partnerships. Each partner, general and limited, fulfilling the requirements of subclauses (I) - (III) of this clause must be listed and the percentage of ownership stated.

(I) General partners. The applicant should provide the complete ownership, regardless of percentage owned, for all general partners. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided.

(II) Limited partners. The applicant should provide a complete list of all limited partners owning 10% or more of the partnership.

(III) Limited partnerships that register as limited liability partnerships. The applicant should provide the same information as that required for limited partnerships.

(vii) Trusts or estates. Each trustee or executor, as appropriate, must be listed.

(4) Registered agent. The registered agent must be provided by each applicant. The registered agent is the person or entity to whom any legal notice may be delivered. The agent must be a Texas resident and list an address for legal service. If the registered agent is a natural person, the address must be a different address than the business location address. If the applicant is a corporation or a limited liability company, the registered agent should be the one on file with the Office of the Texas Secretary of State. If the registered agent is not the same as the agent filed with the Office of the Texas Secretary of State, then the applicant must submit a certification from the secretary of the company identifying the registered agent.

(5) Surety bond or insurance. An applicant must file with the OCCC either:

(A) a Surety Bond in the prescribed form:

(i) At initial application:

(I) A provider that receives and holds money paid by or on behalf of a consumer for disbursement to the consumer's creditors must provide a bond in the amount of:

(-a-) $50,000, if the average daily balance of the provider's trust account serving Texas consumers over the six-month period preceding the issuance of the bond is less than $50,000 or if the provider does not have any trust account history for Texas consumers;

(-b-) $100,000, if the average daily balance of the provider's trust account serving Texas consumers over the six-month period preceding the issuance of the bond is $50,000 or more; or

(II) A provider that does not receive and hold money paid by or on behalf of a consumer for disbursement to the consumer's creditors must provide a bond in the amount of $50,000.

(ii) At annual renewal:

(I) A provider that receives and holds money paid by or on behalf of a consumer for disbursement to the consumer's creditors must provide a bond:

(-a-) in an amount that is equivalent to or exceeds the average daily balance, but is not less than $25,000, if the average daily balance of the provider's trust account serving Texas consumers over the six-month period preceding the issuance of the bond is less than $100,000;

(-b-) in the amount of $100,000, if the average daily balance of the provider's trust account serving Texas consumers over the six-month period preceding the issuance of the bond is $100,000 or more; or

(II) A provider that does not receive and hold money paid by or on behalf of a consumer for disbursement to the consumer's creditors must provide a bond in the amount of $50,000; or

(B) evidence of insurance meeting the requirements of Texas Finance Code, §394.206 and clauses (i) - (iii) of this subparagraph, as follows:

(i) a fidelity insurance policy, in the aggregate amount of $100,000, that provides coverage for:

(I) employee dishonesty;

(II) depositor's forgery;

(III) computer fraud; and

(ii) a professional liability insurance policy in the aggregate amount of $100,000.

(iii) The fidelity insurance policy and the professional liability insurance policy must cover losses sustained by a Texas resident that are attributable to a debt management service or a debt management services agreement. Both the fidelity insurance policy and the professional liability insurance policy must contain a loss payee clause or rider stating that any loss or claim arising out of an action which occurred within the scope of Texas Finance Code, Chapter 394 may be payable in favor of the State of Texas.

(6) Assumed name certificates. For any applicant that does business under an assumed name as that term is defined in Texas Business and Commerce Code, §71.002, the applicant must provide all assumed names used.

(7) Debt management services agreement. The applicant must provide a blank copy of the written debt management services agreement as described in Texas Finance Code, §394.209.

(8) Accreditation organizations. The applicant must provide the names and contact information for:

(A) the independent, third-party accreditation organization of the provider; and

(B) the accreditation organization or program that certifies the provider's credit counselors.

(9) Fingerprints.

(A) The applicant must provide a complete set of legible fingerprints for each person meeting the definition of "principal party" in §88.101 of this title (relating to Definitions). All fingerprints must be submitted in a format prescribed by the OCCC and approved by the Texas Department of Public Safety and the Federal Bureau of Investigation.

(B) For limited partnerships, if the owners and principal parties under paragraph (3) of this subsection does not produce a natural person, the applicant must provide a complete set of legible fingerprints for individuals who are associated with the general partner as principal parties.

(C) For entities with complex ownership structures that result in the identification of individuals to be fingerprinted who do not have a substantial relationship to the proposed applicant, the applicant may submit a request to fingerprint three officers or similar employees with significant involvement in the proposed business. The request should describe the relationship and significant involvement of the individuals in the proposed business. The OCCC may approve the request, seek alternative appropriate individuals, or deny the request.

(D) For individuals who have previously been registered by the OCCC and principal parties of entities currently registered, fingerprints are not required to be provided with the initial application if the fingerprints are on record with the OCCC, are less than 10 years old, and have been processed by both the Texas Department of Public Safety and the Federal Bureau of Investigation. Upon request, the OCCC may require individuals and principal parties previously registered with the OCCC to submit a new set of fingerprints.

(E) For individuals who have previously submitted fingerprints to another state agency, fingerprints are still required to be submitted for use by the OCCC under Texas Finance Code, §14.152. Fingerprints cannot be disclosed to others, except as authorized by Texas Government Code, §560.002.

History

• Source Note: The provisions of this §88.102 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective September 6, 2007, 32 TexReg 5659; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective September 8, 2011, 36 TexReg 5673; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective September 10, 2015, 40 TexReg 5774; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.103 Processing of Application

(a) Initial review. The agency will generally respond to incomplete applications within 14 calendar days of receipt stating that the application is incomplete and specifying the information required for acceptance.

(b) Complete application. An application is complete when:

(1) it conforms to the rules and the OCCC's published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(c) Failure to complete application. If a complete application has not been filed with the OCCC within 30 days after notice of deficiency has been sent to the applicant, the application may be denied.

(d) Hearing. Whenever an application is denied, the applicant has 30 days from the date the application was denied to request in writing a hearing to contest the denial. This hearing will be conducted pursuant to the Administrative Procedure Act, Texas Government Code, Chapter 2001, and the rules of procedure applicable under §9.1(a) of this title (relating to Application, Construction, and Definitions), before an administrative law judge who will recommend a decision to the commissioner. The commissioner will then issue a final decision after review of the recommended decision.

(e) Denial. The commissioner will inform the applicant in writing of the reasons for denial. Upon the final denial of an application, the annual fee will be refunded to the applicant. The investigation fee will be forfeited.

(f) Processing time.

(1) A registered provider application will ordinarily be approved or denied within a maximum of 60 days after the date of filing of a completed application.

(2) More time may be taken where good cause exists, as defined by Texas Government Code, §2005.004, for exceeding the established time period in paragraph (1) of this subsection.

History

• Source Note: The provisions of this §88.103 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective January 7, 2016, 41 TexReg 123; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.104 Updating Application and Contact Information

(a) Applicant's updates to registered provider application information. Before an application for registration is approved, an applicant must report to the OCCC any information that would require a materially different answer than that given in the original registered provider application and which relates to the qualifications for registration within 14 calendar days after the person has knowledge of the information.

(b) Registrant's updates to registration application information. A registrant must report to the OCCC any information that would require a different answer than that given in the original registration application within 30 calendar days after the registrant has knowledge of the information, if the information relates to any of the following:

(1) the name or any operating name of the registrant;

(2) the location of any additional offices;

(3) the registrant's website address;

(4) the names of principal parties;

(5) criminal history;

(6) actions by regulatory agencies; or

(7) court judgments.

(c) Contact information. Each applicant or registered provider is responsible for ensuring that all contact information on file with the OCCC is current and correct, including all mailing addresses, all phone numbers, and all e-mail addresses. It is a best practice for registered providers to regularly review contact information on file with the OCCC to ensure that it is current and correct.

History

• Source Note: The provisions of this §88.104 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective March 8, 2018, 43 TexReg 1258; amended to be effective March 10, 2022, 47 TexReg 1085.

7 Tex. Admin. Code § 88.105 Relocation of Registered Provider Location

A registered provider may move the business office from the registered provider location to any other location by giving notice of intended relocation to the OCCC. The notice must include the present address of the registered provider location, the contemplated new address of the registered provider location, and the approximate date of relocation.

History

• Source Note: The provisions of this §88.105 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.107 Fees

(a) New registrations. A $250 nonrefundable investigation fee is assessed each time an application for a new registration under this chapter is filed.

(b) Fingerprint processing. An applicant must pay a fee to a party designated by the Texas Department of Public Safety for processing fingerprints. The Texas Department of Public Safety and the designated party determine the amount of the fee and whether it is refundable.

(c) Registration amendments. A fee of $25 must be paid each time a registered provider amends a registration by changing the assumed name of the registered provider or relocating the registered provider location.

(d) Registration duplicates sent by mail. The fee for a registration duplicate to be sent by mail is $10.

(e) Costs of hearings. The commissioner may assess the costs of an administrative appeal pursuant to Texas Finance Code, §14.207 for a hearing afforded under §88.103 of this title (relating to Processing of Application), including the cost of the administrative law judge, the court reporter, attorney's fees, or investigative costs, if applicable.

(f) Annual assessments. An annual fixed fee not to exceed $430 is required for each registered debt management services provider.

History

• Source Note: The provisions of this §88.107 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective September 10, 2015, 40 TexReg 5774; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.108 Applications and Notices as Public Records

Once a registration application or notice is filed with the OCCC, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the Texas State Library and Archives Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a debt management services provider application or notice to the applicant or registered provider. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

History

• Source Note: The provisions of this §88.108 adopted to be effective November 10, 2005, 30 TexReg 7213; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.109 Applicability

(a) The rules contained in this chapter of this title are applicable to a provider as defined by Texas Finance Code, §394.202(10).

(b) The rules contained in this chapter of this title do not apply to:

(1) the exceptions as provided by Texas Finance Code, §394.203; or

(2) transactions subject to the Money Services Act, Texas Finance Code, Chapter 151.

History

• Source Note: The provisions of this §88.109 adopted to be effective January 5, 2006, 30 TexReg 8860; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective September 8, 2011, 36 TexReg 5673.

7 Tex. Admin. Code § 88.110 Denial, Suspension, or Revocation Based on Criminal History

(a) Criminal history record information. After an applicant submits a complete registration application, including all required fingerprints, and pays the fees required by §88.107 of this title (relating to Fees), the OCCC will investigate the applicant. The OCCC will obtain criminal history record information from the Texas Department of Public Safety and the Federal Bureau of Investigation based on the applicant's fingerprint submission. The OCCC will continue to receive information on new criminal activity reported after the fingerprints have been initially processed.

(b) Disclosure of criminal history. The applicant must disclose all criminal history information required to file a complete application with the OCCC. Failure to provide any information required as part of the application or requested by the OCCC reflects negatively on the belief that the business will be operated lawfully and fairly. The OCCC may request additional criminal history information from the applicant, including the following:

(1) information about arrests, charges, indictments, and convictions;

(2) reliable documents or testimony necessary to make a determination under subsection (c) of this section, including letters of recommendation from prosecution, law enforcement, and correctional authorities;

(3) proof that the applicant has maintained a record of steady employment, has supported the applicant's dependents, and has otherwise maintained a record of good conduct; and

(4) proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid or are current.

(c) Crimes directly related to registered occupation. The OCCC may deny a registration application, or suspend or revoke a registration, if the applicant or registrant has been convicted of an offense that directly relates to the duties and responsibilities of a debt management services provider, as provided by Texas Occupations Code, §53.021(a)(1).

(1) Providing debt management services involves making representations to consumers regarding the terms of the services, holding money entrusted to the provider, remitting money to third parties, collecting charges in a legal manner, and compliance with reporting requirements to government agencies. Consequently, the following crimes are directly related to the duties and responsibilities of a registered provider and may be grounds for denial, suspension, or revocation:

(A) theft;

(B) assault;

(C) any offense that involves misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);

(D) any offense that involves breach of trust or other fiduciary duty;

(E) any criminal violation of a statute governing credit transaction or debt collection;

(F) failure to file a government report, filing a false government report, or tampering with a government record;

(G) any greater offense that includes an offense described in subparagraphs (A) - (F) of this paragraph as a lesser included offense;

(H) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (G) of this paragraph.

(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a registration, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a registration to engage in the occupation;

(C) the extent to which a registration might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved;

(D) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a registrant; and

(E) any correlation between the elements of the crime and the duties and responsibilities of the licensed occupation.

(3) In determining whether a conviction for a crime renders an applicant or a registrant unfit to be a registrant, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.023:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person before and after the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) evidence of the person's current circumstances relating to fitness to hold a registration, which may include letters of recommendation.

(d) Offenses involving moral turpitude. The OCCC may deny a registration application, or suspend or revoke a registration, if the applicant, registrant, or a principal party has been convicted of or found civilly liable for an offense involving moral turpitude, as provided by Texas Finance Code, §394.204(i)(1), (k)(1)-(2). Offenses involving moral turpitude include the following:

(1) forgery;

(2) embezzlement;

(3) obtaining money under false pretenses;

(4) larceny;

(5) extortion;

(6) conspiracy to defraud; and

(7) any other similar offense or violation.

(e) Revocation on imprisonment. A registration will be revoked on the registrant'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).

(f) Other grounds for denial, suspension, or revocation. The OCCC may deny a registration application, or suspend or revoke a registration, based on any other ground authorized by statute, including the following:

(1) a conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054, or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2)-(3);

(2) errors or incomplete information in the registration application, as provided by Texas Finance Code, §394.204(h);

(3) a fact or condition that would have been grounds for denying the registration application, and that either did not exist at the time of the application or the OCCC was unaware of at the time of application, as provided by Texas Finance Code, §394.204(k)(1)-(2); and

(4) any other information warranting the belief that the business will not be operated lawfully and fairly, as provided by Texas Finance Code, §394.204(i)(3), (k)(9).

History

• Source Note: The provisions of this §88.110 adopted to be effective September 10, 2015, 40 TexReg 5774; amended to be effective March 8, 2018, 43 TexReg 1258; amended to be effective March 10, 2022, 47 TexReg 1085.

Subchapter B ANNUAL REQUIREMENTS

7 Tex. Admin. Code § 88.201 Registration Term, Renewal, and Expiration

(a) Registration term and renewal. An initial registration is effective from the date of its issuance until January 31. A registration must be renewed annually to remain effective. After renewal, a registration is effective for a term of one year, from February 1 of a calendar year to January 31 of the next calendar year.

(b) Renewal requirements. A registered debt management services provider may renew its registration by providing the following:

(1) an annual report, according to §88.202 of this title (relating to Annual Report);

(2) the annual fee required by §88.107(f) of this title (relating to Fees); and

(3) any other information required by the OCCC.

(c) Due date for renewal fee. The annual fee and information described by subsection (b) of this section are due by January 31 of each year.

(d) Expiration. If a provider does not renew its registration, the registration will expire on January 31.

History

• Source Note: The provisions of this §88.201 adopted to be effective November 10, 2005, 30 TexReg 7215; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective March 8, 2018, 43 TexReg 1258; amended to be effective September 5, 2019, 44 TexReg 4724.

7 Tex. Admin. Code § 88.202 Annual Report

(a) General requirement. Each authorized debt management services provider must file an annual report under this section and must comply with all instructions from the OCCC relating to submitting the report.

(b) Annual report. Each year, at the time of annual renewal, an authorized debt management services provider must file with the OCCC, in a form prescribed by the OCCC, a report that contains the following:

(1) if the provider is a nonprofit or tax exempt organization, the assets and liabilities at the beginning and end of the reporting period, as required by Texas Finance Code, §394.205(b)(1);

(2) the total number of debt management plans the provider has initiated on behalf of consumers in Texas during the reporting period, as required by Texas Finance Code, §394.205(b)(2);

(3) the total and average fees charged to consumers, including all voluntary contributions received from consumers, as required by Texas Finance Code, §394.205(b)(3); and

(4) if the provider has initiated one or more debt management plans during the reporting period, a statement of whether the provider provided individualized counseling to each consumer through the services of an independently certified counselor, as required by Texas Finance Code, §394.208(a)(1).

(c) Required documents. A provider must submit the following additional documents with the annual report, in accordance with the OCCC's instructions:

(1) a blank copy of any debt management services agreement used by the provider, as required by Texas Finance Code, §394.205(d) (the OCCC may allow a provider to certify current use of a previously submitted agreement);

(2) blank copies of the provider's consumer educational information, individualized financial analysis, initial debt management plan, and any other required disclosures relating to credit counseling, as required by Texas Finance Code, §394.205(d) (the OCCC may allow a provider to certify current use of previously submitted information); and

(3) a copy of the provider's surety bond or a compliant insurance policy, as required by Texas Finance Code, §394.206(a).

(d) Certification. An annual report must be verified by the oath or affirmation of the owner, manager, president, chief executive officer, or chairman of the board of directors of the provider, as required by Texas Finance Code, §394.205(c). The provider must certify that the provider has reviewed all contact information and principal party information on file with the OCCC, and has submitted any updates to this information in accordance with the OCCC's instructions.

(e) Other information. Upon request by the OCCC, the provider must provide any other information the commissioner deems relevant concerning the provider's business and operations during the preceding calendar year.

History

• Source Note: The provisions of this §88.202 adopted to be effective November 10, 2005, 30 TexReg 7215; amended to be effective September 6, 2007, 32 TexReg 5661; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective January 2, 2014, 38 TexReg 9488; amended to be effective March 8, 2018, 43 TexReg 1258; amended to be effective March 10, 2022, 47 TexReg 1085.

Subchapter C OPERATIONAL REQUIREMENTS

7 Tex. Admin. Code § 88.302 Recordkeeping

(a) Generally. A provider must maintain records required by Texas Finance Code, §394.205 by using either a paper or manual recordkeeping system, electronic recordkeeping system, or optically imaged recordkeeping system unless otherwise specified by statute or regulation. All required books and records must be reasonably available for inspection at any time by OCCC staff.

(b) Availability of records. The OCCC may require that the provider make records available in the State of Texas for examination purposes.

(c) Debt management plan file. A licensee must maintain a paper or electronic file for each individual debt management plan under Texas Finance Code, Chapter 394, or be able to produce this information within a reasonable amount of time. The file must be maintained for at least three years after the date of the last service on the plan, as provided by Texas Finance Code, §394.205(a). The file must include the following documentation for each debt management plan:

(1) the written debt management services agreement described by Texas Finance Code, §394.209;

(2) any written educational information provided to the consumer under Texas Finance Code, §394.208(a)(1);

(3) the individualized financial analysis and initial debt management plan described by Texas Finance Code, §394.208(a)(2);

(4) an account history showing each payment made by the consumer, each amount charged by the provider, and each amount that the provider has disbursed to a creditor;

(5) any privacy notice provided under the Gramm-Leach-Bliley Act, 15 U.S.C. §§6801-6809, and Regulation P, 16 C.F.R. Part 1016;

(6) any document signed by the consumer in connection with the plan;

(7) any other documentation created or obtained by the provider in connection with the debt management plan.

(d) OCCC notice. A debt management services provider must provide the following notice to each consumer: "For questions or complaints about this transaction, contact the debt management services provider, (insert name of provider), at (insert provider's phone number and, at provider's option, one or more of the following: mailing address, fax number, website, e-mail address). The Office of Consumer Credit Commissioner (OCCC) is a state agency, and it enforces certain laws that apply to the provider. If a complaint or question cannot be resolved by contacting the provider, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov." A provider must provide this notice by one or both of the following methods:

(1) including the notice on each privacy notice that the provider is required to provide to a consumer under state or federal law; or

(2) including the notice on each written agreement that the provider is required to provide to a borrower under Texas Finance Code, §394.209.

History

• Source Note: The provisions of this §88.302 adopted to be effective January 5, 2006, 30 TexReg 8863; amended to be effective March 8, 2018, 43 TexReg 1258.

7 Tex. Admin. Code § 88.304 Credit Counseling Standards

(a) For purposes of Texas Finance Code, §394.202(2) and §394.208(a)(2), a provider must be accredited by an independent, third-party accreditation organization that covers, at a minimum, competency in the following core areas:

(1) service environment and planning;

(2) service accessibility and delivery;

(3) training and supervision;

(4) quality management and improvement;

(5) ethical standards; and

(6) financial education.

(b) Each provider must provide the name and contact information of the accreditation organization or program that certifies its counselors. The provider must maintain documentation of the certification of the provider's credit counselors, which must be submitted upon request by the OCCC. The commissioner may issue an order disapproving the accreditation organization or program if the commissioner determines that the organization or program does not provide comprehensive education training on the following:

(1) alternatives available to resolve an indebted consumer's credit problems;

(2) how to analyze a consumer's current financial condition;

(3) budget development;

(4) money management; and

(5) wise use of credit.

(c) The provider must maintain documentation of individualized counseling and analysis that has been provided under Texas Finance Code, §394.208(a)(2).

History

• Source Note: The provisions of this §88.304 adopted to be effective January 5, 2006, 30 TexReg 8863; amended to be effective September 6, 2007, 32 TexReg 5661; amended to be effective May 6, 2010, 35 TexReg 3481; amended to be effective January 5, 2012, 36 TexReg 9300; amended to be effective March 10, 2022, 47 TexReg 1085.

7 Tex. Admin. Code § 88.305 Prohibited Acts and Practices

It is not a prohibited practice for a provider to, as an incidental consequence of managing the trust account and debt obligations, pay an obligation for a consumer that the consumer does not have a sufficient deposit to cover, when no fee is associated with the payment. A payment under these conditions does not constitute lending money to the consumer under Texas Finance Code, §394.212(3).

History

• Source Note: The provisions of this §88.305 adopted to be effective January 5, 2006, 30 TexReg 8863; amended to be effective January 2, 2014, 38 TexReg 9488.

7 Tex. Admin. Code § 88.306 Fees for Debt Management Services

(a) Limitation on fees. The maximum fees for debt management services are described by Texas Finance Code, §394.210. A provider may not impose a fee or other charge, or receive payment from a consumer or other person on behalf of a consumer, except as allowed under Texas Finance Code, §394.210.

(b) Fees for unrelated services. A provider may not charge a consumer for or provide credit or other insurance, coupons for goods or services, membership in a club, access to computers or the Internet, or any other matter not directly related to debt management services or educational services concerning personal finance.

(c) Adjustment of fee amounts. As provided by Texas Finance Code §394.2101, the OCCC will periodically compute and publish dollar amounts of fees specified in Texas Finance Code, §394.210, to reflect inflation as measured by the Consumer Price Index for All Urban Consumers. These adjustments will be published on the OCCC's website. For purposes of these adjustments, the OCCC has adopted 2011 as a base year.

History

• Source Note: The provisions of this §88.306 adopted to be effective September 6, 2007, 32 TexReg 5662; amended to be effective September 8, 2011, 36 TexReg 5673; amended to be effective March 10, 2022, 47 TexReg 1085.

7 Tex. Admin. Code § 88.307 Consumer Education

(a) Required counseling for consumers who enter into debt management services agreements. In conjunction with entering into a debt management services agreement with a consumer, the provider's credit counselors must provide education to the consumer regarding budget analysis and credit counseling services that include:

(1) an outline of available opportunities to resolve the consumer's credit problems;

(2) an analysis of the consumer's current financial condition;

(3) discussion of the factors that caused such financial condition;

(4) assistance in developing options in responding to the consumer's problems without incurring negative amortization of debt; and

(5) information and instruction on the following topics:

(A) budget development;

(B) money management; and

(C) wise use of credit.

(b) Adequate opportunity for consumers. Credit counseling provided under subsection (a) of this section must give the consumer an adequate opportunity to obtain a complete financial assessment and comprehensive counseling, relative to the consumer's personal financial situation.

(c) Suggested guidelines.

(1) This subsection provides suggested guidelines for the amount of credit counseling to be provided to consumers who enter into debt management services agreements. These suggested guidelines are intended to give debt management services providers considerable flexibility to fit individual needs while providing some guidance.

(2) An optimum guideline for the amount of credit counseling to be provided to consumers who enter into debt management services agreements is 45 - 90 minutes, depending on the unique circumstances of the consumer's debt and financial situation.

(d) Community-based financial education encouraged. Debt management services providers are encouraged to provide community-based financial education initiatives in addition to the counseling required by this section for consumers who enter into debt management services agreements.

History

• Source Note: The provisions of this §88.307 adopted to be effective September 6, 2007, 32 TexReg 5662.

Chapter 89 PROPERTY TAX LENDERS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 89.101 Purpose, Scope, and Applicability

(a) Purpose. The purpose of this chapter is to assist in the administration and enforcement of Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220).

(b) Scope. This chapter applies to all persons engaged in the business of making, transacting, or negotiating property tax loans subject to Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act." As such, this chapter only applies to lenders in the business of making, transacting or negotiating property tax loans that:

(1) are secured by a special lien against property transferred from a taxing unit to the property tax lender; and

(2) may be further secured by the lien or security interest created by a deed of trust, security deed, or other security instrument.

(c) License required for authorized property tax lending. Texas Finance Code, Chapter 351, authorizes a property tax lender to engage in the business of making, transacting, or negotiating property tax loans, as provided in subsection (b) of this section. Texas Finance Code, §351.051 (Acts 2007, 80th Leg., ch. 1220) and this chapter require that property tax lenders hold a license in order to conduct authorized property tax lending under Chapter 351.

(d) Exemption from other licensing limited to authorized property tax lending. Texas Finance Code, §351.051(d) (Acts 2007, 80th Leg., ch. 1220) provides that a property tax lender licensed under Chapter 351 is not required to be licensed under Chapter 156, Chapter 342, or any other provision of the Finance Code in order to conduct authorized property tax lending under Chapter 351. If a person engages in regulated activity otherwise subject to Chapter 156, Chapter 342, any other chapter of the Finance Code, or other law, the other chapter or law pertaining to the type of regulated activity conducted would apply independently of Chapter 351.

(e) License not required. National banks and federally-chartered thrifts and credit unions, wherever located, and federally-insured state banks, state thrifts and state credit unions with offices located outside of Texas may make property tax loans to Texas residents without obtaining a property tax lender license from the OCCC under Texas Finance Code, §351.051 et seq.

History

• Source Note: The provisions of this §89.101 adopted to be effective November 8, 2007, 32 TexReg 7917.

7 Tex. Admin. Code § 89.102 Definitions

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 351 have the same meanings as defined in Chapter 351. The following words and terms, when used in this chapter, will have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliated business--A person that:

(A) shares common management with a property tax lender;

(B) shares, directly or indirectly, more than 10% common ownership with a property tax lender; or

(C) is controlled, directly or indirectly, by a property tax lender through a controlling interest greater than 10%.

(2) Borrower--The borrower in a property tax loan is the property owner.

(3) Commercial property tax loan--A property tax loan that is not a residential property tax loan.

(4) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(5) Date of consummation--The date of closing or execution of a loan contract.

(6) Licensee--Any person who has been issued a property tax lender license pursuant to Texas Finance Code, Chapter 351.

(7) Making a loan--The act of making a loan is either the determination of the credit decision to provide the loan, the act of funding the loan, or the act of advancing money on behalf of a borrower to a third party. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the loan.

(8) Negotiating a loan--The process of submitting and considering offers between a borrower and a lender with the objective of reaching agreement on the terms of a loan. The act of passing information between the parties can, by itself, be considered "negotiation" if it was part of the process of reaching agreement on the terms of a loan. "Negotiation" involves acts which take place before an agreement to lend or funding of a loan actually occurs.

(9) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(10) Residential property tax loan--A property tax loan that includes a lien on residential property owned and used by the property owner for personal, family, or household purposes. This includes any property tax loan that includes a lien on homestead property. For purposes of this definition, non-homestead property designated as "Category A (Real Property: Single-Family Residential)" will be presumed to be residential property owned and used by the property owner for personal, family, or household purposes, unless the property tax lender obtains and maintains and affidavit from the property owner stating that:

(A) the property is owned and used by the property owner for a business or investment purpose; and

(B) the property owner does not own or use the property for personal, family, or household use.

(11) Transacting a loan--Any of the significant events associated with the lending process through funding, including the preparation, negotiation and execution of loan documents, and an advancement of money on behalf of a borrower by the lender to a third party. This also includes the act of arranging a loan.

History

• Source Note: The provisions of this §89.102 adopted to be effective November 8, 2007, 32 TexReg 7917; amended to be effective March 15, 2015, 40 TexReg 1068; amended to be effective November 9, 2017, 42 TexReg 6131.

Subchapter B AUTHORIZED ACTIVITIES

7 Tex. Admin. Code § 89.201 Responsibility for Acts of Agents

A licensee is responsible for the acts and omissions of its officers, directors, employees, and agents in the conduct of the licensee's business.

History

• Source Note: The provisions of this §89.201 adopted to be effective November 8, 2007, 32 TexReg 7918.

7 Tex. Admin. Code § 89.202 Knowledge of Laws and Regulations Required

Each officer, director, employee, and agent of a licensee shall have a working knowledge of Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), its implementing regulations, Texas Tax Code, §32.06 and §32.065, and other pertinent state and federal statutes and regulations that apply to the licensee's business. This section applies to the listed parties to the extent that the individual has contact with borrowers or potential borrowers, or has responsibility for compliance with Texas Finance Code, Chapter 351, or other laws or regulations governing the licensee's business.

History

• Source Note: The provisions of this §89.202 adopted to be effective November 8, 2007, 32 TexReg 7918.

7 Tex. Admin. Code § 89.203 Attempted Evasion of Applicability of Chapter

A "device, subterfuge, or pretense to evade the application" of this chapter, as used in Texas Finance Code, §351.051(b) (Acts 2007, 80th Leg., ch. 1220) refers to any transaction that in form may appear on its face to be something other than a property tax loan, but in substance meets the definition of a property tax loan as defined in Texas Finance Code, §351.002(2) (Acts 2007, 80th Leg., ch. 1220).

History

• Source Note: The provisions of this §89.203 adopted to be effective November 8, 2007, 32 TexReg 7918.

7 Tex. Admin. Code § 89.204 Multiple Licenses

(a) Definitions. The words "made," "negotiated," and "collected" as used in Texas Finance Code, §351.052(b) are to be construed as follows.

(1) Made or make--Loans are "made" by the office or offices where either the credit decision is made or the cash advance is disbursed.

(2) Negotiated or arranged; negotiate or arrange--Loans are "negotiated" or "arranged" in the office or offices that received any information preliminary to a credit decision on a prospective borrower or received the executed application, agreement, or other necessary loan documentation.

(3) Collected or collect--Loans are "collected" in the office or offices from which attempts are made to collect past-due payments from the borrowers under a loan. The mere receipt and accounting of payments does not constitute "collection."

(b) Application. Any office making, negotiating, arranging, servicing, holding, or collecting loans must be licensed. For example, if a lender receives and reviews loan applications at one office, makes the loan decision at another office, funds the loan at a third, and collects past-due payments from another, all of these offices must be licensed. On the other hand, an office that merely receives, records, accounts for, and processes payments need not be licensed.

History

• Source Note: The provisions of this §89.204 adopted to be effective November 8, 2007, 32 TexReg 7918; amended to be effective July 5, 2012, 37 TexReg 4874.

7 Tex. Admin. Code § 89.205 Loans by Mail or Internet

(a) Definitions. The words "make," "negotiate," "arrange," and "collect" as used in Texas Finance Code, §351.053(b) are to be construed according to the definitions contained in §89.204(a) of this title (relating to Multiple Licenses).

(b) Application. Any office, wherever located, making, negotiating, arranging, or collecting loans by mail must be licensed. For example, if a lender receives and reviews loan applications at one office, makes the loan decision at another office, funds the loan at a third, and collects past-due payments from another, all of these offices involved in lending by mail must be licensed. On the other hand, an office that merely receives, records, accounts for, and processes payments need not be licensed.

(c) Internet loans. For purposes of Texas Finance Code, §351.053(b), a loan made, negotiated, arranged, or collected by or through the Internet is considered a "loan by mail."

History

• Source Note: The provisions of this §89.205 adopted to be effective November 8, 2007, 32 TexReg 7918; amended to be effective July 5, 2012, 37 TexReg 4874.

7 Tex. Admin. Code § 89.206 Application for Exemption

(a) For an individual to apply for exemption from licensing under this chapter as a qualifying individual under Texas Finance Code, §351.051(c)(2), the individual must provide a signed, dated, and notarized affidavit containing the following:

(1) the individual's name and address;

(2) the anticipated date of the property tax loan;

(3) a description of the property by legal description, and if applicable, street address; and

(4) a sworn statement that the individual is someone who:

(A) is related to the property owner within the second degree of consanguinity or affinity, as determined under Texas Government Code, Chapter 573; or

(B) makes five or fewer property tax loans in any consecutive 12-month period from the individual's own funds.

(b) Upon receipt of an affidavit fulfilling the requirements of subsection (a) of this section, the commissioner will issue a certificate of exemption to the individual.

(c) Individuals applying for exemption under Texas Finance Code, §351.051(c)(2) must submit an application according to this section for each property tax loan transaction.

History

• Source Note: The provisions of this §89.206 adopted to be effective November 8, 2007, 32 TexReg 7918; amended to be effective September 5, 2013, 38 TexReg 5707; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.207 Files and Records Required

Each licensee must maintain records with respect to each property tax loan made under Texas Finance Code, Chapter 351 and Texas Tax Code, §32.06 and §32.065, and make those records available for examination under Texas Finance Code, §351.008. The records required by this section may be maintained by using either an electronic recordkeeping system, a paper or manual recordkeeping system, or a combination of the preceding types of systems, unless otherwise specified by statute or regulation. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section.

(1) Required records. A licensee must maintain the following items:

(A) A loan register, containing the date of the property tax loan, the last name of the borrower, the "total tax lien payment amount" as defined in §89.601 of this title (relating to Fees for Closing Costs), and the loan number;

(B) General business and accounting records, including receipts, documents, canceled checks, or other records for each disbursement made at the borrower's direction or request, or made on his behalf or for his benefit, including foreclosure or legal fees applied to the borrower's account;

(C) Advertising and solicitation records, including examples of all written and electronic communications soliciting loans (including scripts of radio and television broadcasts, and reproductions of billboards and signs not at the licensed place of business) for a period of not less than one year from the date of use or until the next examination by OCCC staff, whichever is later, in order to show compliance with Texas Finance Code, §341.403 and §351.0023;

(D) Adverse action records regarding all applications relating to Texas Finance Code, Chapter 351 property tax loans maintained for 25 months for consumer credit and 12 months for business credit; and

(E) An official correspondence file, including all communications from the OCCC, copies of correspondence and reports addressed to the OCCC, and examination reports issued by the OCCC.

(2) Record of individual borrower's account. A separate record must be maintained for the account of each borrower and the record must contain at least the following information on each loan:

(A) Loan number as recorded on loan register;

(B) Loan schedule and terms itemized to show:

(i) date of loan;

(ii) number of installments;

(iii) due date of installments;

(iv) amount of each installment; and

(v) maturity date;

(C) Name, address, and telephone number of borrower;

(D) Names and addresses of co-borrowers, if any;

(E) Legal description of real property;

(F) Principal amount;

(G) Total interest charges, including the scheduled base finance charge, points (i.e., prepaid finance charge), and per diem interest;

(H) Amount of official fees for recording, amending, or continuing a notice of security interest that are collected at the time the loan is made;

(I) Individual payment entries itemized to show:

(i) date payment received (dual postings are acceptable if date of posting is other than date of receipt);

(ii) actual amounts received for application to principal and interest; and

(iii) actual amounts paid for default, deferment, or other authorized charges;

(J) Any refunds of unearned charges that are required in the event a loan is prepaid in full, including records of final entries, and entries to substantiate that refunds due were paid to borrowers, with refund amounts itemized to show interest charges refunded, including the refund of any unearned points;

(K) Collection contact history, including a written or electronic record of each contact made by a licensee with the borrower or any other person and each contact made by the borrower with the licensee, in connection with amounts due, with each record including the date, method of contact, contacted party, person initiating the contact, and a summary of the contact;

(L) Transfer, assignment, or sale records.

(3) Property tax loan transaction file. A licensee must maintain an electronic or paper copy of a property tax loan transaction file for each individual property tax loan or be able to produce the same information within a reasonable amount of time. The property tax loan transaction file must contain documents that show the licensee's compliance with applicable law, including Texas Finance Code, Chapter 351; Texas Tax Code, §32.06 and §32.065, and any applicable state and federal statutes and regulations. If a substantially equivalent electronic record for any of the following documents exists, a paper copy of the record does not have to be included in the property tax loan transaction file if the electronic record can be accessed upon request. The property tax loan transaction file must include copies of the following records or documents, unless otherwise specified:

(A) For all property tax loan transactions:

(i) all lien transfer and security documents signed by the borrowers, including any promissory note, loan agreement, deed of trust, contract, security deed, other security instrument, or other lien transfer document, executed in accordance with or under Texas Tax Code, §32.06 or §32.065, or Texas Finance Code, §351.002(2)(C);

(ii) the application for credit or transfer of the lien and any other written or recorded information used in evaluating the application;

(iii) the disclosure statement to property owner as required by Texas Tax Code, §32.06(a-4)(1) and §89.504 of this title (relating to Requirements for Disclosure Statement to Property Owner) and §89.506 of this title (relating to Disclosures), including verification of delivery of the statement;

(iv) the sworn document authorizing transfer of tax lien as required by Texas Tax Code, §32.06(a-1) and §89.701 of this title (relating to Sworn Document Authorizing Transfer of Tax Lien), including written documentation to support that the sworn document was sent by certified mail to any mortgage servicer and to each holder of a recorded first lien encumbering the property;

(v) the certified statement of transfer of tax lien as required by Texas Tax Code, §32.06(b) and §89.702 of this title (relating to Certified Statement of Transfer of Tax Lien), including information verifying the date that the certified statement was received by the licensee from the tax assessor-collector;

(vi) a final itemization of the actual fees, points, interest, costs, and charges that were charged at closing and to whom the charges were paid as specified by Texas Tax Code, §32.06(e);

(vii) if available, any tax certificate or other similar record used to determine the status of a tax account for the property subject to the tax lien as required by Texas Tax Code, §32.06(a-2) or authorization by property owner to pay the taxes;

(viii) copies of any other agreements, disclosures, or affidavits signed by the borrower applicable to the property tax loan;

(ix) receipts, invoices, or statements describing the nature of the title defect and the work performed by an attorney, along with proof of payment for recording costs or attorney's fees necessary to address a defect in title, as described by §89.601(c)(5) of this title (relating to Fees for Closing Costs), unless the records required by this clause are maintained under paragraph (1)(B) of this section, and upon request, the licensee produces these records within a reasonable amount of time, and itemizes or otherwise indexes individual entries to a particular property tax loan transaction file;

(x) written documentation of any legitimate discount points offered to the property owner, as described by §89.601(d) of this title, including the written proposal described by §89.601(d)(1)(C);

(B) If the property is residential property owned and used by the property owner for personal, family, or household use, the notice of the right of rescission as specified by Texas Tax Code, §32.06(d-1) and Truth in Lending (Regulation Z), 12 C.F.R. §1026.23;

(C) Copies of any requests for payoff statements received by the licensee or its agent under Texas Tax Code, §32.06(a-6) and §89.801 of this title (relating to Requests for Payoff Statements); copies of any requests for payoff statements received by the licensee or its agent under Texas Tax Code, §32.06(f), (f-1), or §32.065(b-1); and copies of any other requests for payoff statements received by the licensee or its agent;

(D) Copies of any payoff statements issued by the licensee or its agent as required by Texas Tax Code, §32.06(a-6) and (f-3), §89.603 of this title (relating to Fee for Payoff Statement or for Information on Current Balance Owed), and §89.802 of this title (relating to Payoff Statements); and copies of any other payoff statements issued by the licensee or its agent;

(E) Copies of any notifications issued by the licensee or its agent that a request for a payoff statement was deficient, or that a payoff statement was returned undeliverable, as required by §89.802(k) and (l) of this title;

(F) If the property tax loan is delinquent for 90 consecutive days, a notice of delinquency as required by Texas Tax Code, §32.06(f) including evidence that the notice was sent by certified mail;

(G) If received by the licensee, a copy of the notice of delinquency to the licensee from the mortgage servicer or holder of the first lien as specified by Texas Tax Code, §32.06(f-1) and §89.505 of this title (relating to Requirements for Notice of Delinquency to Transferee) and §89.506 of this title;

(H) If the property tax loan is paid off or otherwise satisfied, a copy of the release of lien as required by Texas Tax Code, §32.06(b), or if the property tax loan is satisfied through a foreclosure, the foreclosure deed;

(I) If fees are assessed, charged, or collected after closing, copies of the receipts, invoices, checks or other records substantiating the fees as authorized by Texas Finance Code, §351.0021 and Texas Tax Code, §32.06(e-1) including the following:

(i) if the licensee acquires collateral protection insurance, a copy of the insurance policy or certificate of insurance and the notice required by Texas Finance Code, §307.052

(ii) receipts or invoices along with proof of payment for attorney's fees assessed, charged, and collected under Texas Finance Code, §351.0021(a)(4), (a)(5), and (a)(6), including specific descriptions of services performed by the attorney, unless the records required by this clause are maintained under paragraph (1)(B) of this section, and upon request, the licensee produces these records within a reasonable amount of time, and itemizes or otherwise indexes individual entries to a particular property tax loan transaction file; and

(iii) records identifying all amounts paid to an affiliated business described by paragraph (7) of this section, including a designation that an amount was paid to an affiliated business and a statement of which affiliated business was paid, unless the records required by this clause are maintained under paragraph (1)(B) of this section, and upon request, the licensee produces these records within a reasonable amount of time, and itemizes or otherwise indexes individual entries to a particular property tax loan transaction file;

(J) Copies of any collection letters or notices sent by the licensee or its agent to the borrower;

(K) For a property tax loan where any separate disclosures or notices have been given, copies of the disclosures and notices sent;

(L) For property tax loan transactions involving a foreclosure or attempted foreclosure, the following records:

(i) any records pertaining to the foreclosure, including records from the licensee's attorneys, the court, or the borrower or borrower's agent;

(ii) any notice to cure the default sent to the property owner and each holder of a recorded first lien on the property as specified by Texas Property Code, §51.002(d), including any mail tracking or other verification of delivery of the notice;

(iii) any notice of intent to accelerate sent to the property owner and each holder of a recorded first lien on the property, including any mail tracking or other verification of delivery of the notice;

(iv) any notice of acceleration sent to the property owner and each holder of a recorded first lien on the property;

(v) any written documentation that confirms that the borrower has deferred property tax on the property subject to the property tax loan as permitted under Texas Tax Code, §33.06, such as the Tax Deferral Affidavit for 65 or Over or Disabled Homeowner, Form 50-126 filed with the appraisal district, attorney, or court;

(vi) records relating to the distribution of excess proceeds as required by Texas Tax Code, §34.02 and §34.04;

(vii) the foreclosure deed upon sale of the property;

(viii) if the property is purchased at the foreclosure sale by the licensee, copies of receipts or invoices substantiating any amounts reasonably spent by the purchaser in connection with the property as costs within the meaning of Texas Tax Code, §34.21(g);

(M) For property tax loans involving one or more electronic signatures, copies of any notices or disclosures provided in connection with the electronic signatures and proof of the signature in accordance with standards for electronic signatures.

(4) Corrective entries to the borrower's account record, if justified, including the reason and supporting documentation for each corrective entry and any supporting documentation justifying the corrective entry, maintained under the following documentation guidelines:

(A) Dual recording in collection contact history permissible. The reason for the corrective entry may also be recorded in the collection contact history of the borrower's account record.

(B) Supporting documentation. The supporting documentation justifying the corrective entry may be maintained in the individual borrower's account file or properly stored and indexed in a licensee's optically imaged recordkeeping system.

(C) Manual recordkeeping systems. If a licensee manually maintains the borrower's account record, the licensee must properly correct an improper entry by drawing a single line through the improper entry and entering the correct information above or below the improper entry. No erasures or other obliterations may be made on the payments received or collection contact history section of the manual borrower's account record.

(5) Transfer, assignment, or sale records and register.

(A) A licensee must maintain transfer, assignment, or sale records, whether paper or electronic, when any Texas Finance Code, Chapter 351 property tax loan made by or acquired by the licensee is transferred to another individual or entity.

(B) Copies of any transfers, assignments, or sales of liens must be maintained in each individual borrower's property tax loan transaction file.

(C) A licensee must also maintain a transfer, assignment, or sale records register for any property tax loan transferred, assigned, or sold by the licensee to another party. The transfer, assignment, or sale register must show the name of the borrower, the loan number assigned in the loan register, the date of the transfer or assignment, and the name, address, and license number or exemption certificate number of the party to which the accounts are transferred, assigned, or sold.

(6) Record of loans in litigation and foreclosure.

(A) An index of each foreclosure as it occurs and each legal action by or against the licensee as it is initiated must be recorded. The index must show the borrower's name, account number, and date of action.

(B) All loan records, correspondence, and any other information pertinent to the litigation or foreclosure must be maintained in the borrower's account folders or files.

(7) Records of affiliated businesses. A property tax lender must maintain records describing its relationship with any affiliated business with which the property tax lender regularly contracts 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. The records must include any agreements between the property tax lender and the affiliated business, as well as any filings with the Texas Secretary of State that show the relationship between the property tax lender and the affiliated business.

(8) Disaster recovery plan. A property tax lender must maintain a sufficient disaster recovery plan to ensure that property tax loan transaction information is not destroyed, lost, or damaged.

(9) Information security program. A licensee must maintain the following for an information security program:

(A) written policies and procedures for an information security program to protect borrowers' customer information under the Federal Trade Commission's Safeguards Rule, 16 C.F.R. part 314; and

(B) if a licensee maintains customer information concerning 5,000 or more consumers, a written incident response plan and written risk assessments under 16 C.F.R. §314.4.

(10) Data breach notifications. A licensee must maintain the following for data breach notifications:

(A) the text of any data breach notification provided to borrowers, including any notification under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification; and

(B) any data breach notification provided to a government agency, including any notification provided to the Office of the Attorney General under Texas Business & Commerce Code, §521.053, for a period of four years from the date of the notification.

(11) Retention and availability of records. All books and records required by this section must be available for inspection at any time by OCCC staff, and must be retained for a period of four years from the date of the contract, two years from the date of the final entry made thereon by the licensee, whichever is later, or a different period of time if required by federal law. The records required by this section must be available or accessible at an office in the state designated by the licensee except when the property tax loan transactions are transferred under an agreement which gives the OCCC access to the documents. Documents may be maintained out of state if the licensee has in writing acknowledged responsibility for either making the records available within the state for examination or by acknowledging responsibility for additional examination costs associated with examinations conducted out of state.

History

• Source Note: The provisions of this §89.207 adopted to be effective July 5, 2012, 37 TexReg 4874; amended to be effective May 9, 2013, 38 TexReg 2758; amended to be effective November 7, 2013, 38 TexReg 7693; amended to be effective March 15, 2015, 40 TexReg 1068; amended to be effective July 9, 2015, 40 TexReg 4347; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.208 Advertising

(a) General. A property tax lender may not provide a false, deceptive, or misleading advertisement or solicitation to a potential borrower.

(b) False, deceptive, or misleading practices. An advertisement or solicitation will be considered false, deceptive, or misleading if the advertisement or solicitation:

(1) fails to contain the notice required by Texas Finance Code, §351.0023(a) or (b);

(2) fails to fully disclose the terms required by Texas Finance Code, §351.0023(d) or (e);

(3) fails to clearly and conspicuously disclose the name of the property tax lender;

(4) offers any rates, terms, or conditions relating to a property tax loan unless the property tax lender actually makes a reasonable number of those loans;

(5) makes any representations or statements with reference to the ease of procuring a loan, the speed with which it may be completed, the freedom from credit inquiries, or any other implied difference in service or policy unless the property tax lender will comply with the representations or statements made;

(6) uses phrases such as "most trusted," "property tax lawsuit notification," "lowest rates," "lowest costs," "quickest service," "easy payments," or "repayment in easy installments";

(7) uses "pre-approved," "approved," or any similar expression, unless the statement or offer is unconditional;

(8) uses the word "fixed" to refer to rates or payments for a variable-rate transaction or other credit transaction where the payment will increase; or

(9) indicates or implies that the potential property tax borrower has been sued or will be sued by the taxing unit or another party unless the property tax lender has verified that the taxing unit or another party has sued or will sue within 30 days of when the advertisement or solicitation is sent.

(c) Name of property tax lender. An advertisement or solicitation must include the name of the property tax lender. A property tax lender may only advertise or solicit with the name under which it is authorized to conduct business under Texas Finance Code, Chapter 351.

(d) No advertisements or solicitations in form of negotiable instruments or government documents. A property tax lender or its agents may not distribute or display mailing pieces that have a similarity or resemblance to a blank counter check; postal or express money order; U.S. currency, cash, exchange certificate, or any negotiable instrument whatsoever; or any federal, state, or local government warrant. A property tax lender may not use an envelope, advertisement, or solicitation that contains text, a symbol, or other information indicating or implying that it is from federal, state, or local government.

(e) No use of simulated legal process or documents. A property tax lender or its agent must not use any simulated legal process, simulated legal document, or legal form designed to suggest that legal proceedings have been commenced or completed when in fact they have not.

(f) No impersonation of law enforcement or government employees. A property tax lender or its agent may not impersonate or attempt to impersonate any law enforcement officer or other agent of federal, state, or local governments.

(g) Both variable-rate and non-variable-rate transactions in the same advertisement or solicitation. If a property tax lender offers both variable-rate and non-variable-rate transactions in the same advertisement or solicitation, a property tax lender must use the phrases "Fixed Rate" and "Adjustable Rate" (or "Variable Rate") with equal prominence and must fully and clearly disclose any terms in accordance with Texas Finance Code, §351.0023.

(h) Annual percentage rate and terms of repayment. The annual percentage rate and terms of repayment described by Texas Finance Code, §351.0023(d) - (e) must be calculated and disclosed in accordance with the Truth in Lending Act, 15 U.S.C. §1664, Regulation Z, 12 C.F.R. §1026.24, and §89.502(2) of this title (relating to Definitions).

History

• Source Note: The provisions of this §89.208 adopted to be effective September 5, 2013, 38 TexReg 5707; amended to be effective November 9, 2017, 42 TexReg 6131.

Subchapter C APPLICATION PROCEDURES

7 Tex. Admin. Code § 89.301 Definitions

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 351 have the same meanings as defined in Chapter 351. The following words and terms, when used in this chapter, will have the following meanings, unless the context clearly indicates otherwise.

(1) Key individual--An individual owner, officer, director, or employee with a substantial relationship to the lending business of an applicant or licensee. The following are key individuals:

(A) any individual who is a direct owner of 10% or more of an applicant or licensee;

(B) any individual who is a control person or executive officer of an applicant or licensee, including an individual who has the power to direct management or policies of a company (e.g., president, chief executive officer, general partner, managing member, vice president, treasurer, secretary, chief operating officer, chief financial officer); and

(C) an individual designated as a key individual where necessary to fairly assess the applicant or licensee's financial responsibility, experience, character, general fitness, and sufficiency to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly.

(2) Net assets--The total value of acceptable assets used or designated as readily available for use in the business, less liabilities, other than those liabilities secured by unacceptable assets. Unacceptable assets include, but are not limited to, goodwill, unpaid stock subscriptions, lines of credit, notes receivable from an owner, property subject to the claim of homestead or other property exemption, and encumbered real or personal property to the extent of the encumbrance. Generally, assets are available for use if they are readily convertible to cash within 10 business days.

(3) NMLS--The Nationwide Multistate Licensing System.

History

• Source Note: The provisions of this §89.301 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.302 Filing of New Application

(a) NMLS. In order to submit a property tax lender license application, an applicant must submit a complete, accurate, and truthful license application through NMLS (or a successor system designated by the OCCC), using the current form prescribed by the OCCC. An application is complete when it conforms to the OCCC's written instructions and necessary fees have been paid. The OCCC has made application checklists available through NMLS, outlining the necessary information for a license application.

(b) Company license application. A company license application will include the following information and any other information listed in the OCCC's written instructions:

(1) A company form including the name of the applicant entity, contact information, registered agent, location of books and records, bank account information, legal status, and responses to disclosure questions.

(2) An individual form for each key individual, including name, contact information, and responses to disclosure questions.

(3) A business operating plan describing the source of consumers, purpose of loans, size of loans, and source of working capital.

(4) A management chart showing the applicant's divisions, officers, and managers.

(5) An organizational chart if the applicant is owned by another entity or entities, or has subsidiaries or affiliated entities.

(6) A statement of experience detailing prior experience relevant to the license sought.

(7) A certificate of formation or other formation document.

(8) Any assumed names or other trade names that the applicant will use, and an assumed name certificate for each assumed name or other trade name.

(9) Franchise tax account information showing that the applicant entity is authorized to do business in Texas.

(10) Financial statement and supporting financial information complying with generally accepted accounting principles (GAAP). The OCCC may require a bank confirmation to confirm account balance information with financial institutions.

(A) If a financial statement is unaudited, then it should be dated no earlier than 60 days before the application date.

(B) If a financial statement is audited, then it should be dated no earlier than one year before the application date.

(11) Loan forms that the applicant intends to use, including disclosures and loan contracts.

(c) Branch license application. A branch license application will include the following information and any other information listed in the OCCC's written instructions:

(1) A branch form including the address of the branch, contact details, and business activities.

(2) Any assumed name or other trade name that the applicant will use, and an assumed name certificate for each assumed name or other trade name.

(3) A financial statement and supporting financial information, as described by subsection (b)(10) of this section.

(4) For a license application involving a transfer of ownership, documentation of the transfer of ownership as described by §89.303 of this title

(d) Supplemental information. The OCCC may require additional, clarifying, or supplemental information or documentation as necessary or appropriate to determine that an applicant meets the licensing requirements of Texas Finance Code, Chapter 351.

(e) Amendments to pending application. An applicant must immediately amend a pending application if any information changes requiring a materially different response from information provided in the original application.

History

• Source Note: The provisions of this §89.302 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.303 Transfer of License; New License Application on Transfer of Ownership.

(a) Purpose. This section describes the license application requirements when a licensed entity transfers ownership of the entity. If a transfer of ownership occurs, the transferee must submit a new license application on transfer of ownership under this section.

(b) Definitions. The following words and terms, when used in this section, will have the following meanings:

(1) License transfer--A sale, assignment, or transfer of a property tax lender license.

(2) Permission to operate--A temporary authorization from the OCCC, allowing a transferee to operate under a transferor's license while final approval is pending for a license transfer application or a new license application on transfer of ownership.

(3) Transfer of ownership--Any purchase or acquisition of control of a licensed entity (including acquisition by gift, devise, or descent), or a substantial portion of a licensed entity's assets, where a substantial change in management or control of the business occurs. The term does not include a change in proportionate ownership that results in the exact same owners still owning the business, unless an owner that previously held less than 10% obtains an interest of 10% or more Transfer of ownership includes the following:

(A) an existing owner of a sole proprietorship relinquishes that owner's entire interest in a license or an entirely new entity has obtained an ownership interest in a sole proprietorship license;

(B) any transfer of a substantial portion of the assets of a licensed entity under which a new entity controls business at a licensed location; and

(C) any other purchase or acquisition of control of a licensed entity, or a substantial portion of a licensed entity's assets, where a substantial change in management or control of the business occurs.

(4) Transferee--The entity that controls business at a licensed location after a transfer of ownership.

(5) Transferor--The licensed entity that controls business at a licensed location before a transfer of ownership.

(c) License transfer approval. No property tax lender license may be sold, transferred, or assigned without the written approval of the OCCC, as provided by Texas Finance Code, §351.163. To transfer a license, a transferor may request surrender of its license after the OCCC approves the transferee's new license application on transfer of ownership. A license transfer is complete when the OCCC has approved the transferee's new license application and the transferor's license surrender.

(d) Timing. No later than 30 days after the event of a transfer of ownership, the transferee must file a complete new license application on transfer of ownership in accordance with subsection (e). A transferee may file an application before this date.

(e) Application requirements.

(1) Generally. This subsection describes the application requirements for a new license application on transfer of ownership. A transferee must submit the application in a format prescribed by the OCCC. The OCCC may accept prescribed alternative formats to facilitate multistate uniformity of applications or in order to accept approved electronic submissions. The transferee must pay appropriate fees in connection with the application.

(2) Documentation of transfer of ownership. The application must include documentation evidencing the transfer of ownership. The documentation should include one or more of the following:

(A) a copy of the asset purchase agreement when only the assets have been purchased;

(B) a copy of the purchase agreement or other evidence relating to the acquisition of the equity interest of a licensee that has been purchased or otherwise acquired;

(C) any document that transferred ownership by gift, devise, or descent, such as a probated will or a court order; or

(D) any other documentation evidencing the transfer event.

(3) Application information for new licensee. If the transferee does not hold a property tax lender license at the time of the application, then the application must include the information required for new license applications under §89.302 of this title (relating to Filing of New Application). The instructions in §89.302 of this title apply to these filings.

(4) Application information for transferee that holds a license. If the transferee holds a property tax lender license at the time of the application, then the application must include amendments to the transferee's original license application describing the information that is unique to the transfer event, including disclosure questions, key individuals, and a new financial statement, as provided in §89.302 of this title. The instructions in §89.302 of this title apply to these filings. The responsible person at the new location must file a personal affidavit, personal questionnaire, and employment history, if not previously filed. Other information required by §89.302 of this title need not be filed if the information on file with the OCCC is current and valid.

(5) Request for permission to operate. The application may include a request for permission to operate. The request must be in writing and signed by the transferor and transferee. The request must include all of the following:

(A) a statement by the transferor granting authority to the transferee to operate under the transferor's license while final approval of the application is pending;

(B) an acknowledgement that the transferor and transferee each accept responsibility to any consumer and to the OCCC for any acts performed under the license while the permission to operate is in effect; and

(C) if the application is a new license application on transfer of ownership, an acknowledgement that the transferor will immediately surrender or inactivate its license if the OCCC approves the application.

(f) Permission to operate. If the application described by subsection (e) includes a request for permission to operate and all required information, and the transferee has paid all fees required for the application, then the OCCC may issue a permission to operate to the transferee. A request for permission to operate may be denied even if the application contains all of the required information. The denial of a request for permission to operate does not create a right to a hearing. If the OCCC grants a permission to operate, the transferor must cease operating under the authority of the license. Two companies may not simultaneously operate under a single license. A permission to operate terminates if the OCCC denies an application described by subsection (e).

(g) Transferee's authority to engage in business. If a transferee has filed a complete application including a request for permission to operate as described by subsection (e), by the deadline described by subsection (d), then the transferee may engage in business as a property tax lender. However, the transferee must immediately cease doing business if the OCCC denies the request for permission to operate or denies the application. If the OCCC denies the application, then the transferee has a right to a hearing on the denial, as provided by §89.307(d) of this title (relating to Processing of Application).

(h) Responsibility.

(1) Responsibility of transferor. Before the transferee begins performing property tax lending activity under a license, the transferor is responsible to any consumer and to the OCCC for all property tax lending activity performed under the license.

(2) Responsibility of transferor and transferee. If a transferee begins performing property tax lending activity under a license before the OCCC's final approval of an application described by subsection (e), then the transferor and transferee are each responsible to any consumer and to the OCCC for activity performed under the license during this period.

(3) Responsibility of transferee. After the OCCC's final approval of an application described by subsection (e) of this section, the transferee is responsible to any consumer and to the OCCC for all property tax lending activity performed under the license. The transferee is responsible for any transactions that it purchases from the transferor. In addition, if the transferee receives a license transfer, then the transferee's responsibility includes all activity performed under the license before the license transfer.

History

• Source Note: The provisions of this §89.303 adopted to be effective November 9, 2017, 42 TexReg 6131; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.306 Required Notifications

(a) Advance change notice. No later than the date of the change (or an earlier date specified in the OCCC's written instructions), a licensee must notify the OCCC of a change to any of the following information provided in the original license application:

(1) legal name of entity;

(2) any assumed names of entity;

(3) legal status of entity (e.g., change in organizational form from partnership to corporation); or

(4) names of direct owners or indirect owners;

(5) names of affiliates or subsidiaries;

(6) names of any key individuals;

(7) main address; or

(8) address of any branch location.

(b) Other required notifications. No later than 30 days after the licensee has knowledge of the information, a licensee must report the following information to the OCCC:

(1) any civil or regulatory actions against the licensee or key individuals that were not disclosed in the original application and would require a different answer than that given in the original license application;

(2) criminal history of the licensee or key individuals that was not disclosed in the original application;

(3) any bankruptcy of the licensee or a direct owner; or

(4) any breach of system security under Texas Business & Commerce Code, §521.053, affecting at least 250 residents of this state.

(c) Contact information. Each applicant or licensee is responsible for ensuring that all contact information on file with the OCCC is current and correct, including all mailing addresses, all phone numbers, and all email addresses. The OCCC may send notices to the mailing address or email address on file. It is a best practice for licensees to regularly review contact information on file with the OCCC to ensure that it is current and correct.

History

• Source Note: The provisions of this §89.306 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.307 Processing of Application

(a) Initial review. A response to an incomplete application will ordinarily be made within 14 calendar days of receipt stating that the application is incomplete and specifying the information required for acceptance.

(b) Complete application. An application is complete when:

(1) it conforms to the rules and published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(c) Failure to complete application and deemed withdrawal. If a complete application has not been filed within 30 calendar days after notice of deficiency has been sent to the applicant, the application may be considered withdrawn.

(d) Notice of intent to deny application. If an applicant files a complete license application but the OCCC does not find that the eligibility requirements for a license have been met, then the OCCC will send a notice of intent to deny the license application to the applicant.

(e) Hearing. An affected applicant has 30 calendar days from the date of the notice of intent to deny the license application to request in writing a hearing to contest the denial. This hearing will be conducted pursuant to the Administrative Procedure Act, Texas Government Code, Chapter 2001, and the rules of procedure applicable under §9.1(a) of this title (relating to Application, Construction, and Definitions), before an administrative law judge who will recommend a decision to the commissioner. The commissioner will then issue a final decision after review of the recommended decision.

(f) Processing time.

(1) A license application will ordinarily be approved or denied within 60 calendar days after the date of filing of a completed application.

(2) When a hearing is requested following an initial license application denial, the hearing will ordinarily be scheduled for a date within 60 calendar days after a request for a hearing is made, unless the parties agree to an extension of time. A final decision approving or denying the license application will be made after receipt of the proposal for decision from the administrative law judge.

(3) Exceptions. More time may be taken where good cause exists, as defined by Texas Government Code, §2005.004, for exceeding the established time periods in paragraphs (1) and (2) of this subsection.

History

• Source Note: The provisions of this §89.307 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective January 7, 2016, 41 TexReg 124; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.308 Notice to Debtors of Relocation of Licensed Offices

Written notice of a relocation of an office must be mailed to all debtors of record at least five calendar days prior to the date of relocation. A licensee may send notice to a debtor by email in lieu of mail if the debtor has provided an email address to the licensee and has consented in writing to be contacted at the email address. Any licensee failing to give the required notice must waive all default charges on payments coming due from the date of relocation to 15 calendar days subsequent to the mailing of notices to debtors. Notices must identify the licensee, provide both old and new addresses, provide both old and new telephone numbers, and state the date relocation is effective. The notice to debtors can be waived or modified by the commissioner when it is in the public interest. A request for waiver or modification must be submitted in writing for approval. The commissioner may approve notification to debtors by signs in lieu of notification by mail, if in the commissioner's opinion, no debtors will be adversely affected.

History

• Source Note: The provisions of this §89.308 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.309 License Inactivation or Voluntary Surrender

(a) Inactivation of active license. A licensee may cease operating under a license and choose to inactivate the license. A license may be inactivated by giving notice of the cessation of operations not less than 30 calendar days prior to the anticipated inactivation date. Notification must be provided by filing a license amendment or an approved electronic submission as prescribed by the OCCC. The notice must include the new mailing address for the license, the effective date of the inactivation, and the fee for amending the license. A licensee must continue to pay the yearly renewal fees for an inactive license as outlined in §89.310 of this title (relating to Fees), or the license will expire as described by §89.403 of this title (relating to License Term, Renewal, and Expiration).

(b) Activation of inactive license. A licensee may activate an inactive license by giving notice of the intended activation not less than 30 calendar days prior to the anticipated activation date. Notification must be provided by filing a license amendment or an approved electronic submission as prescribed by the OCCC. The notice must include the contemplated new address of the licensed office, the approximate date of activation, and the fee for amending the license as outlined in §89.310 of this title.

(c) Voluntary surrender of license. Subject to §89.407(b) of this title (relating to Effect of Revocation, Suspension, or Surrender of License), a licensee may request voluntary surrender of a license by providing the information required by the OCCC's written instructions. A surrender is effective when the OCCC approves the surrender. A voluntary surrender will result in cancellation of the license.

History

• Source Note: The provisions of this §89.309 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective September 5, 2019, 44 TexReg 4724; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.310 Fees

(a) New licenses.

(1) Investigation fees. A $200 nonrefundable investigation fee is assessed each time an application for a new license is filed.

(2) Assessment fees. An assessment fee of $600 per active license and $250 per inactive license is assessed each time an application for a new license is filed. This assessment fee will be refunded if the application is not approved.

(b) License transfers. An applicant must pay a $200 nonrefundable investigation fee for each license transfer.

(c) Fingerprint processing. An applicant must pay a fee to a party designated by the Texas Department of Public Safety for processing fingerprints. The Texas Department of Public Safety and the designated party determine the amount of the fee and whether it is refundable.

(d) License amendments. A fee of $25 must be paid each time a licensee amends a license by inactivating a license, activating an inactive license, changing the assumed name of the licensee, changing the organizational form or proportionate ownership, providing notification of a new parent entity, or relocating an office.

(e) License duplicates sent by mail. The fee for a license duplicate sent by mail is $10.

(f) Costs of hearings. The commissioner may assess the costs of an administrative appeal pursuant to Texas Finance Code, §14.207 for a hearing afforded under §89.307(d) of this title (relating to Processing of Application), including the cost of the administrative law judge, the court reporter, and agency staff representing the OCCC at a hearing.

(g) Annual renewal and assessment fees.

(1) An annual assessment fee is required for each active license consisting of:

(A) a fixed fee not to exceed $600; and

(B) a volume fee based upon the lending activity conducted and the volume of business that consists of an amount not to exceed $0.05 per each $1,000 advanced for license holders whose regulated operations occur within Texas Finance Code, Chapter 351 in accordance with the most recent annual report filing required by Texas Finance Code, §351.164.

(2) An annual assessment fee not to exceed $250 is required for each inactive license.

(3) The maximum annual assessment fee for each licensed entity shall not average more than $1,200 per active licensed location.

History

• Source Note: The provisions of this §89.310 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective March 14, 2010, 35 TexReg 1975; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective November 4, 2021, 46 TexReg 7396.

7 Tex. Admin. Code § 89.311 Applications and Notices as Public Records

Once a license application or notice is filed with the OCCC, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

History

• Source Note: The provisions of this §89.311 adopted to be effective November 8, 2007, 32 TexReg 7919; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.312 Property Tax Employee License Under Nationwide Mortgage Licensing System and Registry

As required by Texas Finance Code, §351.0515, a licensee's individual employees who, for actual or expected compensation or gain, act as residential mortgage loan originators in the making, transacting, or negotiating of a property tax loan for a principal dwelling, are required to obtain a license through the Nationwide Mortgage Licensing System and Registry.

History

• Source Note: The provisions of this §89.311 adopted to be effective July 5, 2012, 37 TexReg 4874.

Subchapter D LICENSE

7 Tex. Admin. Code § 89.401 Branch Networks

For purposes of Texas Finance Code, §351.151(b), an authorized licensee with multiple licensed offices is authorized to transact, make, negotiate, arrange, service, hold, and collect loans from any of its licensed locations. Any action relating to a single account may occur at different licensed locations as long as every action is made by a licensed branch operated by the same licensee.

History

• Source Note: The provisions of this §89.401 adopted to be effective November 8, 2007, 32 TexReg 7920; amended to be effective May 9, 2013, 38 TexReg 2758.

7 Tex. Admin. Code § 89.403 License Term, Renewal, and Expiration

(a) License term and renewal. A new license is effective from the date of its issuance until December 31. A license must be renewed annually to remain effective. After renewal, a license is effective for a term of one year, from January 1 to December 31.

(b) NMLS. To maintain and renew a license, a licensee must maintain an active account in NMLS (or a successor system designated by the OCCC). The OCCC may make renewal unavailable to a licensee that fails to maintain an active account.

(c) Due date for annual assessment fee. The annual assessment fee is due by December 1 of each year.

(d) Notice of delinquency. If a licensee does not pay the annual assessment fee, the OCCC will send a notice of delinquency. Notice of delinquency is given when the OCCC sends the notice electronically through NMLS or by email to the primary company contact.

(e) Expiration. If a licensee does not pay the annual assessment fee, the license will expire on the later of:

(1) December 31 of each year; or

(2) the 16th day after notice of delinquency is given under subsection (c) of this section.

(f) Reinstatement. As provided by Texas Finance Code, §349.301 and §349.303(a), if a license was in good standing when it expired, a person may reinstate the expired license not later than the 180th day after its expiration date by paying the annual assessment fee and a $1,000 late filing fee.

History

• Source Note: The provisions of this §89.403 adopted to be effective November 8, 2007, 32 TexReg 7920; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective September 5, 2019, 44 TexReg 4724; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.404 Annual Report

Each licensee must file the required annual report by March 31 for the prior calendar year's loan activity on forms prescribed by the OCCC and must comply with all instructions relating to submitting the report.

History

• Source Note: The provisions of this §89.404 adopted to be effective November 8, 2007, 32 TexReg 7920; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.405 Denial, Suspension, or Revocation Based on Criminal History

(a) Criminal history record information. After an applicant submits a complete license application, including all required fingerprints, and pays the fees required by §89.310 of this title (relating to Fees), the OCCC will investigate the applicant and its key individuals. The OCCC will obtain criminal history record information through NMLS. The OCCC will continue to receive information on new criminal activity reported after the license application has been initially processed.

(b) Disclosure of criminal history. The applicant must disclose all criminal history information required to file a complete application with the OCCC. Failure to provide any information required as part of the application or requested by the OCCC reflects negatively on the belief that the business will be operated lawfully and fairly. The OCCC may request additional criminal history information from the applicant, including the following:

(1) information about arrests, charges, indictments, and convictions of the applicant and its key individuals;

(2) reliable documents or testimony necessary to make a determination under subsection (c) of this section, including letters of recommendation from prosecution, law enforcement, and correctional authorities;

(3) proof that the applicant has maintained a record of steady employment, has supported the applicant's dependents, and has otherwise maintained a record of good conduct; and

(4) proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid or are current.

(c) Crimes directly related to licensed occupation. The OCCC may deny a license application, or suspend or revoke a license, if the applicant or licensee has been convicted of an offense that directly relates to the duties and responsibilities of a licensee under Texas Finance Code, Chapter 351, as provided by Texas Occupations Code, §53.021(a)(1).

(1) Originating, acquiring, or servicing loans under Texas Finance Code, Chapter 351 involves or may involve making representations to consumers regarding the terms of the loan, receiving money from consumers, remitting money to third parties, maintaining accounts, collecting due amounts in a legal manner, foreclosing on real property in compliance with state and federal law, and compliance with reporting requirements to government agencies. Consequently, the following crimes are directly related to the duties and responsibilities of a licensee and may be grounds for denial, suspension, or revocation:

(A) theft;

(B) assault;

(C) any offense that involves misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);

(D) any offense that involves breach of trust or other fiduciary duty;

(E) any criminal violation of a statute governing credit transactions, property tax lending, or debt collection;

(F) failure to file a government report, filing a false government report, or tampering with a government record;

(G) any greater offense that includes an offense described in subparagraphs (A) - (F) of this paragraph as a lesser included offense;

(H) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (G) of this paragraph.

(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a license, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a license to engage in the occupation;

(C) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved;

(D) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a licensee; and

(E) any correlation between the elements of the crime and the duties and responsibilities of the licensed occupation.

(3) In determining whether a conviction for a crime renders an applicant or a licensee unfit to be a licensee, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.023:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person before and after the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) evidence of the person's current circumstances relating to fitness to hold a license, which may include letters of recommendation.

(d) Crimes related to character and fitness. The OCCC may deny a license application if the OCCC 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). In conducting its review of character and fitness, the OCCC will consider the criminal history of the applicant and its key individuals. If the applicant or a key individual has been convicted of an offense described by subsections (c)(1) or (f)(1) of this section, this reflects negatively on an applicant's character and fitness. The OCCC may deny a license application based on other criminal history of the applicant or its key individuals if, when the application is considered as a whole, the agency 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. The OCCC will, however, consider the factors identified in subsection (c)(2) and (3) of this section in its review of character and fitness.

(e) Revocation on imprisonment. A license will be revoked 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).

(f) Other grounds for denial, suspension, or revocation. The OCCC may deny a license application, or suspend or revoke a license, based on any other ground authorized by statute, including the following:

(1) a conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054 or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2)-(3);

(2) errors or incomplete information in the license application;

(3) a fact or condition that would have been grounds for denying the license application, and that either did not exist at the time of the application or the OCCC was unaware of at the time of application, as provided by Texas Finance Code, §351.156(3); and

(4) any other information warranting the belief that the business will not be operated lawfully and fairly, as provided by Texas Finance Code, §351.104(a)(1) and §351.156.

History

• Source Note: The provisions of this §89.405 adopted to be effective November 8, 2007, 32 TexReg 7920; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131; amended to be effective November 4, 2021, 46 TexReg 7396; amended to be effective January 1, 2026, 50 TexReg 8552.

7 Tex. Admin. Code § 89.407 Effect of Revocation, Suspension, or Surrender of License

(a) Effect on existing contracts. Revocation, suspension, or surrender of a license does not affect a preexisting contract between a licensee and a borrower, except no interest may be charged or received by the licensee following the revocation, suspension, or surrender of its license. Alternatively, a licensee whose license is revoked or suspended may transfer or sell its accounts to a licensee, which may continue to charge or receive the contracted rate of interest within the authority of Texas Finance Code, Chapter 351.

(b) Surrendering to avoid administrative action. A licensee may not surrender a license after an administrative action has been initiated without the written agreement of the OCCC.

History

• Source Note: The provisions of this §89.407 adopted to be effective November 8, 2007, 32 TexReg 7920; amended to be effective July 5, 2012, 37 TexReg 4874.

7 Tex. Admin. Code § 89.408 Application Process After Surrender or Revocation

To obtain a license after surrender or revocation, the former licensee is required to file an application for a new license pursuant to the procedures set forth in §89.302 of this title (relating to Filing of New Application).

History

• Source Note: The provisions of this §89.408 adopted to be effective November 8, 2007, 32 TexReg 7920.

Subchapter E DISCLOSURES

7 Tex. Admin. Code § 89.501 Purpose

The purpose of the rules contained in this subchapter is to provide disclosures for property tax loan transactions. These rules prescribe the form and content of the disclosures under Texas Tax Code, §32.06(a-4)(1) and §32.06(f-1).

History

• Source Note: The provisions of this §89.501 adopted to be effective January 3, 2008, 32 TexReg 9944.

7 Tex. Admin. Code § 89.502 Definitions

The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

(1) Amount financed--The total of payments minus the finance charge.

(2) Annual percentage rate--Has the meaning described by Regulation Z, 12 C.F.R. §1026.22, using a finance charge and amount financed described by this section.

(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.

(7) Total of payments--The total amount the borrower will have paid after making all scheduled payments, including payments made at or before closing.

(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.

History

• Source Note: The provisions of this §89.502 adopted to be effective January 3, 2008, 32 TexReg 9944; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.503 Format

(a) Disclosures for property tax loan transactions must be printed in an easily readable font and type size. If other state or federal law requires a different type size for a specific disclosure or contractual provision, the type size specified by the other law should be used.

(b) The text of the document must be set in an easily readable typeface. Typefaces considered to be readable include: Times New Roman, Calibri, Scala, Caslon, Century Schoolbook, Helvetica, and Garamond.

(c) Typeface size is referred to in points. Because different typefaces in the same point size are not of equal size, typeface is not strictly defined but is expressed as a minimum size in the Calibri typeface for visual comparative purposes. Generally, the typeface for the body of the disclosures must be at least as large as 11 point in the Calibri typeface. The typeface for the headings must be in boldface type and at least as large as 12 point in the Calibri typeface. A point is generally viewed as 1/72nd of an inch.

History

• Source Note: The provisions of this §89.503 adopted to be effective January 3, 2008, 32 TexReg 9944; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.504 Requirements for Disclosure Statement to Property Owner

(a) Required elements. A disclosure statement under Texas Tax Code, §32.06(a-4)(1) to be provided to a property owner before the execution of a tax lien transfer must contain the following required elements:

(1) the title "Property Tax Loan Pre-Closing Disclosure" at the top of each page;

(2) the property owner's name and the address of the property;

(3) the property tax lender's name, principal business address, and OCCC license number;

(4) for a residential property loan, the name and NMLS unique identifier of the individual residential mortgage loan originator;

(5) the closing date;

(6) a section labeled "Loan Terms" containing the following:

(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)";

(B) the contract interest rate described on the promissory note or loan agreement, labeled "Interest Rate (loan contract rate)";

(C) the term of the property tax loan in months, labeled "Loan Term";

(D) the monthly payment amount, labeled "Monthly Payment";

(E) the number, amounts, and timing of payments scheduled to repay the property tax loan, labeled "Payment Schedule"; and

(F) one of the following statements, labeled "Prepayment":

(i) for any residential property tax loan, or for a commercial property tax loan that does not have a prepayment penalty, the following statement: "You can pay off the loan at any time without a penalty."

(ii) for a commercial property tax loan that has a prepayment penalty, an explanation of the amount of the prepayment penalty such as: "If you prepay the loan within two years, you will pay a prepayment penalty as high as $________.";

(7) for a residential property tax loan, a section labeled "Loan Calculations" containing the following:

(A) the annual percentage rate, labeled "APR (cost of loan as a yearly rate)";

(B) the amount financed, labeled "Amount Financed (amount of loan used for APR)";

(C) the finance charge, labeled "Finance Charge (loan cost used for APR)"; and

(D) the total of payments, labeled "Total of Payments";

(8) a section labeled "Loan Amount Itemization" containing the following:

(A) a subsection labeled "Amounts paid to taxing units" listing:

(i) the total amount that the property tax lender will pay to taxing units or governmental entities for unpaid taxes, penalties, interest, and collection costs as shown on the tax receipt;

(ii) the name of each taxing unit or governmental entity to which the property tax lender will disburse an amount shown on the tax receipt; and

(iii) the amount to be disbursed to each taxing unit or governmental entity;

(B) a subsection labeled "Closing costs" listing:

(i) the total amount of closing costs;

(ii) the total amount of closing costs paid to or retained by the property tax lender, labeled "Costs to lender"; and

(iii) for each portion of the closing costs paid to a third party, a description of the cost, the name of the third party, and the amount of the cost;

(C) a subsection labeled "Recording costs" listing:

(i) the total amount of expenses to record the lien or liens;

(ii) the name of each governmental unit to which the property tax lender will pay an expense to record a lien; and

(iii) the amount to be paid to each governmental unit for recording expenses;

(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;

(9) for any property tax loan in which the lender will charge prepaid interest, including per diem interest or discount points, a section labeled "Prepaid Interest" containing the following:

(A) the total amount of prepaid interest that the property tax lender will charge, expressed as a dollar amount, labeled "Total prepaid interest (not included in loan amount)";

(B) if the property tax lender will charge per diem interest, the total amount of per diem interest expressed as a dollar amount, with a statement of the per diem interest rate and number of days, labeled "Per diem interest (___% per day, ____ days)";

(C) if the property tax lender will charge discount points, the total amount of discount points expressed as a dollar amount, labeled "Discount points";

(10) the following notice in boldface type, labeled "Tax Office Notice": "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."

(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;

(23) the following statement: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). If this does not resolve your question or complaint, you can contact the OCCC:" and the OCCC's address, consumer helpline, website, and consumer complaint email address as follows: 2601 N. Lamar Blvd., Austin, TX 78705, (800) 538-1579, occc.texas.gov, consumer.complaints@occc.texas.gov;

(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.

(c) Accuracy. All information and amounts on the disclosure statement must be accurate and must correctly reflect the terms of the property tax loan at closing.

(1) Annual percentage rate. For a residential property tax loan, the annual percentage rate will be considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with §89.502(2) of this title (relating to Definitions).

(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.

(A) Method of delivery. The disclosure statement may be delivered by U.S. mail, with prepaid first-class postage, or via facsimile or email if the property owner consents. Alternatively, licensees may deliver the disclosure statement by certified mail with return receipt requested, by using a commercial delivery service with tracking abilities, or by using a courier service.

(B) Timing of delivery. The disclosure statement 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.

(C) Co-applicants. If property owners who are co-applicants provide the same mailing address, one copy delivered to that address is sufficient. If different addresses are shown by co-applicants, a copy must be delivered to each of the co-applicants.

(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.

(A) Verification of delivery by mail. The property tax lender must allow a reasonable period of time for delivery by mail. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.

(B) Verification of delivery via facsimile. For disclosures delivered via facsimile, a dated facsimile confirmation page indicating that the disclosure statement was successfully transmitted to the fax number provided by the property owner will constitute a rebuttable presumption for sufficient delivery.

(C) Verification of delivery by certified mail with return receipt requested. For disclosures delivered by certified mail with return receipt requested, a dated return receipt indicating that the disclosure statement was successfully delivered to the property owner's address will constitute verification of delivery.

(D) Verification of delivery by commercial delivery service with tracking abilities. For disclosures delivered by commercial delivery service, a dated receipt indicating that the disclosure statement was successfully delivered to the property owner's address will constitute verification of delivery.

(E) Verification of delivery by courier service. For disclosures delivered by courier service, a dated receipt indicating that the disclosure statement was successfully delivered to the property owner will constitute verification of delivery.

(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).

(1) Married property owners. If the property is designated as a homestead, the signatures of both spouses must be obtained by the property tax lender in order to acknowledge delivery of a disclosure under this section.

(2) Property owned by a legal entity. If the property is owned by a legal entity (e.g., a living trust), the signature of a person with authority to sign on behalf of the legal entity must be obtained by the property tax lender in order to acknowledge delivery of a disclosure under this section.

(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."

History

• Source Note: The provisions of this §89.504 adopted to be effective January 3, 2008, 32 TexReg 9944; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective September 5, 2013, 38 TexReg 5707; amended to be effective March 15, 2015, 40 TexReg 1068; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.505 Requirements for Notice of Delinquency to Transferee

(a) Required elements. If a notice of delinquency under Texas Tax Code, §32.06(f-1) is sent by the mortgage servicer or the holder of the first lien to the transferee of a tax lien, it must contain the following required elements:

(1) the date of the notice;

(2) the name of the property owner;

(3) the address of the property owner;

(4) the address of the property;

(5) the legal description of the property;

(6) the tax account number or property tax loan number;

(7) the name and address of the mortgage servicer or the first lien holder sending the notice; and

(8) the sender's relationship to the preexisting lien, and if the sender is not the lien holder, the name and address of the lien holder.

(b) Delivery.

(1) Timing of delivery. If the mortgage servicer or the holder of the first lien sends a notice of delinquency under Texas Tax Code, §32.06(f-1) to the transferee of a tax lien, it must be sent within 30 days of the 90-day delinquency of the property owner.

(2) Method of delivery. At a minimum, a notice under this section must be sent by U.S. mail or via facsimile. Mortgage servicers or first lien holders may use certified mail or delivery by a commercial delivery service with tracking abilities.

(c) Verification of delivery. Verification that a notice was sent under this section, at a minimum, must be established by a dated postmark of the U.S. Postal Service or by a dated facsimile confirmation page. Mortgage servicers or first lien holders who use certified mail or a commercial delivery service may verify delivery with a return receipt or tracking receipt.

History

• Source Note: The provisions of this §89.505 adopted to be effective January 3, 2008, 32 TexReg 9944.

7 Tex. Admin. Code § 89.506 Disclosures

(a) The required disclosure statement under Texas Tax Code, §32.06(a-4)(1) to be provided to a property owner before the execution of a tax lien transfer is presented in the following figures:

(1) the following figure is for residential property tax loans:

Attached Graphic

(2) the following figure is for commercial property tax loans:

Attached Graphic

(b) A sample model notice of delinquency under Texas Tax Code, §32.06(f-1) that may be sent by the mortgage servicer or the holder of the first lien to the transferee of a tax lien is presented in the following example.

Attached Graphic

History

• Source Note: The provisions of this §89.506 adopted to be effective January 3, 2008, 32 TexReg 9944; amended to be effective September 5, 2013, 38 TexReg 5707; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.507 Permissible Changes

(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";

(4) Omitting the loan identification number;

(5) Replacing "Amounts paid to taxing units" with "Amounts paid to taxing units and governmental entities" if the property tax lender pays amounts to governmental entities other than taxing units and these amounts are shown on the tax receipt;

(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;

(7) Adding the following statement to the "APR" line of the "Loan Calculations" section: "This is not your interest rate.";

(8) Omitting the "Prepaid Interest" section if there is no prepaid interest charged, omitting the "per diem interest" line if there is no per diem interest charged, and omitting the "discount points" line if there are no discount points charged;

(9) Adding any required disclosure of affiliated businesses under §89.504(g) of this title (relating to Requirements for Disclosure Statement to Property Owner);

(10) Attaching additional pages described by §89.504(b) of this title; or

(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."

(A) Adding an optional affirmation statement to the optional signature block for married property owners: "I affirm that I am married to ______________________ (insert name of spouse)."

(B) Adding an optional affirmation statement to the optional signature block for persons signing on behalf of a legal entity: "I affirm that I am authorized to sign this document on behalf of ____________________ (insert name of legal entity property owner)."

(C) Adding the property owner's address to the optional signature block.

(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.

History

• Source Note: The provisions of this §89.507 adopted to be effective January 3, 2008, 32 TexReg 9944; amended to be effective September 5, 2013, 38 TexReg 5707; amended to be effective November 9, 2017, 42 TexReg 6131.

Subchapter F COSTS AND FEES

7 Tex. Admin. Code § 89.601 Fees for Closing Costs

(a) Applicability. The fee limitations contained in this section are applicable to a residential property tax loan described by §89.102(10) of this title (relating to Definitions).

(b) Closing costs for which fees may be charged, contracted for, or received.

(1) Scope of closing costs. For purposes of this section, the term "closing costs" includes costs incurred by a property tax lender from the time of application through the time of closing.

(2) Examples of closing costs. The following is a non-comprehensive list of examples of closing costs for which a property tax lender may charge, contract for, or receive fees in connection with a property tax loan. Other law may limit the ability to charge these and other fees. Examples of some allowable fees for closing costs include the following:

(A) an application fee;

(B) an appraisal or inspection fee;

(C) a title examination fee;

(D) a property survey fee;

(E) a fee for flood and plat determinations;

(F) a document preparation fee;

(G) a closing or escrow fee;

(H) a fee for a tax certificate or tax payoff determination;

(I) a loan processing fee;

(J) an underwriting fee;

(K) a fee for obtaining credit reports;

(L) a fee for courier and delivery services.

(c) Total maximum fees for closing costs.

(1) Maximum fees include funds received by third parties or retained by property tax lender. The maximum fees provided for by this section encompass fees related to closing costs, whether the charge is paid by a property owner directly to a third party, paid to a third party through a property tax lender, or paid by a property owner directly to and retained by a property tax lender. A property tax lender may absorb any closing costs and may pay third parties out of the total compensation paid to it by a property owner.

(2) Maximum fee limits for closing costs. A property owner may not be charged, directly or indirectly, by a property tax lender an amount related to closing costs in excess of the amounts authorized by this section. A property tax lender may not directly or indirectly charge, contract for, or receive any amount related to closing costs from a property owner in excess of the amounts authorized by this section.

(3) General maximum fee limit. The general maximum fee for closing costs is $900.

(4) Cost for additional parcels of real property. If a property tax loan includes the payment of taxes for more than one parcel of real property, then the property tax lender may charge up to $100 for each additional parcel of property, in addition to the general maximum fee limit described in paragraph (3) of this subsection.

(5) Cost for preparing documents to address title defect. If one or more documents must be prepared in order to address a defect in title on the real property subject to the property tax loan, then the property tax lender may charge a reasonable fee for costs directly incurred in preparing, executing, and recording any necessary documents, in addition to the general maximum fee limit described in paragraph (3) of this subsection. The fee for preparing documents is limited to recording costs paid to a governmental entity (or a private entity designated by a governmental entity for electronic recording) and reasonable attorney's fees paid to a person who is not an employee of the property tax lender. In order for the fee for these documents to be authorized, any documents must comply with all applicable laws, including recording requirements. In particular, any affidavit of heirship must comply with the substantive and procedural requirements of Texas Estates Code, Chapter 203, and must be recorded in the deed records of a county as provided in Texas Estates Code, §203.001(a)(2). For attorney's fees, the property tax lender must provide a statement to the property owner describing the nature of the title defect and the work performed by the attorney. The fee for preparing documents is not authorized under this paragraph if the fee includes any of the following:

(A) recording costs that are not paid to a governmental entity or a private entity designated by a governmental entity for electronic recording;

(B) attorney's fees that are not reasonable;

(C) costs that are not necessary in order to address a defect in title on the real property; or

(D) costs that are not substantiated by receipts or invoices that are maintained under §89.207(3)(A)(ix) of this title (relating to Files and Records Required).

(6) Reasonable closing costs. The maximum fees contained in paragraphs (3), (4), and (5) of this subsection constitute "reasonable closing costs" under Texas Tax Code, §32.06.

(d) Discount points. Legitimate discount points are prepaid interest and are not subject to the general maximum fee limit described by subsection (c) of this section.

(1) Discount points are legitimate if:

(A) the discount points truly correspond to a reduced interest rate;

(B) the discount points are not necessary to originate the loan; and

(C) before closing, the property tax lender provides the property owner with a written proposal describing the options offered to the property owner, including all of the following:

(i) an offer of a property tax loan that includes a contract rate without discount points and a corresponding annual percentage rate, calculated in accordance with Regulation Z, 12 C.F.R. §1026.22, and §89.502(2) of this title (relating to Definitions);

(ii) an offer of a property tax loan that includes a lower contract rate based on discount points and a corresponding annual percentage rate, calculated in accordance with Regulation Z, 12 C.F.R. §1026.22, and §89.502(2) of this title;

(iii) the difference between the contract rate without discount points and the lower contract rate, expressed as a percentage or as a number of points;

(iv) the cost of the discount points expressed as a dollar amount;

(v) the percentage amount equal to the cost of the discount points divided by the principal balance of the loan; and

(vi) a statement that discount points are voluntary and not required to be paid in order to obtain the loan.

(2) If a property tax lender directly or indirectly charges, contracts for, or receives a discount point or other origination fee at closing that is not a legitimate discount point under paragraph (1) of this subsection, then the point or fee is subject to the maximum fee limit described by subsection (c) of this section. A property tax lender may not use the term "discount point" to describe a fee other than a legitimate discount point.

(3) To determine whether a property tax loan exceeds the 18% maximum effective rate of interest described in Texas Tax Code, §32.06(e), legitimate discount points must be included in the calculation of the effective rate. Upon prepayment in full, a property tax lender must spread legitimate discount points in accordance with Texas Finance Code, §302.101.

(4) All legitimate discount points must be paid by the property owner by cash, check, or electronic funds transfer before or at closing of a property tax loan. Discount points may not be included in the funds advanced described by Texas Tax Code, §32.06(e), or in the principal balance upon which interest is calculated.

(5) A property tax lender may not finance any discount points through a separate promissory note or contract, if the note or contract is payable to the property tax lender or to an affiliated business of the property tax lender.

History

• Source Note: The provisions of this §89.601 adopted to be effective January 3, 2008, 32 TexReg 9949; amended to be effective March 15, 2015, 40 TexReg 1068; amended to be effective July 9, 2015, 40 TexReg 4347; amended to be effective November 9, 2017, 42 TexReg 6131.

7 Tex. Admin. Code § 89.602 Fee for Filing Release

(a) Allowable fee components. Under Texas Tax Code, §32.06(b), a licensee may charge the following for filing the release:

(1) the actual cost charged by the county clerk for filing the release;

(2) the actual cost of attorney's fees paid to an outside attorney who is not an employee of the property tax lender for preparing the release; and

(3) an administrative fee not to exceed $35 for services related to filing provided by the property tax lender (e.g., costs to mail or deliver release to county clerk or taxing unit(s)).

(b) Potential limitations on administrative fee. The administrative fee provided by subsection (a)(3) of this section may be limited by other law.

(c) Maximum aggregate fee. The maximum aggregate fee for all of the items provided in subsection (a) of this section shall not exceed $110.

History

• Source Note: The provisions of this §89.602 adopted to be effective March 6, 2008, 33 TexReg 1772; amended to be effective July 5, 2012, 37 TexReg 4874.

7 Tex. Admin. Code § 89.603 Fee for Payoff Statement or for Information on Current Balance Owed

(a) Initial payoff statement. Under Texas Tax Code, §32.06(f-3), a property tax lender is prohibited from charging any fee for providing an initial payoff statement.

(b) Additional payoff statements. A property tax lender may charge a fee not to exceed $10 for providing each additional payoff statement after an initial payoff statement has been provided.

(c) Fee for information on current balance owed. Under Texas Tax Code, §32.06(g), a property tax lender may charge the same fees contained in subsection (b) of this section for responding to a request for the current balance owed by the property owner.

History

• Source Note: The provisions of this §89.603 adopted to be effective March 6, 2008, 33 TexReg 1772.

Subchapter G TRANSFER OF TAX LIEN

7 Tex. Admin. Code § 89.701 Sworn Document Authorizing Transfer of Tax Lien

(a) Required information. A sworn document containing all of the required information provided by this subsection meets the requirements of Texas Tax Code, §32.06(a-1). A sworn document under this section must contain the following information:

(1) the name of the county where the property is located;

(2) a statement that the document is to be returned to the transferee;

(3) a statement by a notary public identifying the affiant(s), either property owner(s) or authorized representative(s), and stating that the affiant(s) personally appeared before the notary and made the statements under oath;

(4) a statement by the property owner(s) or authorized representative(s) that the affiant(s) is over 18 years of age and is capable of making the affidavit, and that the facts stated in the affidavit are within the affiant(s)' personal knowledge and are true and correct;

(5) a statement by the affiant(s) that either the affiant(s) or the entities represented by the affiant(s) owns the real property described in the document;

(6) a description of the property that includes:

(A) the account number or property identification number used by the taxing unit(s);

(B) the legal description of the property; and

(C) the street address of the property, if applicable;

(7) the amount paid for the transfer;

(8) the tax years for the amount paid;

(9) the transferee's name;

(10) the transferee's license status, evidenced by:

(A) if licensed, the transferee's OCCC property tax lender license number; or

(B) if exempt from licensing under Texas Finance Code, §351.051(c)(1):

(i) an affidavit stating the entity's type of organization that qualifies it for the exemption;

(ii) any charter number assigned by the governmental authority that issued the entity's charter; and

(iii) the address of the entity's main office; or

(C) if exempt from licensing under Texas Finance Code, §351.051(c)(2), the certificate issued by the OCCC indicating the entity's exemption;

(11) the transferee's street address;

(12) the following statement: "Pursuant to Texas Tax Code §32.06, I hereby authorize the above-named transferee or transferee's agent (the "Transferee"), to pay all taxes, penalties, interest, and collection costs imposed by any and all local taxing units or their agents on the real property, described above, for the tax years listed above. I further authorize and direct the tax assessor-collector(s) for said taxing units to issue a tax receipt with the collector's seal of office or notarized signature to the Transferee and to certify that the taxes and any penalties and interest on the subject property and collection costs have been paid by the Transferee on behalf of the owner, and the tax lien on the owner's property has been transferred to the Transferee.";

(13) the following statement: "I have been given notice that if this property is my homestead and I am disabled, I may be eligible for a tax deferral under Texas Tax Code §33.06.";

(14) the date the document was signed;

(15) the signature and printed name of the property owner or authorized representative;

(16) the representative capacity or title of the authorized representative, if applicable; and

(17) the notary public's seal and signature.

(b) Optional information. A transferee or property owner may only include the optional information contained in this subsection or attach information as provided in subsection (d) of this section. Any other information included on or added to the standard form may invalidate the satisfaction of Texas Tax Code, §32.06(a-1). The transferee or property owner may require may require that the following information be added to the sworn document:

(1) a notice of confidentiality rights disclosure substantially similar to the required notice or disclosure under Texas Property Code, §11.008;

(2) a statement that the property either is or is not the property owner's homestead;

(3) a statement that there are no federal liens against the property.

(c) Standard sworn document. The standard sworn document under Texas Tax Code, §32.06(a-1) is presented in the following figure.

Attached Graphic

(d) Permissible changes.

(1) Multiple account transfers. In the case of multiple account transfers, the information required by subsection (a)(6), (7), and (8) of this section may be provided in table or list format as an attachment to the standard form.

(2) Joint owners. In a transfer involving joint owners, additional signature blocks containing the information required by subsection (a)(6), (7), (8), (9), and (15) of this section may be attached to the standard form.

(3) Title. The title of the sworn document may be relocated to the top of the form.

(4) Statement on recording. If the transferee will record the sworn document in the real property records, the transferee may replace "Return to:" with "After recording, return to:" at the top of the form.

History

• Source Note: The provisions of this §89.701 adopted to be effective September 10, 2009, 34 TexReg 6105; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective September 5, 2013, 38 TexReg 5707; amended to be effective November 5, 2020, 45 TexReg 7711.

7 Tex. Admin. Code § 89.702 Certified Statement of Transfer of Tax Lien

(a) Required information. A certified statement containing all of the required information provided by this subsection meets the requirements of Texas Tax Code, §32.06(b). A certified statement issued under this section by a tax assessor-collector must contain the following information:

(1) the name of the county where the property is located;

(2) the date the certification is executed;

(3) a description of the property that includes:

(A) the account number or property identification number used by the taxing unit(s);

(B) the legal description of the property; and

(C) the street address of the property, if applicable;

(4) the taxing unit(s) transferring a lien or liens to the transferee;

(5) the amount paid for the transfer;

(6) the tax years for the amount paid;

(7) the property owner's name;

(8) the transferee's name;

(9) the transferee's street address;

(10) the following statement: "I, (Insert Name of Collector), tax assessor-collector for (Insert Name of Taxing Unit) and for all taxing units for which (Insert Name of Taxing Unit) collects ad valorem taxes, certify that the above-named transferee or transferee's agent ("Transferee") has made payment of the amount listed above to the above-named taxing units on the property described above as consideration for a transfer of the tax lien(s), and that the tax liens held by taxing units on the property for the tax years listed above are hereby transferred to Transferee in accordance with Texas Tax Code §32.06. I have issued a receipt to Transferee in conjunction with this certification reflecting the payment for the transfer in the amount of taxes, penalties, interest, and collection costs.";

(11) the name of the tax collector-assessor;

(12) the name of the taxing unit(s);

(13) the signature of the tax assessor-collector, or that of the tax assessor-collector's deputy;

(14) one of the following:

(A) the tax assessor-collector's seal of office; or

(B) a notary public's seal of office and a statement that the certified statement was subscribed and sworn to before a notary public by the tax assessor-collector or the tax assessor-collector's deputy; and

(15) a statement that after the document is recorded, it is to be returned to the transferee.

(b) Optional information. A tax assessor-collector may only include the optional information contained in this subsection or attach information as provided in subsection (d) of this section. Any other information included on or added to the standard form may invalidate the satisfaction of Texas Tax Code, §32.06(b). The tax assessor-collector may require that the following information be added to the certified statement:

(1) a statement that the tax assessor-collector does not review the information provided by other parties for accuracy;

(2) a statement that the tax assessor-collector's certification of the amounts paid and that the transfer occurred does not constitute the rendering of legal advice;

(3) after identifying the county/taxing unit(s) transferring a lien or liens as provided under subsection (a)(4) of this section, the following phrase: "and all political subdivisions and districts for which it collects ad valorem taxes."

(c) Standard certified statement. The standard certified statement under Texas Tax Code, §32.06(b) is presented in the following figure.

Attached Graphic

(d) Permissible changes.

(1) Multiple account transfers. In the case of multiple account transfers, the information required by subsection (a)(3), (4), (5), and (6) of this section may be provided in table or list format as an attachment to the standard form.

(2) Title. The title of the certified statement may be relocated to the top of the form.

(3) Citation to Tax Code. The phrase "Texas Tax Code, §32.06" may be replaced 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).

History

• Source Note: The provisions of this §89.702 adopted to be effective September 10, 2009, 34 TexReg 6105; amended to be effective July 5, 2012, 37 TexReg 4874; amended to be effective November 9, 2017, 42 TexReg 6131.

Subchapter H PAYOFF STATEMENTS

7 Tex. Admin. Code § 89.801 Requests for Payoff Statements

(a) Scope. This section applies to a request described by Texas Tax Code, §32.06(a-6) that:

(1) includes a request for the total payoff amount of a property tax loan;

(2) is sent to a property tax lender; and

(3) is sent by:

(A) the holder of an existing recorded lien on the property subject to the property tax loan; or

(B) a mortgage servicer (or another person) on behalf of a lienholder described by subparagraph (A) of this paragraph.

(b) Required elements. A request under this section must include:

(1) the date of the request;

(2) the requested balance date, which must be:

(A) no earlier than 7 days after the date of the request; and

(B) no later than 30 days after the date of the request;

(3) the name and address of the lienholder that is making the request (or on whose behalf the request is made);

(4) the name of the property tax lender;

(5) the name of the borrower;

(6) the address or a legal description of the property subject to the property tax loan;

(7) one of the following:

(A) the tax account number used by the taxing unit(s);

(B) the property identification number used by the taxing unit(s); or

(C) the property tax loan number used by the property tax lender;

(8) a statement substantially similar to the following: "We (the lienholder) request a statement of the total amount due under the property tax loan on the property listed above, as of the requested balance date. We hold an existing recorded lien on the property.";

(9) a valid delivery method by which the property tax lender must deliver the payoff statement. The lienholder must choose only one delivery method, and the delivery method must be one of the following:

(A) a mailing address;

(B) a fax number; or

(C) an e-mail address;

(10) a statement certifying the purpose for which the lienholder is requesting the payoff statement, substantially similar to one of the following:

(A) "We are requesting a payoff statement for informational purposes under Section 32.06(a-6) of the Texas Tax Code. The payoff statement should be delivered to us within 7 business days of when you receive this request, unless Title 7, Section 89.802 of the Texas Administrative Code provides otherwise.";

(B) "We are requesting a payoff statement because we have the right to pay off the property tax loan under Section 32.06(f) of the Texas Tax Code. Within the last six months, we received notice that the property tax loan was delinquent for at least 90 consecutive days.";

(C) "We are requesting a payoff statement because we have the right to pay off the property tax loan under Section 32.06(f-1) of the Texas Tax Code. We are the holder of a preexisting first lien on the property that was delinquent for at least 90 consecutive days and referred to a collection specialist. Within the last six months, we notified the property tax lender of the delinquency in compliance with the Texas Tax Code."; or

(D) "We are requesting a payoff statement because we have the right to pay off the property tax loan under Section 32.065(b-1) of the Texas Tax Code. The property owner defaulted on the property tax loan and received a notice of acceleration."; and

(11) the signature of the lienholder or the lienholder's representative.

(c) Permissible elements. A request under this section may include:

(1) additional contact information for the requesting lienholder;

(2) the name, address, and contact information of the mortgage servicer (or another person who sends the request on the lienholder's behalf);

(3) the name of one or more co-borrowers on the property tax loan;

(4) the address of the property tax lender; and

(5) reasonable additional instructions regarding delivery of the payoff statement.

(d) Method of delivery. The request must be delivered by one or more of the following methods:

(1) U.S. mail with prepaid first-class postage;

(2) U.S. certified mail with return receipt requested;

(3) a commercial delivery service with tracking abilities;

(4) a courier service;

(5) fax to a number designated by the property tax lender for receiving requests for payoff statements; or

(6) e-mail to an address designated by the property tax lender for receiving requests for payoff statements.

History

• Source Note: The provisions of this §89.801 adopted to be effective November 7, 2013, 38 TexReg 7693.

7 Tex. Admin. Code § 89.802 Payoff Statements

(a) Scope. This section applies to a payoff statement described by Texas Tax Code, §32.06(a-6) that a property tax lender provides in response to a request described by §89.801(a) of this title (relating to Requests for Payoff Statements).

(b) Definitions. In this section, the following terms have the following definitions:

(1) Balance date--The date used to calculate the total payoff amount. The balance date must be the same date as the requested balance date on the request, if possible. If it is not possible for the property tax lender to provide a balance date that is the same as the requested balance date, then the balance date must be as close as possible to the requested balance date.

(2) Business day--A day on which a property tax lender is open for business.

(3) Requestor--A person who sends a request described by §89.801(a) of this title.

(4) Total payoff amount--The total amount due under a property tax loan as of the balance date.

(c) Required elements. A payoff statement under this section must include:

(1) the date of the payoff statement;

(2) the name and address of the property tax lender;

(3) the name of the borrower;

(4) the address or a legal description of the property subject to the property tax loan;

(5) one of the following:

(A) the tax account number used by the taxing unit(s);

(B) the property identification number used by the taxing unit(s); or

(C) the property tax loan number used by the property tax lender;

(6) the total payoff amount;

(7) the balance date;

(8) a statement substantially similar to the following: "The total payoff amount is the total amount due under the property tax loan, as of the balance date stated above.";

(9) an itemization of the total payoff amount, which must include:

(A) the unpaid principal balance on the property tax loan;

(B) the accrued interest as of the balance date;

(C) any refundable amount resulting from unearned legitimate discount points described by §89.601(d) of this title (relating to Fees for Closing Costs); and

(D) any other fees that are part of the total amount due under the property tax loan, with a specific description for each fee;

(10) the due date of the next payment; and

(11) the per diem interest that will accrue after the balance date, expressed as a dollar amount;

(12) a statement indicating the purpose of the payoff statement, substantially similar to one of the following:

(A) "We are providing this payoff statement for informational purposes under Texas Tax Code, §32.06(a-6). This information does not create a right to pay off the property tax loan.";

(B) "We are providing this payoff statement because of a statutory right to pay off the property tax loan under Texas Tax Code, §32.06(f), (f-1) or §32.065(b-1)."; or

(C) "We are providing this payoff statement for another purpose."; and

(13) the signature of the property tax lender.

(d) Permissible elements. A payoff statement under this section may include:

(1) additional contact information for the property tax lender;

(2) the name of one or more co-borrowers on the property tax loan; and

(3) a statement substantially similar to the following: "Certain additional charges may be added to the property tax loan after the date of this statement, to the extent authorized by law."

(e) Calculation of total payoff amount.

(1) For amounts other than the unpaid principal balance and the accrued interest as of the balance date, the total payoff amount may only include amounts charged on or before the date of the payoff statement. This paragraph does not prohibit a property tax lender from imposing lawful additional charges after the date of the payoff statement and before the balance date, if the property tax lender provides the notification and an amended payoff statement described by subsection (f)(3) or (4) of this section.

(2) If the due date of the next payment is before the balance date, then the property tax lender must calculate the total payoff amount as if the borrower will not make the next payment.

(f) Ensuring accuracy and providing updated payoff statement.

(1) A property tax lender must ensure that all information is accurate in a payoff statement under this section.

(2) After the date of the payoff statement and before the balance date, if the property tax lender learns that any of the information was inaccurate as of the date of the payoff statement, then the property tax lender must immediately:

(A) notify the requestor of the inaccuracy; and

(B) send an amended, accurate payoff statement to the requestor in the same manner the payoff statement was sent.

(3) After the date of the payoff statement and before the balance date, if the property tax lender imposes a one-time lawful additional charge that it did not reasonably anticipate on the date of the payoff statement (e.g., a nonsufficient funds fee), then the property tax lender must immediately send an amended, accurate payoff statement to the requestor in the same manner the payoff statement was sent. The amended payoff statement must include the additional charge in the total payoff amount.

(4) If the property tax lender reasonably anticipates that it will impose recurring, lawful additional charges after the date of the payoff statement and before the balance date (e.g., attorney's fees for services performed during a foreclosure), then the property tax lender must notify the requestor in writing of the types of recurring charges that the property tax lender anticipates. The property tax lender must send this notification either on the same date that it sends the payoff statement, or immediately after it learns that the additional charges are likely to be imposed. If the property tax lender imposes additional charges described by this paragraph, then on the balance date, it must send an amended, accurate payoff statement to the requestor in the same manner the payoff statement was sent. The amended payoff statement's total payoff amount must include all additional charges as of the balance date.

(5) After the date of the payoff statement and before the balance date, if any information on the payoff statement changes other than the information described by this subsection (e.g., the property tax lender's address), then the property tax lender must immediately notify the requestor of the change.

(g) Multiple property tax loans on the same property. If a property tax lender receives a request relating to real property on which the property tax lender holds more than one property tax loan, then the property tax lender must provide a separate payoff statement for each of those property tax loans. Each payoff statement must comply with this section. In addition, the property tax lender may provide a combined payoff statement showing the total amount required to pay off all of the property tax loans on the real property.

(h) Method of delivery. The payoff statement must be delivered by the method specified in the request, if the request includes a valid delivery method as provided by §89.801(b)(9) of this title. Delivery to a mailing address must be made by one or more of the following methods:

(1) U.S. mail with prepaid first-class postage;

(2) U.S. certified mail with return receipt requested;

(3) a commercial delivery service with tracking abilities; or

(4) a courier service.

(i) Timing of delivery. The payoff statement must be delivered within seven business days after the date on which the property tax lender receives the request.

(j) Verification of delivery. Verifying delivery of the payoff statement is a best practice for a property tax lender. A property tax lender may rely on an established system of verifiable procedures to verify delivery of a payoff statement under this section. A property tax lender may use any of the following verification methods:

(1) U.S. mail. The property tax lender must allow a reasonable period of time for delivery by mail. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.

(2) Commercial delivery service with tracking abilities. For payoff statements delivered by commercial delivery service, a dated receipt indicating that the payoff statement was successfully delivered to the mailing address provided in the request will constitute verification of delivery.

(3) Courier service. For payoff statements delivered by courier service, a dated receipt indicating that the payoff statement was successfully delivered to the mailing address provided in the request will constitute verification of delivery.

(4) Fax. For payoff statements delivered via facsimile, a dated fax confirmation page indicating that the payoff statement was successfully transmitted to the fax number provided in the request will constitute a rebuttable presumption for sufficient delivery.

(5) E-mail. For payoff statements delivered via e-mail, a dated reply e-mail indicating that the payoff statement was successfully delivered to the e-mail address provided in the request will constitute verification of delivery.

(k) Deficient request. If the request does not contain an element required by §89.801(b) of this title, or if the request contains a material mistake in a required element, then the property tax lender is not required to send a payoff statement under this section. However, the property tax lender must notify the requestor in writing that the request is deficient. The property tax lender must send this notification within two business days of discovery that the request is deficient, and within seven business days of receiving the request. A property tax lender is not required to provide this notification if the request provides no valid method of communicating with the requestor in writing.

(l) Payoff statement returned undeliverable. If a property tax lender attempts delivery of the payoff statement by the method specified in the request, and the payoff statement is returned undeliverable, then the property tax lender must notify the requestor in writing that the payoff statement was returned undeliverable within two business days of discovery that the payoff statement was returned undeliverable. A property tax lender is not required to provide this notification if:

(1) the request provides no valid method of communicating with the requestor in writing; or

(2) the property tax lender delivers the payoff statement by a different method to which the requestor agrees.

History

• Source Note: The provisions of this §89.802 adopted to be effective November 7, 2013, 38 TexReg 7693; amended to be effective July 9, 2015, 40 TexReg 4347.

7 Tex. Admin. Code § 89.803 Model Forms

(a) Model request for payoff statement. The model request for a payoff statement under Texas Tax Code, §32.06(a-6) and §89.801 of this title (relating to Requests for Payoff Statements) is presented in the following figure.

Attached Graphic

(b) Model payoff statement. The model payoff statement under Texas Tax Code, §32.06(a-6) and §89.802 of this title (relating to Payoff Statements) is presented in the following figure.

Attached Graphic

(c) Use of model request for other purposes. A lienholder may use the model request described in subsection (a) of this section for a purpose other than making a request under Texas Tax Code, §32.06(a-6), if the lienholder's use of the request does not violate any other law.

(d) Use of model payoff statement for other purposes. A property tax lender may use the model payoff statement described in subsection (b) of this section for a purpose other than responding to a request under Texas Tax Code, §32.06(a-6), if the property tax lender's use of the statement does not violate any other law.

History

• Source Note: The provisions of this §89.803 adopted to be effective November 7, 2013, 38 TexReg 7693.

7 Tex. Admin. Code § 89.804 Permissible Changes

(a) Requests for payoff statements. A person who submits a request under Texas Tax Code, §32.06(a-6) and §89.801 of this title (relating to Requests for Payoff Statements), must use a form substantially similar to the model form prescribed by Figure: 7 TAC §89.803(a) of this title. The person submitting the request may consider making one or more of the following types of changes:

(1) deleting fields labeled "Optional";

(2) deleting the word "Optional" and surrounding parentheses;

(3) replacing "Mortgage servicer" with an applicable description of the person submitting the request on the lienholder's behalf (e.g., "Law firm");

(4) replacing "Property tax lender" with "Tax lien transferee" or "Transferee";

(5) replacing "Borrower" with "Property owner";

(6) replacing "Address of property" with "Legal description of property";

(7) replacing "property tax loan" with "tax lien transfer";

(8) replacing "other side" with "next page"; or

(9) adding reasonable instructions regarding delivery of the payoff statement.

(b) Payoff statements. A property tax lender who sends a payoff statement under Texas Tax Code, §32.06(a-6) and §89.802 of this title (relating to Payoff Statements), must use must use a form substantially similar to the model prescribed by Figure: 7 TAC §89.803(b) of this title. The property tax lender may consider making one or more of the following types of changes:

(1) deleting fields labeled "Optional";

(2) deleting the word "Optional" and surrounding parentheses;

(3) replacing "Property tax lender" with "Tax lien transferee" or "Transferee";

(4) replacing "Borrower" with "Property owner";

(5) replacing "Address of property" with "Legal description of property";

(6) replacing "property tax loan" with "tax lien transfer";

(7) deleting the fields labeled "Additional fee description," if the total payoff amount does not include any fees other than the unpaid principal balance and accrued interest;

(8) replacing "Additional fee description" with a description of an additional fee (e.g., "Return check fee"), and deleting the surrounding parentheses;

(9) adding fields to describe additional fees; or

(10) replacing "other side" with "next page."

History

• Source Note: The provisions of this §89.804 adopted to be effective November 7, 2013, 38 TexReg 7693.

7 Tex. Admin. Code § 89.805 Payoff for Property Tax Loan Secured by Multiple Properties

(a) Purpose and scope. Under Texas Tax Code, §§32.06(f), 32.06(f-1), and §32.065(b-1), in certain situations where a property tax loan or preexisting mortgage is delinquent or in default, a holder or mortgage servicer of a preexisting lien on a property is entitled to obtain a release of a transferred tax lien, by paying the amount owed under the contract between the property owner and the property tax lender. This section describes how to calculate the amount owed for an individual property where a property tax loan is secured by more than one property. This section applies only to:

(1) a payoff by the mortgage servicer or holder of a recorded preexisting lien due to the delinquency of a property tax loan under Texas Tax Code, §32.06(f);

(2) a payoff by the mortgage servicer or holder of a preexisting first lien due to the delinquency of the obligation secured by a preexisting first lien under Texas Tax Code, §32.06(f-1); and

(3) a payoff by the mortgage servicer of a recorded lien due to default and notice of acceleration of a property tax loan under Texas Tax Code, §32.065(b-1).

(b) Effective date. This section applies only to a property tax loan entered on or after December 1, 2020. This section does not affect any statutory rights of a lienholder for a property tax loan entered before December 1, 2020.

(c) Requirement to allow payoff. If a property tax loan is secured by more than one property, a property tax lender must allow a holder or mortgage servicer to obtain a release for an individual property in accordance with Texas Tax Code, §§32.06(f), 32.06(f-1), and §32.065(b-1), by paying the amount owed for the individual property.

(d) Amount owed for individual property.

(1) Calculation of amount owed. A property tax lender must calculate the amount owed for an individual property by adding:

(A) the outstanding principal balance of the loan, multiplied by the attributable percentage for the individual property;

(B) the outstanding interest for the loan, multiplied by the attributable percentage for the individual property;

(C) authorized post-closing costs that are not part of the principal balance, multiplied by the attributable percentage for the individual property, if the costs relate to the property tax loan generally; and

(D) authorized post-closing costs that are not part of the principal balance, if the costs relate specifically to the individual property.

(2) Attributable percentage. To calculate the attributable percentage for an individual property, a property tax lender must divide the total amount paid for the individual property by the total amount paid for all properties in connection with the property tax loan.

(A) A property tax lender must calculate the total amount paid for the individual property by adding:

(i) the total amount paid to taxing units or governmental entities for unpaid taxes, penalties, interest, and collection costs for the individual property in connection with the property tax loan, as shown on the tax receipt; and

(ii) in the case of a property tax loan that is a refinance, any amount paid for the individual property, as shown on the pre-closing disclosure statement.

(B) A property tax lender must calculate the total amount paid for all properties by adding:

(i) the total amount paid to taxing units or governmental entities for unpaid taxes, penalties, interest, and collection costs for all properties in connection with the property tax loan, as shown on the tax receipts; and

(ii) in the case of a property tax loan that is a refinance, the amounts paid for all properties as shown on the pre-closing disclosure statement.

(3) Lower payoff amount. A property tax lender may allow a property owner, holder, or servicer to obtain a release for an amount that is lower than the amount described by paragraphs (1) and (2) of this subsection.

(4) Post-closing costs. A property tax lender may include authorized post-closing costs related solely to the individual property in the amount owed for the individual property. Post-closing costs related to other individual properties may not be included. Post-closing costs related generally to the property tax loan may be included if multiplied by the attributable percentage. If the property tax lender has charged a post-closing cost that is not expressly authorized by Texas Finance Code, §351.0021, then the property tax lender may not include the cost in the amount owed, and must refund the cost to the property owner.

(5) Recordkeeping. A property tax lender must maintain documentation showing how it calculated the attributable percentage and the amount owed for the individual property. This documentation must be maintained in the property tax loan transaction file for the period described by §89.207 of this title (relating to Files and Records Required).

(6) Lien release fee. In addition to the amount owed for the individual property, a property tax lender may charge a lien release fee described by §89.602 (relating to Fee for Filing Release) for each individual property for which a lien is released.

History

• Source Note: The provisions of this §89.805 adopted to be effective December 1, 2020, 45 TexReg 7711.

7 Tex. Admin. Code § 89.806 Payoff Request from Borrower

(a) Generally. A borrower has a right to pay off a property tax loan early, consistent with the prohibition on prepayment penalties in Texas Tax Code, § 32.065(d), and Texas Finance Code, §343.205 and §351.0021(a)(9). A property tax lender may not "lock out" a borrower or prevent a borrower from paying off the loan early. The borrower's right to pay off the loan early includes the right to authorize another person to pay off the property tax loan.

(b) Payoff request process. If a property tax lender obtains a borrower's authorization to pay off a property tax loan held by an existing property tax lender, then the parties should take these steps.

(1) The authorized property tax lender should obtain a signed written statement from the borrower authorizing the lender to pay off the property tax loan. If the signature is electronic, then the lender must maintain a certificate of authenticity or other proof of the signature in accordance with standards for electronic signatures.

(2) The authorized property tax lender should send a request for a payoff statement to the existing property tax lender. The request should include the borrower's signed authorization, and should include the certificate of authenticity or other proof of the signature. The request should include the borrower's name, the authorized person's name, a description of the property, and reasonable instructions for where to send the payoff statement.

(3) If the request includes the information necessary to complete a payoff statement, then the existing property tax lender should respond with a payoff statement to the authorized property tax lender within seven business days after the existing property tax lender receives the complete request. The payoff statement should include accurate payoff information, and the borrower and the authorized lender should be able to rely on it for a reasonable period of time. The payoff statement should include reasonable instructions for paying off the property tax loan. If the authorized property tax lender's request does not include the information described by paragraph (2) of this subsection, then the existing property tax lender should notify the authorized property tax lender of the deficiency within a reasonable period of time.

(4) The authorized property tax lender may pay off the existing property tax loan as described in the payoff statement.

(5) Once the property tax lender has received the payoff amount, the property tax lender must promptly assign the property tax loan to the authorized person or release the property tax lender's lien on the property.

History

• Source Note: The provisions of this §89.806 adopted to be effective January 1, 2026, 50 TexReg 8552.

Chapter 90 CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 90.101 Definitions

The following words and terms, when used in this chapter, will have the following meanings, unless the context clearly indicates otherwise:

(1) Acquisition Charge--A finance charge assessed for making the loan as authorized under Texas Finance Code, §342.252.

(2) Borrower--The person or persons who sign the loan agreement.

(3) Collateral--An interest in personal property which serves to secure the payment or performance of an obligation. See "Security."

(4) Deferment--An additional period of time beyond a due date for the borrower to make a payment or payments; also known as "Extension."

(5) Installment Account Handling Charge--A finance charge assessed on the loan as authorized under Texas Finance Code, §342.252.

(6) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(7) Prepayment--Any whole or partial payment of an amount equal to one or more full installments made by the borrower prior to the date the payment is due.

(8) Security--An interest in personal property which serves to secure the payment or performance of an obligation. See "Collateral."

History

• Source Note: The provisions of this §90.101 adopted to be effective August 31, 2006, 31 TexReg 6671; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.102 Relationship with Federal Law

In the event of an inconsistency or conflict between the disclosure or notice requirements in these provisions and any current or future federal law, regulation, or interpretation, the requirements of the federal law, regulation, or interpretation will control to the extent of the inconsistency. The remainder of the contract will remain in full force and effect. Use of the Consumer Financial Protection Bureau's promulgated model forms complies with the Truth in Lending requirements of this chapter.

History

• Source Note: The provisions of this §90.102 adopted to be effective August 31, 2006, 31 TexReg 6671; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.103 Format

(a) Generally. Plain language contracts must be printed in an easily readable font and type size pursuant to Texas Finance Code, §341.502(a). If other state or federal law requires a different type size for a specific disclosure or contractual provision, the type size specified by the other law should be used.

(b) Typeface readability. The text of the document must be set in an easily readable typeface. Typefaces considered to be readable include Arial, Calibri, Georgia, Helvetica, Times New Roman, and Verdana.

(c) Titles and headings. 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.

(d) Typeface size. Typeface size is referred to in points. Because different typefaces in the same point size are not of equal size, typeface is not strictly defined but is expressed as a minimum size in the Times New Roman typeface for visual comparative purposes. Use of a larger typeface is encouraged. The typeface for the federal disclosure box or other disclosures required under federal law must be legible, but no minimum typeface is required. Generally, the typeface for the remainder of the contract must be at least as large as 8 point in the Times New Roman typeface. A point is generally viewed as 1/72nd of an inch.

History

• Source Note: The provisions of this §90.103 adopted to be effective August 31, 2006, 31 TexReg 6671; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective January 5, 2023, 47 TexReg 8982.

7 Tex. Admin. Code § 90.104 Non-Standard Contract Filing Procedures

(a) Non-standard contracts. A non-standard contract is a contract that uses clauses other than the model contract provisions. Before a licensee uses a non-standard contract, the contract must be submitted to the OCCC for review under Texas Finance Code, §341.502(c). A non-standard contract:

(1) must be written in plain language designed to be easily understood by the average consumer, as required by Texas Finance Code, §341.502(a);

(2) must be printed in an easily readable font and type size, as required by Texas Finance Code, §341.502(a) and §90.103 of this title (relating to Format);

(3) must be consistent with Texas law and federal law;

(4) must include a notice with the OCCC's contact information, as required by Texas Finance Code, §14.104 and §90.105 of this title (relating to OCCC notice);

(5) must comply with the requirements described in subsection (c) of this section, including the maximum Flesch-Kincaid Grade Level score; and

(6) must be accompanied by a complete submission form containing the information required by subsection (d) of this section.

(b) Disapproval. If a non-standard contract filing fails to comply with one or more of the requirements listed in subsection (a) of this section, then the OCCC may disapprove the filing under Texas Finance Code, §341.502(c). A licensee must cease using a disapproved contract immediately after an order of disapproval takes effect, as provided by Texas Finance Code, §341.502(d).

(c) Contract filing requirements. Copies of the loan contract must be submitted in accordance with the OCCC's instructions and the following requirements:

(1) Microsoft Word format. One copy must be submitted in a Microsoft Word format with the document having either a .doc or .docx extension. The Flesch-Kincaid Grade Level score of the contract must be based on the Microsoft Word readability statistics function for the Microsoft Word version of the contract.

(2) PDF format. One copy must be submitted in a text-searchable PDF format so that the contract may be visually reviewed in its entirety. The page size must be 8.5 inches by 11 inches or 8.5 inches by 14 inches. The PDF may not be locked or restricted in a way that prohibits comparison of different versions of the contract.

(3) No other formats permitted. The OCCC will not accept paper filings or any other unlisted formats for non-standard contract filings.

(4) Maximum Flesch-Kincaid score. The maximum Flesch-Kincaid Grade Level scores for Chapter 342 contract filings are:

(A) grade 8 for Subchapter F (signature loans);

(B) grade 9 for Subchapter E (secured installment loans);

(C) grade 10 for Subchapter G, computed by scoring the note and security document in one continuous Microsoft Word document (home equity loans, second lien purchase money loans, and second lien home improvement contracts).

(d) Submission form. A non-standard contract must be accompanied by a written submission form prescribed by the OCCC. The submission form must be completed in accordance with the OCCC's instructions and the following requirements:

(1) Transaction subchapter. The submission form must identify the subchapter of Texas Finance Code, Chapter 342 under which the contract will be used (Subchapter E, Subchapter F, or Subchapter G).

(2) Contact person. The submission form must identify an individual as the contact person for the contract filing, and must include the individual's name, address, phone number, and email address. If a contract is submitted by a person other than a licensee, then the contract must be accompanied by a dated letter that contains a description of the anticipated users of the contract, and designates the legal counsel or other designated contact person for that filing.

(3) Certification of readability. The submission form must include a certification signed by an officer of the licensee or the entity submitting the form on behalf of the licensee. The certification must state that the contract is written in plain language and that the contract can be easily understood by the average consumer. The certification must also state that the contract is printed in an easily readable font and type size, including a list of the typefaces used in the contract, the font sizes used in the contract, and the Flesch-Kincaid Grade Level score of the contract. The OCCC will prescribe the form of the certification.

History

• Source Note: The provisions of this §90.104 adopted to be effective August 31, 2006, 31 TexReg 6671; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501; amended to be effective January 5, 2023, 47 TexReg 8982.

7 Tex. Admin. Code § 90.105 OCCC Notice

(a) Definitions. "Privacy notice" means any notice that a lender gives regarding a consumer's right to privacy as required by a specific state or federal law.

(b) Required notice.

(1) The following notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(2) The required notice must be given in the language in which a transaction is conducted.

(3) The required notice must be included with each privacy notice.

(4) Regardless of whether any state or federal law requires the lender to give privacy notices, the licensee must take appropriate steps to let consumers know how to file complaints by giving the required notice in compliance with paragraph (1) of this subsection.

(5) The notice described by paragraph (1) must be included on each loan contract of a licensee pursuant to Texas Finance Code, §14.104.

(6) The lender's phone number may be printed in conjunction with the lender's name and address elsewhere on the privacy notice or loan contract if the notice described by paragraph (1) is amended to direct the reader's attention to the area of the document where the phone number may be found.

History

• Source Note: The provisions of this §90.105 adopted to be effective August 31, 2006, 31 TexReg 6671; amended to be effective March 15, 2007, 32 TexReg 1232; amended to be effective November 5, 2015, 40 TexReg 7635.

Subchapter B SECURED CONSUMER INSTALLMENT LOANS (SUBCHAPTER E)

7 Tex. Admin. Code § 90.201 Purpose

(a) The purpose of the rules contained in this subchapter is to provide model plain language contracts in English for Texas Finance Code, Chapter 342, Subchapter E transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. The use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the OCCC in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with Texas Finance Code, §341.502 or rules adopted under this chapter. A licensee may not claim the OCCC's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter E contract; however, a licensee is not limited to the contract provisions addressed by these rules.

History

• Source Note: The provisions of this §90.201 adopted to be effective August 31, 2006, 31 TexReg 6673; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.202 Contract Provisions

A Chapter 342, Subchapter E contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include the provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, if a licensee does not take a security interest in the borrower's personal property, the provisions addressing security interests are not required. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter E contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party;

(2) A Truth in Lending Act disclosure box;

(3) An itemization of amount financed box;

(4) A definitions section specifying the pronouns that designate the borrower and the lender;

(5) A promise to pay;

(6) A late charge provision;

(7) A provision for after maturity interest;

(8) A provision specifying that prepayment is permitted;

(9) A provision specifying the finance charge earnings and refund method;

(10) A provision authorizing deferments;

(11) A provision contracting for a fee for a dishonored check;

(12) A provision specifying the conditions causing default;

(13) A provision regarding property insurance;

(14) A provision regarding credit insurance;

(15) A provision regarding the mailing of notices to the borrower;

(16) Statement of truthful information;

(17) A waiver of notice of intent to accelerate and waiver of notice of acceleration;

(18) A provision expressing no waiver of the lender's rights;

(19) A collection expenses clause;

(20) A clause providing for joint liability;

(21) A usury savings clause;

(22) A credit reporting clause;

(23) A savings clause stating that if any part of the contract is invalid, the rest of the contract remains valid; and

(24) OCCC notice.

History

• Source Note: The provisions of this §90.202 adopted to be effective August 31, 2006, 31 TexReg 6673; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

7 Tex. Admin. Code § 90.203 Model Clauses

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) Model clauses for a Chapter 342, Subchapter E secured consumer installment loan contract.

(1) Pronoun designation of parties. The model clauses refer to the Borrower as "I" or "me." The Lender is referred to as "you" or "your."

(2) Itemization of amount financed box. Two model clauses for the itemization of amount financed are presented in this paragraph. One is for use when the licensee finances an administrative fee. The other is for use when the administrative fee is paid in cash by the borrower. A licensee may delete portions applicable to any insurance premiums that are not financed and may also delete other inapplicable portions. The model clause options regarding the itemization of the amount financed read:

(A) For use when the administrative fee is financed:

Attached Graphic

(B) For use when the administrative fee is paid in cash:

Attached Graphic

(3) Promise to pay. The model clause for the borrower's promise to pay reads:

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(4) Late charge. At the licensee's option, the late charge provision may be made applicable to loans with more than one installment. Alternatively, a licensee may omit the late charge provision for loans with a single repayment. The late charge model clause reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(5) After maturity interest. The after maturity interest model clause for contracts using the scheduled installment earnings method reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(6) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(7) Finance charge earnings and refund method. The model finance charge earnings and refund method clauses include rate bracket amounts that are updated annually in the Texas Credit Letter. The model finance charge earnings and refund method clause options read:

(A) For contracts using the add-on interest method and the scheduled installment earnings method, Texas Finance Code, §342.201(a):

(i) For use when the administrative fee is paid in cash or is not included in the cash advance on which interest is computed:

Attached Graphic

(ii) For use when the administrative fee is financed:

Attached Graphic

(B) For contracts using the scheduled installment earnings method, Texas Finance Code, §342.201(d):

(i) For use when the administrative fee is paid in cash or is not included in the principal balance on which interest is computed: "The annual rate of interest is ___%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid cash advance. The unpaid cash advance does not include the administrative fee, late charges, and returned check charges. If I prepay my loan in full before the final payment is due, I may save a portion of the Finance Charge. I will not get a refund if the refund would be less than $1.00. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. My final payment may be larger or smaller than my regular payment."

(ii) For use when the administrative fee is financed: "The cash advance is $____. The annual rate of interest is ___%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid cash advance. The unpaid cash advance includes the administrative fee, but does not include late charges and returned check charges. If I prepay my loan in full before the final payment is due, I may save a portion of the Finance Charge. I will not get a refund if the refund would be less than $1.00. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. My final payment may be larger or smaller than my regular payment."

(C) For contracts using the scheduled installment earnings method, Texas Finance Code, §342.201(e):

(i) For use when the interest charge is computed by applying a daily rate to brackets under Texas Finance Code, §342.201(e-1)(1), and the administrative fee is paid in cash or is not included in the cash advance on which interest is computed:

Attached Graphic

(ii) For use when the interest charge is computed by applying a daily rate to the brackets under Texas Finance Code, §342.201(e-1)(1), and the administrative fee is financed:

Attached Graphic

(iii) For use when the interest charge is computed as a single equivalent daily rate under Texas Finance Code, §342.201(e-1)(2), and the administrative fee is paid in cash or is not included in the cash advance on which interest is computed: "The annual rate of interest is ___%. The interest rate is computed by applying a single equivalent daily rate under the Texas Finance Code. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid cash advance. The unpaid cash advance does not include the administrative fee, late charges, and returned check charges. If I prepay my loan in full before the final payment is due, I may save a portion of the Finance Charge. I will not get a refund if the refund would be less than $1.00. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. My final payment may be larger or smaller than my regular payment."

(iv) For use when the interest charge is computed as a single equivalent daily rate under Texas Finance Code, §342.201(e-1)(2), and the administrative fee is financed: " The cash advance is $____. The annual rate of interest is ___%. The interest rate is computed by applying a single equivalent daily rate under the Texas Finance Code. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid cash advance. The unpaid cash advance includes the administrative fee, but does not include late charges and returned check charges. If I prepay my loan in full before the final payment is due, I may save a portion of the Finance Charge. I will not get a refund if the refund would be less than $1.00. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. My final payment may be larger or smaller than my regular payment."

(D) For contracts using the true daily earnings method, Texas Finance Code, §342.201(d):

(i) For use when the administrative fee is paid in cash or is not included in the principal balance on which interest is computed: "The annual rate of interest is _____%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the cash advance. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. My final payment may be larger or smaller than my regular payment."

(ii) For use when the administrative fee is financed: "The cash advance is $____. The annual rate of interest is _____%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the cash advance. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. My final payment may be larger or smaller than my regular payment."

(E) For contracts using the true daily earnings method, Texas Finance Code, §342.201(e):

(i) For use when the interest charge is computed by applying a daily rate to the brackets under Texas Finance Code, §342.201(e-1)(1), and the administrative fee is paid in cash or is not included in the cash advance on which interest is computed:

Attached Graphic

(ii) For use when the interest charge is computed by applying a daily rate to the brackets under Texas Finance Code, §342.201(e-1)(1), and the administrative fee is financed:

Attached Graphic

(iii) For use when the interest charge is computed as a single equivalent daily rate under Texas Finance Code, §342.201(e-1)(2), and the administrative fee is paid in cash or is not included in the cash advance on which interest is computed: "The annual rate of interest is _____%. The interest rate is computed by applying a single equivalent daily rate under the Texas Finance Code. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the cash advance. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. My final payment may be larger or smaller than my regular payment."

(iv) For use when the interest charge is computed as a single equivalent daily rate under Texas Finance Code, §342.201(e-1)(2), and the administrative fee is financed: "The cash advance is $____. The annual rate of interest is _____%. The interest rate is computed by applying a single equivalent daily rate under the Texas Finance Code. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the cash advance. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. My final payment may be larger or smaller than my regular payment."

(8) Deferment clause. The deferment model clause reads:

(A) "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(B) Optional language for unilateral deferment(s): "You may extend one or more of my payments without my permission. You have to wait six months to do it again."

(9) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensee may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You can add the fee to the amount I owe or collect it separately."

(10) Default clause. The model default clause reads: "I will be in default if: I do not timely make a payment; I break any promise I made in this agreement; I allow a judgment to be entered against me or the collateral; I sell, lease, or dispose of the collateral; I use the collateral for an illegal purpose; or you believe in good faith that I am not going to keep any of my promises. If there is more than one Borrower, each Borrower agrees to keep all of the promises in the loan documents."

(11) Property insurance disclosure box. The model provision for the disclosure of property insurance reads:

Attached Graphic

(12) Credit insurance disclosure box. The model provision for the disclosure of credit insurance reads:

Attached Graphic

(13) Mailing of notices to borrower. The model agreement regarding the mailing of notices to the borrower reads: "You can mail any notice to me at my last address in your records. Your duty to give me notice will be satisfied when you mail it."

(14) Statement of truthful information. The following clause is sufficient as the borrower's agreement that the information provided to the licensee is true: "I promise that all information I gave you is true."

(15) Waiver of notice of intent to accelerate and waiver of notice of acceleration clause. The waiver of notice of intent to accelerate and waiver of notice of acceleration clause reads: "If I am in default, you may require me to repay the entire unpaid principal balance, and any accrued interest at once. You don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(16) No waiver of lender's rights. The model agreement regarding the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(17) Collection expenses clause. The model provision relating to the collection of expenses if default occurs reads: "If this debt is referred to an attorney for collection, I will pay any attorney fees set by the court plus court costs."

(18) Joint liability clause. The model joint liability clause reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(19) Usury savings clause. The model usury savings clause reads: "I don't have to pay interest or other amounts that are more than the law allows."

(20) Savings clause. The model savings clause reads: "If any part of this contract is declared invalid, the rest of the contract remains valid."

(21) Final agreement and modifications in writing. For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model agreement requiring any change to be in writing reads: "This written loan agreement is the final agreement between you and me and may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this loan agreement. Any change to this agreement must be in writing. Both you and I have to sign written agreements."

(22) Security agreement clause. The model clause for the security agreement reads: "If I am giving collateral for this loan, I will see the separate security agreement for more information and agreements."

(23) Application of law. The model agreement regarding the law to be applied to the contract reads: "Federal law and Texas law apply to this contract."

(24) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(25) Clause describing collateral. In the Truth in Lending Act disclosure box, the model clause describing the collateral reads: "You will have a security interest in the following described collateral ________________."

(26) Clause relating to prepayment. In the Truth in Lending Act disclosure box, the model clause options for prepayment read:

(A) For contracts using the scheduled installment earnings method: "Prepayment: If I pay off early, I may be entitled to a refund of part of the Finance Charge and I will not have to pay a penalty."

(B) For contracts using the true daily earnings method: "Prepayment: If I pay off early, I will not have to pay a penalty."

(27) Security agreement. If the loan is secured, a separate security agreement should be used.

(A) The model clause stating the secured nature of the agreement reads: "To secure this loan, I give you a security interest in the collateral. The collateral includes the property listed below, improvements and attachments to the property, insurance refunds, and proceeds."

(B) Prohibition on transfer and collateral free of encumbrance. The model agreement keeping the collateral free from encumbrance and against transferring it reads: "I own the collateral. I won't sell or transfer it without your written permission. I won't allow anyone else to have an interest in the collateral except you."

(C) Location and restrictions on movement or relocation of collateral. The model agreement regarding the location of the collateral reads: "I will keep the collateral at my address shown above. I will promptly tell you in writing if I change my address. I won't permanently remove the collateral from Texas unless you give me written permission."

(D) Upkeep and use of collateral. The model agreement regarding the upkeep and use of the collateral reads: "I will timely pay all taxes and license fees on the collateral. I will keep it in good repair. I won't use the collateral illegally."

(E) Modifications in writing. The model agreement regarding changes made to the security agreement reads: "Any change to this security agreement has to be in writing. Both you and I have to sign it."

(F) Any default is a default of the security agreement. The model agreement in the security agreement regarding defaults reads: "Any default under my agreements with you will be a default of this security agreement."

(G) Default clause. The model clause setting out the security agreement in case of default reads: "If there is a default, you can take the collateral. You will only do this lawfully and without a breach of the peace. If you take my collateral, you will tell me how much I have to pay to get it back. If I don't pay you to get the collateral back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. My right to get the collateral back ends when you sell it. You can use the money you get from selling it to pay amounts the law allows and to reduce the amount I owe. If any money is left, you will pay it to me. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest."

(28) Credit reporting. The Fair Credit Reporting Act, 15 U.S.C. §1681s-2(a)(7), generally requires a creditor to provide a notice to a consumer before furnishing negative information to a credit bureau. The model clause for credit reporting reads: "You may report information about my account to credit bureaus. Late payments, missed payments, or other defaults on my account may be reflected in my credit report."

History

• Source Note: The provisions of this §90.203 adopted to be effective August 31, 2006, 31 TexReg 6673; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective March 8, 2018, 43 TexReg 1260; amended to be effective November 7, 2019, 44 TexReg 6530; amended to be effective July 9, 2020, 45 TexReg 4501.

7 Tex. Admin. Code § 90.204 Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the secured consumer installment loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes that do not affect the substance of the disclosures.

(7) A sample model contract using the scheduled installment earnings method is presented in the following example.

Attached Graphic

(8) A sample model contract using the true daily earnings method is presented in the following example.

Attached Graphic

(9) A sample model security agreement is presented in the following example.

Attached Graphic

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

History

• Source Note: The provisions of this §90.204 adopted to be effective August 31, 2006, 31 TexReg 6673; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

Subchapter C SIGNATURE LOANS (SUBCHAPTER F)

7 Tex. Admin. Code § 90.301 Purpose

(a) The purpose of the rules contained in this subchapter is to provide model plain language contracts in English for Texas Finance Code, Chapter 342, Subchapter F transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. The use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the OCCC in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with Texas Finance Code, §341.502 or rules adopted under this chapter. A licensee may not claim the OCCC's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter F contract; however, a licensee is not limited to the contract provisions addressed by these rules.

History

• Source Note: The provisions of this §90.301 adopted to be effective August 31, 2006, 31 TexReg 6676; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.302 Contract Provisions

A Chapter 342, Subchapter F contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include the provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, if a licensee does not take a security interest in the borrower's personal property, the provisions addressing security interests are not required. A Chapter 342, Subchapter F contract may contain the following provisions.

(1) Identification of the parties, including the name and address of each party;

(2) A Truth in Lending Act disclosure box;

(3) A definitions section specifying the pronouns that designate the borrower and the lender;

(4) A promise to pay;

(5) A late charge provision;

(6) A provision for after maturity interest;

(7) A provision specifying that prepayment is permitted;

(8) A provision specifying the finance charge earnings and refund method;

(9) A provision authorizing deferments;

(10) A provision specifying the conditions causing default;

(11) A waiver of notice of intent to accelerate and waiver of notice of acceleration;

(12) A provision contracting for a fee for a dishonored check;

(13) A signature block;

(14) A security agreement including provisions addressing:

(A) a statement that the collateral is free from encumbrances;

(B) the location and restrictions on movement or transfer of the collateral; and

(C) a statement that the borrower will appropriately maintain and use the collateral;

(15) A provision regarding the mailing of notices to the borrower;

(16) Statement of truthful information;

(17) A provision expressing no waiver of the lender's rights;

(18) A clause stating that all modifications to the contract must be in writing;

(19) A provision stating Texas law and federal law will apply to the contract;

(20) A clause providing for joint liability;

(21) A usury savings clause;

(22) A credit reporting clause;

(23) OCCC notice;

(24) An arbitration agreement; and

(25) A savings clause stating that if any part of the contract is invalid, all other parts remain valid.

History

• Source Note: The provisions of this §90.302 adopted to be effective August 31, 2006, 31 TexReg 6676; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

7 Tex. Admin. Code § 90.303 Model Clauses

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) Model clauses for a Chapter 342, Subchapter F signature loan contract.

(1) Pronoun designation of parties. The model clauses refer to the Borrower as "I" or "me." The Lender is referred to as "you" or "your."

(2) Promise to pay. The model clause for the borrower's promise to pay reads:

(A) For contracts using the add-on method or the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the unpaid principal balance plus the accrued interest to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(3) Late charge. The late charge model provisions in this paragraph may be used for loans that are regular transactions under Texas Finance Code, §342.001(2). At the licensee's option, the late charge clause may be made applicable only to loans with more than one installment. As other options, a licensee may include one of the model late charge clause options, as set out in subparagraphs (A) and (B) of this paragraph, in both single and multiple installment loans, so long as the licensee does not collect a default charge on a single payment loan or omit the late charge clause for loans with a single repayment. The licensee may use one of the following late charge model provisions:

(A) Option 1: "If I don't pay all of the payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."; or

(B) Option 2: "If I don't pay all of the payment within 10 days after it is due, you can charge me a late charge. If the amount financed is less than $100, the late charge will be 5% of the amount of the installment. If the amount financed is $100 or more, the late charge will be the greater of $10 or 5% of the amount of the installment."

(4) After maturity interest. The after maturity interest model clause for contracts using the add-on method or the scheduled installment earnings method reads: "If I don't pay all I owe by the date the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be at a rate of 18% per year and will begin the day after the final payment becomes due."

(5) Prepayment clause. The model prepayment clause reads:

(A) For contracts using the add-on method or the scheduled installment earnings method: "I can make a whole payment early."

(B) For contracts using the true daily earnings method: "I can make any payment early."

(6) Finance charge earnings and refund method.

(A) Add-on method. For contracts using the add-on method, the model finance charge earnings and refund method clause reads: "The acquisition charge on this loan will not be refunded if I pay off early. If I pay all I owe before the beginning of the last monthly period, I will save part of the installment account handling charge. You will figure the amount I save by the sum of the periodic balances method. This method is explained in the Finance Commission rules. You don't have to refund or credit any amount less than $1.00."

(B) Add-on method for loans of $30 or less. At the licensee's option, the licensee may include the following model finance charge and refund method language if the licensee makes loans of $30 or less using the add-on method: "The acquisition charge on this loan will not be refunded if I pay off early. If this loan is for more than $30 and I pay all I owe before the beginning of the last monthly period, I will save part of the installment account handling charge. You will figure the amount I save by the sum of the periodic balances method. This method is explained in the Finance Commission rules. You don't have to refund or credit any amount less than $1.00."

(C) Scheduled installment earnings method. For contracts using the scheduled installment earnings method, the model finance charge earnings and refund method clause reads: "The annual rate of interest is ___%. This interest rate may not be the same as the Annual Percentage Rate. You figure the interest charge (also called the installment account handling charge) by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid principal balance. At the start of the loan, the unpaid principal balance equals the Amount Financed. The unpaid principal balance does not include the acquisition charge, the interest charge, late charges, charges to extend a payment, or returned check fees. You calculate the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply each of my payments in this order: (1) part of the acquisition charge (figured on a straight-line basis under Finance Commission rules), (2) late charges, (3) returned check fees, (4) accrued interest, and (5) the unpaid principal balance. If I pay off the loan in full early, I may save part of the interest charge. However, you can still collect the unpaid acquisition charge, and the acquisition charge will not be refunded. You don't have to refund or credit any amount less than $1.00."

(D) True daily earnings method. For contracts using the true daily earnings method, the model finance charge earnings and refund method clause reads: "The annual rate of interest is ___%. This interest rate may not be the same as the Annual Percentage Rate. You figure the interest charge (also called the installment account handling charge) by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid principal balance. At the start of the loan, the unpaid principal balance equals the Amount Financed. The unpaid principal balance does not include the acquisition charge, the interest charge, late charges, charges to extend a payment, or returned check fees. You calculate the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. You will apply each of my payments in this order: (1) part of the acquisition charge (figured on a straight-line basis under Finance Commission rules), (2) late charges, (3) returned check fees, (4) accrued interest, and (5) the unpaid principal balance. If I pay off the loan in full early, you can still collect the unpaid acquisition charge, and the acquisition charge will not be refunded."

(7) Deferment clause. The deferment model clause for contracts using the add-on method or the scheduled installment earnings method reads: "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(8) Default clause. The model default clause reads: "If I break any of my promises in this document, you can demand that I immediately pay all that I owe. You can also do this if you in good faith believe that I am not going to be willing or able to keep all of my promises."

(9) Waiver of notice of intent to accelerate and waiver of notice of acceleration clause. The model waiver of notice of intent to accelerate and waiver of notice of acceleration clause reads: "I agree that you don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(10) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. The licensee may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You can add the fee to the amount I owe or collect it separately."

(11) Signature block. At the licensee's option, a witness signature block may be added.

(12) Clause describing collateral.

(A) In the Truth in Lending Act disclosure box, the model clause describing the collateral reads: "You will have a security interest in the following described collateral ________________."

(B) At the licensee's option, if the promissory note is unsecured, the licensee may use the following clause: "This note is unsecured."

(13) Security agreement clause. The model clause setting out the security agreement in case of default reads: "If I am giving collateral for this loan, I will see the separate security agreement for more information and agreements."

(14) Mailing of notice to borrower. The model agreement regarding the mailing of notices to the borrower reads: "You can mail any notice to me at my last address in your records. Your duty to give me notice will be satisfied when you mail it."

(15) Statement of truthful information. The following clause is sufficient as the borrower's agreement that the information provided to the licensee is true: "I promise that all information I gave you is true."

(16) No waiver of lender's rights. The model agreement regarding the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(17) Modifications in writing. The model agreement requiring any change to be in writing reads: "Any change to this agreement has to be in writing. Both you and I have to sign it."

(18) Application of law. The model clause regarding the law to be applied to the contract reads: "Federal law and Texas law apply to this contract."

(19) Joint liability. The model joint liability agreement reads: "I will keep all of my promises in this document. If there is more than one Borrower, each Borrower agrees to keep all of the promises in the loan document."

(20) Usury savings clause. The model usury savings clause reads: "I don't have to pay interest or other amounts that are more than the law allows."

(21) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(22) Security agreement. The model clause setting out the security agreement reads: "We are entering into this security agreement at the same time that we are entering into a loan. In exchange for the loan referenced above, I agree to the follow terms and conditions: To secure this loan, I give you a security interest in the collateral. The collateral includes the property listed below, anything that becomes attached to it, and all proceeds of the collateral. This security interest also secures all other debt I owe you now. I understand that all collateral that I have given to secure loans may also be used to secure this and any other loans you may make to me. I own the collateral. I won't sell or transfer it without your written permission. I won't allow anyone else to have an interest in the collateral except you. I will keep the collateral at my address shown above. I will promptly tell you in writing if I change my address. I won't permanently remove the collateral from Texas unless you give me written permission. I will timely pay all taxes and license fees on the collateral. I will keep it in good repair. I won't use the collateral illegally. Any change to this security agreement has to be in writing. Both you and I have to sign it. Any default under my agreements with you will be a default of this security agreement. Federal law and Texas law apply to this security agreement. If I don't keep any of my promises, you can take the collateral. You will only take the collateral lawfully and without a breach of the peace. If you take my collateral, you will tell me how much I have to pay to get it back. If I don't pay you to get the collateral back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. My right to get the collateral back ends when you sell it. You can use the money you get from selling it to pay amounts the law allows, and to reduce the amount I owe. If any money is left, you will pay it to me. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest."

(23) Credit reporting. The Fair Credit Reporting Act, 15 U.S.C. §1681s-2(a)(7), generally requires a creditor to provide a notice to a consumer before furnishing negative information to a credit bureau. The model clause for credit reporting reads: "You may report information about my account to credit bureaus. Late payments, missed payments, or other defaults on my account may be reflected in my credit report."

History

• Source Note: The provisions of this §90.303 adopted to be effective August 31, 2006, 31 TexReg 6676; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

7 Tex. Admin. Code § 90.304 Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the signature loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes that do not affect the substance of the disclosures.

(7) A sample model contract using the add-on method is presented in the following example:

Attached Graphic

(8) A sample model contract using the scheduled installment earnings method is presented in the following example:

Attached Graphic

(9) A sample model contract using the true daily earnings method is presented in the following example:

Attached Graphic

(10) A sample model security agreement is presented in the following example.

Attached Graphic

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

History

• Source Note: The provisions of this §90.304 adopted to be effective August 31, 2006, 31 TexReg 6676; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

Subchapter D SECOND LIEN HOME EQUITY LOANS (SUBCHAPTER G)

7 Tex. Admin. Code § 90.401 Purpose

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G (secondary mortgage loans with an effective rate of greater than 10%) home equity loan transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the OCCC in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with Texas Finance Code, §341.502 or rules adopted under this chapter. A licensee may not claim the OCCC's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G home equity loan contract; however, a licensee is not limited to the contract provisions addressed by these rules.

History

• Source Note: The provisions of this §90.401 adopted to be effective August 31, 2006, 31 TexReg 6680; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.402 Contract Provisions

(a) A Chapter 342, Subchapter G home equity loan contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G second lien home equity loan contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the borrower and the lender;

(2) A promise to pay;

(3) A late charge provision;

(4) A provision for after maturity interest;

(5) A prepayment clause;

(6) A provision specifying the finance charge earnings and refund method;

(7) A provision contracting for a fee for a dishonored check;

(8) A provision specifying the conditions causing default;

(9) A provision regarding property insurance;

(10) A credit insurance disclosure box;

(11) A provision regarding the mailing of notices to the borrower;

(12) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(13) A provision expressing no waiver of the lender's rights;

(14) A collection expenses clause;

(15) A provision providing for joint liability;

(16) A usury savings clause;

(17) A savings clause stating that if any part of the loan agreement is invalid, the rest remains valid;

(18) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(19) A provision stating that the homestead described in the loan agreement is subject to the lien of the security document;

(20) A provision specifying that federal law and Texas law apply to the contract;

(21) OCCC notice;

(22) A provision describing the collateral; and

(23) Signature blocks.

(b) The security document for a Chapter 342, Subchapter G second lien home equity loan contract may contain the following provisions:

(1) A definitions section;

(2) A provision regarding the secured nature of the agreement;

(3) A provision regarding the transfer of rights in the property;

(4) Borrower and Lender's promise;

(5) A provision regarding late charges and prepayment of principal and interest;

(6) A provision regarding the funds for escrow items;

(7) A provision regarding charges and liens;

(8) A provision regarding property insurance;

(9) A provision stating that the borrower occupies the property as the borrower's homestead;

(10) A provision regarding preservation, maintenance, protection, and inspection of the property;

(11) A provision specifying the conditions causing actual fraud;

(12) A provision regarding protection of the lender's interest in the property and rights under the security document;

(13) A provision regarding the assignment of miscellaneous proceeds and forfeiture;

(14) A provision specifying that the borrower is not released from liability if the licensee modifies the payment schedule;

(15) A provision regarding joint and several liability and specifying that the person who signs the contract grants ownership in the homestead and binds the person's successors and assigns;

(16) A provision regarding the extension of credit charges;

(17) A provision regarding the delivery of notices;

(18) A provision regarding the law governing the contract, stating that if any part of the contract is invalid, the rest of the contract remains valid;

(19) A provision regarding rules of clause construction;

(20) A provision specifying that the licensee will give the borrower a copy of all signed documents at the time the loan agreement is made;

(21) A provision regarding a transfer of interest in the property;

(22) A provision regarding the borrower's right to reinstate after acceleration;

(23) A provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply;

(24) A provision regarding hazardous substances;

(25) A provision regarding acceleration and remedies;

(26) A provision regarding the power of sale;

(27) A provision regarding the release of the lien securing the loan agreement;

(28) A provision specifying that the loan agreement is given without personal liability against each owner of the homestead and the spouse of each owner;

(29) A provision specifying that the borrower has not been required to repay another debt with the proceeds of the loan;

(30) A provision specifying that the borrower has not assigned wages as security for the loan agreement;

(31) A provision specifying that the licensee and the borrower have agreed in writing to the fair market value of the homestead;

(32) A provision regarding trustees and trustee liability;

(33) A provision regarding the licensee's waiving additional collateral;

(34) A default provision;

(35) Signature blocks;

(36) A non-purchase disclosure; and

(37) A provision regarding notice of confidentiality rights.

(c) The provisions described in this section are separate from the TILA-RESPA integrated disclosures required under Regulation Z, 12 C.F.R. §§1026.19, 1026.37 and 1026.38.

History

• Source Note: The provisions of this §90.402 adopted to be effective August 31, 2006, 31 TexReg 6680; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.403 Model Clauses

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) Model clauses for a Chapter 342, Subchapter G second lien home equity loan contract.

(1) Identification.

(A) The model identification clause lists the account or contract number, the name and address of the lender, the date of the note, and the name and address of the borrower. It also lists the following items that must be included on the promissory note under Regulation Z, 12 C.F.R. §1026.36(g):

(i) the lender's Nationwide Mortgage Licensing System and Registry identification number (labeled "Creditor/Lender NMLS ID");

(ii) the name of the individual residential mortgage loan originator with primary responsibility for the origination (labeled "Loan Originator"); and

(iii) the originator's Nationwide Mortgage Licensing System and Registry identification number (labeled "Loan Originator NMLS ID").

(B) The model clause identifying the pronouns used for the borrower and the lender reads: "A word like "I" or "me" means each person who signs as a Borrower. A word like "you" or "your" means the Lender or "Note Holder." The Lender is _________. The Lender may sell or transfer this Note. The Lender or anyone who is entitled to receive payments under this Note is called the "Note Holder." You will tell me in writing who is to receive my payments."

(2) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the Texas scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause for the borrower's promise to pay reads: "This loan is an Extension of Credit defined by Section 50(a)(6), Article XVI of the Texas Constitution."

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(C) The model payment schedule reads:

Attached Graphic

(3) Late charge.

(A) Generally. The general model late charge provision for contracts using the scheduled installments earnings method or the true daily earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(B) High-cost mortgage loans. The model late charge provision for high-cost mortgage loans subject to the limitation on late charges in Regulation Z, 12 C.F.R. §1026.34(a)(8), reads: "If I don't pay all of a payment within 15 days after it is due, you can charge me a late charge. The late charge will be 4% of the amount of the payment past due."

(4) After maturity interest. The model provision for after maturity interest for contracts using the scheduled installment earnings method reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(5) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(6) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

Attached Graphic

(C) For contracts using the true daily earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(7) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensee may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(8) Default clause. The model provision specifying the conditions causing default reads:

Attached Graphic

(9) Property insurance. The model provision regarding property insurance reads:

Attached Graphic

(10) Credit insurance. If single premium credit insurance is allowable, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium." The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Attached Graphic

(11) Mailing of notices to borrower. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it by first class mail."

(12) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the homestead is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this Loan Agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice of acceleration (i.e., payment of all I owe at once). This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the Loan Agreement."

(13) No waiver of lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(14) Collection expenses clause. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this Loan Agreement to the extent not prohibited by law, including Section 50(a)(6), Article XVI of the Texas Constitution. These expenses include, for example, reasonable attorneys' fees. I understand that these fees are not for maintaining or servicing this Loan Agreement."

(15) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower. You can enforce your rights under this Loan Agreement solely against the homestead. This Loan Agreement is made without personal liability against each owner of the homestead and the spouse of each owner unless the owner or spouse obtained this loan by actual fraud. If this loan is obtained by actual fraud, I will be personally liable for the debt, including a judgment for any deficiency that results from your sale of the homestead for an amount less than is owed under this Loan Agreement."

(16) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than the law allows."

(17) Savings clause. The model savings clause stating that if any part of the contract is invalid, the rest remains valid reads: "If any part of this Loan Agreement is declared invalid, the rest of the Loan Agreement remains valid. If any part of this Loan Agreement conflicts with any law, that law will control. The part of the Loan Agreement that conflicts with any law will be modified to comply with the law. The rest of the Loan Agreement remains valid."

(18) Contract supersedes prior agreements. For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model integration clause providing that the contract supersedes prior agreements reads: "This written Loan Agreement is the final agreement between you and me and may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this Loan Agreement. Any change to this Loan Agreement must be in writing. Both you and I have to sign written agreements."

(19) Security document. The model provision stating that the homestead described in the loan agreement is subject to the lien of the security document reads: "The homestead described above by the property address is subject to the lien of the Security Document. I will see the separate Security Document for more information about my rights and responsibilities."

(20) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement. The Texas Constitution will be applied to resolve any conflict between the Texas Constitution and any other law."

(21) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(22) Clause describing collateral. The model provision describing the collateral reads: "The homestead described above by the property address is subject to the lien of the Security Document."

(23) Signature blocks. The licensee may also provide additional signature lines for witness signatures. The model provision regarding signature blocks reads:

Attached Graphic

(c) Model clauses for the security document for a Chapter 342, Subchapter G second lien home equity loan contract.

(1) The model definitions section reads:

(A) "Loan Agreement" means the Note, Security Document, deed of trust, any other related document, or any combination of those documents, under which you have extended credit to me.

(B) "Security Document" means this document, which is dated ________, together with all Riders to this document.

(C) "I" or "me" means _________________________________________, the grantor under this Security Document and the person who signed the Note ("Borrower").

(D) "You" means __________________________________________, the Lender and any holder entitled to receive payments under the Note. Your address is _________________________________________. Your NMLS ID is __________. You are the beneficiary under this Security Document. The loan originator's name is _________________________________________. The loan originator's NMLS ID is __________.

(E) "Trustee" is ______________________________. Trustee's address is ___________________________________.

(F) "Note" means the promissory Note signed by me and dated ______________. The Note states that the amount I owe you is _________________ dollars (U.S. $_______) plus interest. I have promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than ______________________________ (maturity date).

(G) "My Homestead" means the property that is described below under the heading "Transfer of Rights in the Property."

(H) "Extension of Credit" means the debt evidenced by the Note, as defined by Section 50(a)(6), Article XVI of the Texas Constitution and all the documents executed in connection with the debt.

(I) "Riders" means all Riders to this Security Document that I execute.

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(J) "Applicable Law" means all controlling applicable federal, Texas and local constitutions, statutes, regulations, administrative rules, local ordinances, judicial and administrative orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.

(K) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or My Homestead by a condominium association, homeowners association, or similar organization.

(L) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. The term includes point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.

(M) "Escrow Items" means those items that are described in Section ___ of this Security Document.

(N) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds paid by any third party (other than proceeds paid under my insurance) for: damage or destruction of My Homestead; condemnation or other taking of all or any part of My Homestead; conveyance instead of condemnation; or misrepresentations or omissions related to the value or condition of My Homestead.

(O) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amounts under this Security Document.

(P) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §§2601-2617) and Regulation X (12 C.F.R. Part 1024), as amended, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Security Document, "RESPA" refers to all requirements and restrictions that are imposed in regard to a "federally related mortgage loan" even if the Loan Agreement does not qualify as a "federally related mortgage loan" under RESPA.

(Q) "Successor in Interest of me" means any party that has taken title to My Homestead, whether or not that party has assumed my obligations under the Loan Agreement.

(R) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Security Document. Such an arrangement usually takes the form of a long-term "ground lease."

(2) Secured agreement. The model provision regarding the secured nature of the agreement reads: "To secure this loan, I give you a security interest in My Homestead including existing and future improvements, easements, fixtures, attachments, replacements and additions to the property, insurance refunds, and proceeds. This security interest is intended to be limited to the homestead property and not other collateral, as required under the Texas Constitution."

(3) Transfer of rights in property. The model provision regarding a transfer of rights in the property reads:

Attached Graphic

(4) Borrower and Lender's promise. The model provision regarding the borrower and lender's promise to comply with the terms of the security document reads: "YOU AND I PROMISE:".

(5) Late charges and prepayment. The model provision regarding late charges and prepayment of principal and interest reads:

Attached Graphic

(6) Funds for escrow items. The model provision regarding the funds for escrow items reads:

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(7) Charges and liens. The model provision regarding charges and liens reads:

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(8) Property insurance. The model provision regarding property insurance reads:

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(9) Homestead. The model provision stating that the borrower occupies the property as the borrower's homestead reads: "I now occupy and use the property secured by this Security Document as my Texas homestead."

(10) Preservation, maintenance, protection, and inspection of property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage or impair My Homestead, allow it to deteriorate, or commit waste. Whether or not I live in My Homestead, I will maintain it in order to prevent it from deteriorating or decreasing in value due to its condition. I will promptly repair the damage to My Homestead to avoid further deterioration or damage unless you and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring My Homestead only if you release the insurance or condemnation proceeds for the damage to or the taking of My Homestead. You may release proceeds for the repairs and restoration in a single payment or in a series of payments as the work is completed. I still am obligated to complete repairs or restoration of My Homestead even if there are not enough proceeds to complete the work. You or your agent may inspect My Homestead. You may inspect the interior of My Homestead with reasonable cause. You will give me notice stating reasonable cause when or before the interior inspection occurs."

(11) Conditions causing actual fraud. The model provision specifying the conditions causing actual fraud reads:

Attached Graphic

(12) Protection of lender's interest in property and rights under security document. The model provision regarding the protection of the lender's interest in the property and rights under the security document reads:

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(13) Assignment of miscellaneous proceeds and forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

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(14) Forbearance not a waiver. The model provision specifying that the borrower is not released from liability if the licensee modifies the payment schedule reads: "My successors and I will not be released from liability if you extend the time for payment or modify the payment schedule. If I pay late, you will not have to sue me or my successor to require timely future payments. You may refuse to extend time for payment or modify this Loan Agreement even if I request it. If you do not enforce your rights every time, you may enforce them later."

(15) Joint and several liability, security document execution, successors obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants ownership in the homestead and binds the person's successors and assigns reads:

Attached Graphic

(16) Extension of credit charges. The model provision regarding the extension of credit charges reads:

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(17) Delivery of notices. The model provision regarding the delivery of notices reads: "Under the Loan Agreement, you and I will give notices to each other in writing. Any notice under the Loan Agreement will be considered given to me when it is mailed by first class mail or when actually delivered to me at my address if given by another means. You will give notice to My Homestead address unless I provide you a different address. I will notify you promptly of any change of address. I will comply with any reasonable procedure for giving a change of address that you provide. There will only be one address for notice under the Loan Agreement. Notice to me will be considered notice to all persons who are obligated under the Loan Agreement unless Applicable Law requires a separate notice. I may give you notice by delivering or mailing it by first class mail to the address provided by you, unless you require a different procedure. You, however, will not receive notice under the Loan Agreement until you actually receive it. Legal requirements governing notices subject to the Loan Agreement will prevail over conditions in the Loan Agreement."

(18) Governing law and severability. The model provision regarding the law governing the contract, stating that if any part of the contract is invalid, the rest of the contract remains valid reads: "The Loan Agreement will be governed by Texas law and federal law. If any provision in the Loan Agreement conflicts with any legal requirement, all non-conflicting provisions will remain effective."

(19) Rules of construction. The model provision regarding rules of clause construction reads:

Attached Graphic

(20) Loan agreement copies. The model provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, you will give me copies of all documents I sign."

(21) Transfer of interest in property. The model provision regarding a transfer of interest in the property reads: ""Interest in My Homestead" means any legal or beneficial interest. This term includes those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement (the intent of which is the transfer of title by me at a future date to a purchaser). If any part of My Homestead is sold or transferred without your prior written permission, you may require immediate payment of all I owe. You will not exercise this option if disallowed by Applicable Law. If you accelerate, you will give me notice. The notice of acceleration will allow me at least 21 days from the date the notice is given to pay all I owe. If I fail to timely pay all I owe, you may pursue any remedy allowed by the Loan Agreement without further notice or demand."

(22) Borrower's right to reinstate after acceleration. The model provision regarding the borrower's right to reinstate after acceleration reads:

Attached Graphic

(23) Sale of note, change of loan servicer, notice of grievance, and lender's right to comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply reads:

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(24) Hazardous substances. The model provision regarding hazardous substances reads:

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(25) Acceleration and remedies. The model provision regarding acceleration and remedies reads:

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(26) Power of sale. The model provision regarding the power of sale reads:

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(27) Release. The model provision regarding the release of the lien securing the loan agreement reads: "You will cancel and return the Note to me and give me, in recordable form, a release of lien securing the Loan Agreement or a copy of any endorsement of the Note and assignment of the lien to a lender that is refinancing the Loan Agreement. I will pay only the cost of recording the release of lien. My acceptance of the release or endorsement and assignment will end all of your duties under Section 50(a)(6), Article XVI of the Texas Constitution."

(28) Non-recourse liability. The model provision specifying that the loan agreement is given without personal liability against each owner of the homestead and the spouse of each owner reads:

Attached Graphic

(29) Proceeds. The model provision specifying that the borrower has not been required to repay another debt with the proceeds of the loan reads: "I am not required to apply the proceeds of the Loan Agreement to repay another debt except a debt secured by My Homestead or a debt to another lender."

(30) No assignment of wages. The model provision specifying that the borrower has not assigned wages as security for the loan agreement reads: "I have not assigned wages as security for the Loan Agreement."

(31) Acknowledgment of fair market value. The model provision specifying that the licensee and the borrower have agreed in writing to the fair market value of the homestead reads: "You and I agreed in writing to the fair market value of My Homestead on the date of the Loan Agreement."

(32) Trustees and trustee liability. The model provision regarding trustees and trustee liability reads:

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(33) Waiver of additional collateral. The model provision regarding the licensee's waiving additional collateral reads:

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(34) Default. The model default provision reads: "Any default of my agreements with you will be a default of this Security Document."

(35) Signature blocks. The model provision regarding signature blocks reads:

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(36) Non-purchase disclosure. The model provision indicating that the security document does not finance a purchase transaction should appear at the beginning of the document, below the heading and prior to the definitions section. The model non-purchase disclosure provision reads: "This Security Document is not intended to finance Borrower's acquisition of the Property."

(37) Notice of confidentiality rights disclosure. The security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the top of the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

History

• Source Note: The provisions of this §90.403 adopted to be effective August 31, 2006, 31 TexReg 6680; amended to be effective March 15, 2007, 32 TexReg 1233; amended to be effective September 6, 2007, 32 TexReg 5665; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.404 Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the second lien home equity loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes that do not affect the substance of the disclosures.

(7) A licensee may place its NMLS ID number, the individual residential mortgage loan originator's name, or the originator's NMLS ID on any portion of a document requiring this information, including the signature page. To the extent allowed by Regulation Z, 12 C.F.R. §1026.36(g), and the official commentary to that section, a licensee may omit:

(A) the licensee's NMLS ID number, if the licensee does not have an NMLS ID number and is not legally required to obtain one; and

(B) the individual residential mortgage loan originator's NMLS ID number, if the originator does not have an NMLS ID number and is not legally required to obtain one.

(8) A sample model note is presented in the following example.

Attached Graphic

(9) A sample model security document is presented in the following example.

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(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

History

• Source Note: The provisions of this §90.404 adopted to be effective August 31, 2006, 31 TexReg 6680; amended to be effective March 15, 2007, 32 TexReg 1233; amended to be effective September 6, 2007, 32 TexReg 5665; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

Subchapter E SECOND LIEN PURCHASE MONEY LOANS (SUBCHAPTER G)

7 Tex. Admin. Code § 90.501 Purpose

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G purchase money loan transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the OCCC in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with Texas Finance Code, §341.502 or rules adopted under this chapter. A licensee may not claim the OCCC's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G purchase money loan contract; however, a licensee is not limited to the contract provisions addressed by these rules.

History

• Source Note: The provisions of this §90.501 adopted to be effective August 31, 2006, 31 TexReg 6687; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.502 Contract Provisions

(a) A Chapter 342, Subchapter G purchase money loan transaction may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G second lien purchase money loan transaction may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the borrower and the lender, and the property address;

(2) A promise to pay;

(3) A late charge provision;

(4) A provision for after maturity interest;

(5) A prepayment clause;

(6) A provision specifying the finance charge earnings and refund method;

(7) A provision contracting for a fee for a dishonored check;

(8) A provision specifying the conditions causing default;

(9) A provision regarding property insurance;

(10) A credit insurance disclosure box;

(11) A provision regarding the mailing of notices to the borrower;

(12) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(13) A provision expressing no waiver of the lender's rights;

(14) A collection expenses clause;

(15) A provision providing for joint liability;

(16) A usury savings clause;

(17) A savings clause stating that if any part of the loan agreement is invalid, the rest remains valid;

(18) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(19) A provision stating that the property described in the loan agreement is subject to the lien of the security document;

(20) A provision specifying that federal law and Texas law apply to the contract;

(21) OCCC notice;

(22) A provision describing the collateral; and

(23) Signature blocks.

(b) The security document for a Chapter 342, Subchapter G second lien purchase money loan contract may contain the following provisions:

(1) A definitions section;

(2) A provision regarding the secured nature of the agreement;

(3) A provision regarding the transfer of rights in the property;

(4) Borrower and Lender's promise;

(5) A provision regarding late charges and prepayment of principal and interest;

(6) A provision regarding the funds for escrow items;

(7) A provision regarding charges and liens;

(8) A provision regarding property insurance;

(9) A provision regarding preservation, maintenance, protection, and inspection of the property;

(10) A provision regarding protection of the lender's interest in the property and rights under the security document;

(11) A provision regarding the assignment of miscellaneous proceeds and forfeiture;

(12) A provision specifying that the borrower is not released from liability if the licensee modifies the payment schedule;

(13) A provision regarding joint and several liability and specifying that the person who signs the contract grants ownership in the homestead and binds the person's successors and assigns;

(14) A provision regarding the extension of credit charges;

(15) A provision regarding the delivery of notices;

(16) A provision regarding the law governing the contract, stating that if any part of the contract is invalid, the rest of the contract remains valid;

(17) A provision regarding rules of clause construction;

(18) A provision specifying that the licensee will give the borrower a copy of all signed documents at the time the loan agreement is made;

(19) A provision regarding a transfer of interest in the property;

(20) A provision regarding the borrower's right to reinstate after acceleration;

(21) A provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply;

(22) A provision regarding hazardous substances;

(23) A provision regarding acceleration and remedies;

(24) A provision regarding the assignment of rents, appointment of receiver, and the lender in possession;

(25) A provision regarding the power of sale;

(26) A provision regarding the release of the lien securing the loan agreement;

(27) A provision regarding the lender's rights and the borrower's responsibilities;

(28) A provision regarding trustees and trustee liability;

(29) A default provision;

(30) A provision regarding subrogation;

(31) A provision regarding what happens if the sum secured and other charges violate applicable law;

(32) A request for notice of default and foreclosure under superior mortgages or security documents provision;

(33) Signature blocks;

(34) An acknowledgment; and

(35) A provision regarding notice of confidentiality rights.

(c) The provisions described in this section are separate from the TILA-RESPA integrated disclosures required under Regulation Z, 12 C.F.R. §§1026.19, 1026.37 and 1026.38.

History

• Source Note: The provisions of this §90.502 adopted to be effective August 31, 2006, 31 TexReg 6687; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.503 Model Clauses

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) Model clauses for a Chapter 342, Subchapter G second lien purchase money loan contract.

(1) Identification.

(A) The model identification clause lists the account or contract number, the name and address of the lender, the date of the note, the name and address of the borrower, and the property address. It also lists the following items that must be included on the promissory note under Regulation Z, 12 C.F.R. §1026.36(g):

(i) the lender's Nationwide Mortgage Licensing System and Registry identification number (labeled "Creditor/Lender NMLS ID");

(ii) the name of the individual residential mortgage loan originator with primary responsibility for the origination (labeled "Loan Originator"); and

(iii) the originator's Nationwide Mortgage Licensing System and Registry identification number (labeled "Loan Originator NMLS ID").

(B) The model clause identifying the pronouns used for the borrower and the lender reads: A word like "I" or "me" means each person who signs as a Borrower. A word like "you" or "your" means the Lender or "Note Holder". The Lender is _________. The Lender may sell or transfer this Note. The Lender or anyone who is entitled to receive payments under this Note is called the "Note Holder." You will tell me in writing who is to receive my payments."

(2) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause options for the borrower's promise to pay read:

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(C) The model payment schedule reads:

Attached Graphic

(3) Late charge.

(A) Generally. The general model late charge provision for contracts using the scheduled installment earnings method or the true daily earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(B) High-cost mortgage loans. The model late charge provision for high-cost mortgage loans subject to the limitation on late charges in Regulation Z, 12 C.F.R. §1026.34(a)(8), reads: "If I don't pay all of a payment within 15 days after it is due, you can charge me a late charge. The late charge will be 4% of the amount of the payment past due."

(4) After maturity interest. The model clause specifies the maximum interest rate allowed by law for after maturity interest for contracts using the scheduled installment earnings method. A licensee may always choose a lower rate. The model provision for after maturity interest reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(5) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(6) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

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(C) For contracts using the true daily earnings method - Section 342.301 rate loans, the model language reads:

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(7) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensee may always choose a lesser amount. The model fee for dishonored check provision reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(8) Default clause. The model provision specifying the conditions causing default reads:

Attached Graphic

(9) Property insurance. The model provision regarding property insurance reads:

Attached Graphic

(10) Credit insurance. If single premium credit insurance is offered, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium." The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Attached Graphic

(11) Mailing of notices to borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it."

(12) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the Property is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this Loan Agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice that you are demanding immediate payment of all that I owe. This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the Loan Agreement."

(13) No waiver of lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(14) Collection expenses clause. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this Loan Agreement to the extent not prohibited by Applicable Law. These expenses include, for example, reasonable attorneys' fees."

(15) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(16) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(17) Savings clause. The model savings clause stating that if any part of the contract is invalid, the rest remains valid reads: "If any part of this Loan Agreement is declared invalid, the rest of the Loan Agreement remains valid. If any part of this Loan Agreement conflicts with any law, that law will control. The part of the Loan Agreement that conflicts with any law will be modified to comply with the law. The rest of the Loan Agreement remains valid."

(18) Contract supersedes prior agreements. For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model integration clause providing that the contract supersedes prior agreements reads: "This written Loan Agreement is the final agreement between you and me and may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this Loan Agreement. Any change to this Loan Agreement must be in writing. Both you and I have to sign written agreements."

(19) Security document. The model provision stating that the property described in the loan agreement is subject to the lien of the security document reads: "In addition to the protections given to the Note Holder under this Note, a Security Document, dated ______________, protects the Note Holder from possible losses that might result if I do not keep the promises that I make in this Note. The Security Document describes how and under what conditions I may be required to make immediate payment in full of any amounts that I owe under this Note."

(20) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement."

(21) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(22) Clause describing collateral. The model provision describing the collateral reads: "The collateral described above by the property address is subject to the lien of the Security Document."

(23) Signature blocks. The licensee may also provide additional signature lines for witness signatures. The model provision regarding signature blocks reads:

Attached Graphic

(c) Model clauses for a security document for a Chapter 342, Subchapter G second lien purchase money loan contract.

(1) The model definitions section reads:

(A) "Loan Agreement" means the Note, Security Document, deed of trust, any other related document, or any combination of those documents, under which you have made a loan to me.

(B) "Security Document" means this document, which is dated ________, together with all Riders to this document.

(C) "I" or "me" means _________________________________________, the grantor under this Security Document and the person who signed the Note ("Borrower").

(D) "You" means __________________________________________, the Lender and any holder entitled to receive payments under the Note. Your address is _________________________________________. Your NMLS ID is __________. You are the beneficiary under this Security Document. The loan originator's name is _________________________________________. The loan originator's NMLS ID is __________.

(E) "Trustee" is ______________________________. Trustee's address is _________________________________.

(F) "Note" means the Purchase Money Note signed by me and dated __________. The Note states that the amount I owe you is _________________ dollars (U.S. $__) plus interest. I have promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than ____________________________________ (maturity date).

(G) "Property" means the real estate that is described below under the heading "Transfer of Rights in the Property."

(H) "Riders" means all Riders to this Security Document that I execute.

Attached Graphic

(I) "Applicable Law" means all controlling applicable federal, Texas and state constitutions, statutes, regulations, administrative rules, local ordinances, judicial and administrative orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.

(J) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or the Property by a condominium association, homeowners association, or similar organization.

(K) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. The term includes point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.

(L) "Escrow Items" means those items that are described in Section ___ of this Security Document.

(M) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds paid by any third party (other than proceeds paid under my insurance) for: damage or destruction of the Property; condemnation or other taking of all or any part of the Property; conveyance instead of condemnation; or misrepresentations or omissions related to the value or condition of the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amounts under this Security Document.

(O) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §§2601-2617) and Regulation X (12 C.F.R. Part 1024), as amended, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Security Document, "RESPA" refers to all requirements and restrictions that are imposed in regard to a "federally related mortgage loan" even if the Loan Agreement does not qualify as a "federally related mortgage loan" under RESPA.

(P) "Successor in Interest of me" means any party that has taken title to the Property, whether or not that party has assumed my obligations under the Loan Agreement.

(Q) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Security Document. Such an arrangement usually takes the form of a long-term "ground lease."

(2) Secured agreement. The model provision regarding the secured nature of the agreement reads: "To secure this Loan Agreement, I give you a security interest in the Property including existing and future improvements, easements, fixtures, attachments, replacements and additions to the Property, insurance refunds, and proceeds."

(3) Transfer of rights in property. The model provision regarding a transfer of rights in the property reads:

Attached Graphic

(4) Borrower and Lender's promise. The model provision regarding the borrower and lender's promise to comply with the terms of the security document reads: "YOU AND I PROMISE:".

(5) Late charges and prepayment. The model provision regarding late charges and prepayment of principal and interest reads:

Attached Graphic

(6) Funds for escrow items. The model provision regarding the funds for escrow items reads:

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(7) Charges and liens. The model provision regarding charges and liens reads:

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(8) Property insurance. The model provision regarding property insurance reads:

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(9) Preservation, maintenance, protection, and inspection of property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage or impair the Property, allow it to deteriorate, or commit waste. Whether or not I live in the Property, I will maintain it in order to prevent it from deteriorating or decreasing in value due to its condition. I will promptly repair the damage to the Property to avoid further deterioration or damage unless you and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring the Property only if you release the insurance or condemnation proceeds for the damage to or the taking of the Property. You may release proceeds for the repairs and restoration in a single payment or in a series of payments as the work is completed. I still am obligated to complete repairs or restoration of the Property even if there are not enough proceeds to complete the work. If this Security Document secures a unit in a condominium or planned unit development, I will perform all of my obligations under the declaration or covenants creating or governing the condominium or planned unit development, and any other relevant document. You or your agent may inspect the Property. You may inspect the interior of the Property with reasonable cause. You will give me notice stating reasonable cause when or before the interior inspection occurs."

(10) Protection of lender's interest in property and rights under security document. The model provision regarding the protection of the lender's interest in the property and rights under the security document reads:

Attached Graphic

(11) Assignment of miscellaneous proceeds and forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

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(12) Forbearance not a waiver. The model provision specifying that the borrower is not released from liability if the licensee modifies the payment schedule reads: "My successors and I will not be released from liability if you extend the time for payment or modify the payment schedule. If I pay late, you will not have to sue me or my successor to require timely future payments. You may refuse to extend time for payment or modify this Loan Agreement even if I request it. If you do not enforce your rights every time, you may enforce them later."

(13) Joint and several liability, security document execution, successors obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants his ownership in the property and binds his successors and assigns reads:

Attached Graphic

(14) Extension of credit charges. The model provision for the extension of credit charges reads:

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(15) Delivery of notices. The model provision regarding the delivery of notices reads: "Under the Loan Agreement, you and I will give notices to each other in writing. Any notice under the Loan Agreement will be considered given to me when it is mailed by first class mail or when actually delivered to me at my address if given by another means. You will give notice to the Property address unless I provide you a different address. I will notify you promptly of any change of address. I will comply with any reasonable procedure for giving a change of address that you provide. There will only be one address for notice under the Loan Agreement. Notice to me will be considered notice to all persons who are obligated under the Loan Agreement unless Applicable Law requires a separate notice. I may give you notice by delivering or mailing it by first class mail to the address provided by you, unless you require a different procedure. You, however, will not receive notice under the Loan Agreement until you actually receive it. Legal requirements governing notices subject to the Loan Agreement will prevail over conditions in the Loan Agreement."

(16) Governing law and severability. The model provision regarding the law governing the contract, stating that if any part of the contract is invalid, the rest of the contract remains valid reads: "The Loan Agreement will be governed by Texas law and federal law. If any provision in the Loan Agreement conflicts with any legal requirement, all non-conflicting provisions will remain effective."

(17) Rules of construction. The model provision regarding rules of clause construction reads:

Attached Graphic

(18) Loan agreement copies. The model provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, you will give me copies of all documents I sign."

(19) Transfer of interest in property. The model provision regarding a transfer of interest in the property reads: "Interest in the Property" means any legal or beneficial interest. This term includes those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement (the intent of which is the transfer of title by me at a future date to a purchaser). If any part of the Property is sold or transferred without your prior written permission, you may require immediate payment of all I owe. You will not exercise this option if disallowed by Applicable Law. If you accelerate, you will give me notice. The notice of acceleration will allow me at least 21 days from the date the notice is given to pay all I owe. If I fail to timely pay all I owe, you may pursue any remedy allowed by the Loan Agreement without further notice or demand.

(20) Borrower's right to reinstate after acceleration. The model provision regarding the borrower's right to reinstate after acceleration reads:

Attached Graphic

(21) Sale of note, change of loan servicer, notice of grievance, and lender's right to comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply reads: "A full or partial interest in the Loan Agreement can be sold one or more times without prior notice to me. The sale may result in a change of the company servicing or handling the Loan Agreement. The company servicing or handling the Loan Agreement will collect my monthly payment and will comply with other servicing conditions required by the Loan Agreement or Applicable Law. In some cases, the company servicing or handling the Loan Agreement may change even if the Loan Agreement is not sold. If the company servicing or handling the Loan Agreement is changed, I will be given written notice of the change. The notice will state the name and address of the new company, the address to which my payments should be made, and any other information required by RESPA. Any notice of acceleration and opportunity to cure under the Loan Agreement will satisfy the notice and opportunity to address the alleged violation provisions of this Section. No agreement between you and me or any third party will limit your ability to comply with your duties under the Loan Agreement and the Applicable Law. You and I are limiting all agreements so that all current or future interest or fees in connection with this Loan Agreement will not be greater than the highest amount allowed by Applicable Law. You and I intend to conform the Loan Agreement to the provisions of Applicable Law. If any part of the Loan Agreement is in conflict with the Applicable Law, then that part will be corrected or removed. This correction will be automatic and will not require any amendment or new document. Your right to correct any violation will survive my paying off the Loan Agreement. My right to correct will override any conflicting provision of the Loan Agreement. Your right to comply as provided in this Section will survive the payoff of the Loan Agreement. The provisions of this Section will supersede any inconsistent provision of the Loan Agreement."

(22) Hazardous substances. The model provision regarding hazardous substances reads:

Attached Graphic

(23) Acceleration and remedies. The model provision regarding acceleration and remedies reads:

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(24) Assignment of rents, appointment of receiver, and lender in possession. The model provision regarding assignment of rents, appointment of receiver, and the lender in possession reads: "As additional security, I assign to you the rents of the Property, provided that I have the right, prior to acceleration or abandonment of the Property, to collect and retain the rents as they become due. Upon acceleration or abandonment, you, by agent or by court-appointed receiver, will be entitled to enter, take possession, manage the Property, and collect due and past due rents. All rents you or the court-appointed receiver collect will be applied first to payment of the costs of management of the Property and collection of rents, including receiver's fees, premiums on receiver's bonds, and reasonable attorneys' fees, and then to the sums secured by this Security Document. You and the receiver will be liable to account only for rents received."

(25) Power of sale. The licensee has the option to choose wording to indicate that a Trustee's deed will convey good title to the Property that cannot be defeated. The model provision regarding the power of sale reads:

Attached Graphic

(26) Release. If the licensee cannot return the note to the borrower, the licensee may provide the borrower with a discharge and release of all obligations under the loan. The discharge must meet the requirements of Texas Finance Code, §342.454. The model provision regarding the release of the lien securing the loan agreement reads: "Upon payment of all that I owe under this Loan Agreement, you will cancel and return the Note to me and give me, in recordable form, a release of lien securing the Loan Agreement or a copy of any endorsement of the Note and assignment of the lien to a lender that is refinancing the Loan Agreement. If you cannot, you will provide me with a discharge and release of all obligations under the loan. I will pay only the cost of recording the release of lien."

(27) Lender's rights and borrower's responsibilities. The model provision specifying that each person who signs the document is responsible for each promise and duty in the security document reads:

Attached Graphic

(28) Trustees and trustee liability. The model provision regarding trustees and trustee liability reads:

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(29) Default. The model default provision reads: "Any default of my agreements with you will be a default of this Security Document."

(30) Subrogation. The model provision regarding subrogation reads: "If I ask, you will use proceeds from the Loan Agreement to pay off all valid outstanding liens against the Property. You will then own all rights, superior titles, liens, and interests owned or claimed by any owner or holder of an outstanding lien or debt. You own these things whether the lien or debt is transferred to you or whether it is released by the holder upon payment."

(31) Partial invalidity. The model provision regarding what happens if the sums secured and other charges violate applicable law reads: "If any portion of the sums secured by this Security Document cannot be lawfully secured, payments minus those sums will be applied first to the portions not secured. If any charge provided for in this Loan Agreement, separately or together with other charges that are considered part of this Loan Agreement, violates Applicable Law, the charge is reduced to the extent necessary to eliminate the violation. Lender will refund the amount of interest or other charges paid to Lender in excess of the amount permitted by Applicable Law. At Lender's option, the amount in excess will either be refunded directly to me or will be applied to reduce the principal of the debt."

(32) Request for notice of default and foreclosure under superior mortgages or security documents. The model provision regarding the lender and borrower's request for notice of default and foreclosure under superior mortgages or security documents reads:

Attached Graphic

(33) Signature blocks. The model provision regarding signature blocks reads:

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(34) Acknowledgment. The model provision regarding the acknowledgment reads:

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(35) Notice of confidentiality rights disclosure. The security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the top of the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

History

• Source Note: The provisions of this §90.503 adopted to be effective August 31, 2006, 31 TexReg 6687; amended to be effective March 15, 2007, 32 TexReg 1239; amended to be effective September 6, 2007, 32 TexReg 5670; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.504 Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the second lien purchase money loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes which do not affect the substance of the disclosures.

(7) A licensee may place its NMLS ID number, the individual residential mortgage loan originator's name, or the originator's NMLS ID on any portion of a document requiring this information, including the signature page. To the extent allowed by Regulation Z, 12 C.F.R. §1026.36(g), and the official commentary to that section, a licensee may omit:

(A) the licensee's NMLS ID number, if the licensee does not have an NMLS ID number and is not legally required to obtain one; and

(B) the individual residential mortgage loan originator's NMLS ID number, if the originator does not have an NMLS ID number and is not legally required to obtain one.

(8) A sample model note is presented in the following example.

Attached Graphic

(9) A sample model security document is presented in the following example.

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(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

History

• Source Note: The provisions of this §90.504 adopted to be effective August 31, 2006, 31 TexReg 6687; amended to be effective March 15, 2007, 32 TexReg 1239; amended to be effective September 6, 2007, 32 TexReg 5670; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

Subchapter F SECOND LIEN HOME IMPROVEMENT CONTRACTS (SUBCHAPTER G)

7 Tex. Admin. Code § 90.601 Purpose

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G home improvement transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the OCCC in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The OCCC will issue an order disapproving the contract if the OCCC determines the contract does not comply with Texas Finance Code, §341.502 or rules adopted under this chapter. A licensee may not claim the OCCC's failure to disapprove a contract constitutes approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G home improvement transaction; however, a licensee is not limited to the contract provisions addressed by these rules.

History

• Source Note: The provisions of this §90.601 adopted to be effective August 31, 2006, 31 TexReg 6694; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.602 Contract Provisions

(a) A Chapter 342, Subchapter G second lien home improvement loan transaction may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G home improvement loan transaction may contain the following provisions:

(1) For a contract for use in a transaction that does not allow withdrawals or multiple advances:

(A) An identification clause;

(B) A definitions section;

(C) A provision regarding construction of improvements;

(D) A clause regarding the contract price;

(E) A transfer of lien clause;

(F) A provision specifying that completion is made by the contractor, not the lender;

(G) A partial lien clause;

(H) A provision regarding changes and extras;

(I) A provision regarding receipts and releases;

(J) A provision specifying that no work has been done prior to execution of the contract;

(K) A provision regarding the trustee's duties;

(L) A notice specifying the preservation of claims and defenses;

(M) A notice specifying that the owner and the contractor are responsible for meeting the terms of the contract;

(N) An assignment; and

(O) A provision regarding notice of confidentiality rights.

(2) For a promissory note for use in a transaction that does not allow withdrawals or multiple advances:

(A) An identification clause;

(B) A security for payment provision;

(C) A definitions section;

(D) A promise to pay;

(E) A late charge provision;

(F) A provision for after maturity interest;

(G) A prepayment clause;

(H) A provision specifying the finance charge earnings and refund method;

(I) A deferment clause;

(J) A provision contracting for a fee for a dishonored check;

(K) A provision specifying the conditions causing default;

(L) A provision regarding property insurance;

(M) A credit insurance disclosure box;

(N) A provision regarding the mailing of notices to the borrower;

(O) A provision specifying that the borrower's statements are truthful;

(P) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(Q) A provision expressing no waiver of the lender's rights;

(R) A collection expenses clause;

(S) A provision providing for joint liability;

(T) A usury savings clause;

(U) A savings clause stating that if any part of the loan agreement is invalid, the rest remains valid;

(V) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(W) A provision specifying that federal law and Texas law apply to the contract;

(X) OCCC notice;

(Y) A provision describing the collateral;

(Z) A notice regarding the preservation of claims and defenses; and

(AA) Signature blocks.

(3) For a contract for use in a transaction that allows for withdrawals or multiple advances:

(A) An identification clause;

(B) A definitions section;

(C) A provision regarding construction of improvements;

(D) A clause regarding the contract price;

(E) A clause regarding the note payable to the lender;

(F) A clause regarding the note being secured by the lien;

(G) A transfer of lien clause;

(H) A clause regarding exceptions to conveyance and warranty;

(I) A provision specifying that completion is made by the contractor, not the lender;

(J) A partial lien clause;

(K) A provision regarding changes and extras;

(L) A provision regarding receipts and releases;

(M) A provision specifying that no work has been done prior to execution of the contract;

(N) A provision regarding the owner's promises and rights;

(O) A provision regarding the owner's duties;

(P) A provision regarding the contractor's duties;

(Q) A provision regarding the contractor's rights;

(R) A provision regarding the trustee's duties;

(S) General provisions;

(T) A notice specifying the preservation of claims and defenses;

(U) A notice specifying that the owner and the contractor are responsible for meeting the terms of the contract;

(V) An assignment; and

(W) A provision regarding notice of confidentiality rights.

(4) For a promissory note for use in a transaction that allows for withdrawals or multiple advances:

(A) An identification clause;

(B) A security for payment provision;

(C) A definitions section;

(D) A promise to pay;

(E) A late charge provision;

(F) A provision for after maturity interest;

(G) A prepayment clause;

(H) A provision specifying the finance charge earnings and refund method;

(I) A deferment clause;

(J) A provision contracting for a fee for a dishonored check;

(K) A provision specifying the conditions causing default;

(L) A provision regarding property insurance;

(M) A credit insurance disclosure box;

(N) A provision regarding the mailing of notices to the borrower;

(O) A provision specifying that the borrower's statements are truthful;

(P) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(Q) A provision expressing no waiver of the lender's rights;

(R) A collection expenses clause;

(S) A provision providing for joint liability;

(T) A usury savings clause;

(U) A savings clause stating that if any part of the loan agreement is invalid, the rest remains valid;

(V) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(W) A provision specifying that the note is secured by a deed of trust;

(X) A provision specifying that federal law and Texas law apply to the contract;

(Y) OCCC notice;

(Z) A provision describing the collateral;

(AA) A notice regarding the preservation of claims and defenses; and

(BB) Signature blocks.

(5) For a deed of trust for use in a transaction that allows for withdrawals or multiple advances:

(A) A definitions section;

(B) A provision regarding the transfer of rights in the property;

(C) A provision regarding late charges and prepayment of principal and interest;

(D) A provision regarding the funds for escrow items;

(E) A provision regarding charges and liens;

(F) A provision regarding property insurance;

(G) A provision regarding preservation, maintenance, protection, and inspection of the property;

(H) A provision regarding protection of the lender's interest in the property and rights under the deed of trust;

(I) A provision regarding the assignment of miscellaneous proceeds and forfeiture;

(J) A provision expressing no waiver of the lender's rights;

(K) A provision regarding joint and several liability and specifying that the person who signs the contract grants ownership in the homestead and binds the person's successors and assigns;

(L) A usury savings clause;

(M) A provision regarding the mailing of notices to the borrower;

(N) A provision specifying that federal law and Texas law apply to the contract;

(O) A provision regarding rules of clause construction;

(P) A provision specifying that the licensee will give the borrower a copy of all signed documents at the time the loan agreement is made;

(Q) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(R) Lender, contractor, and borrower's promise and agreement;

(S) A provision regarding acceleration and remedies;

(T) A provision regarding the power of sale;

(U) A provision regarding the borrower's right to reinstate after acceleration;

(V) A provision regarding the assignment of rents, appointment of receiver, and the lender in possession;

(W) A provision regarding release of the lien;

(X) A provision regarding trustees and trustee liability;

(Y) A provision regarding the assignment of the contractor's lien and commencement of the work;

(Z) A provision regarding subrogation;

(AA) A provision regarding what happens if the sum secured and other charges violate applicable law;

(BB) A provision regarding the renewal and extension of the note secured by the deed of trust;

(CC) A provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply;

(DD) A provision regarding hazardous substances;

(EE) A provision regarding the lender's rights and the borrower's responsibilities;

(FF) A provision regarding default;

(GG) A provision regarding the lender and the borrower's request for notice of default and foreclosure under superior mortgages or deeds of trust;

(HH) Signature blocks; and

(II) A provision regarding notice of confidentiality rights.

(b) The provisions described in this section are separate from the TILA-RESPA integrated disclosures required under Regulation Z, 12 C.F.R. §§1026.19, 1026.37 and 1026.38.

History

• Source Note: The provisions of this §90.602 adopted to be effective August 31, 2006, 31 TexReg 6694; amended to be effective January 3, 2008, 32 TexReg 9952; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.603 Model Clauses

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) Model clauses for a Chapter 342, Subchapter G second lien home improvement loan contract for use in a transaction that does not allow for withdrawals or multiple advances.

(1) Identification. The model identification clause reads:

Attached Graphic

(2) Definitions. The model definitions section reads:

(A) "Owner" means (name of Owner), whose address is (address of Owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker. "I" or "me" means the Owner.

(B) "Contractor" means (name of Contractor), whose address is (address of Contractor, including county) and includes those to whom the Contractor has assigned or transferred Contractor's rights and remedies. "You" or "your" means the Contractor.

(C) "Lender" means (name of Lender), whose address is (address of Lender, including county) and includes those to whom the Lender has assigned or transferred Lender's rights and remedies. The Lender's NMLS ID is (NMLS ID of Lender). The loan originator's name is (name of loan originator with primary responsibility for the origination). The loan originator's NMLS ID is (NMLS ID of originator).

(D) "Trustee" means (name of Trustee), whose address is (address of Trustee, including county).

(E) "Property" means the Property at (list address of the Property), whose legal description is (list legal description of the Property).

(F) "Work" means the construction project as agreed to in writing between the Owner and Contractor.

(G) "Completion Date" means (date on which the Work will be completed).

(H) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement and Power of Sale.

(3) Construction of improvements. The model clause regarding construction of improvements reads: "You agree to furnish and pay for all labor and material needed to complete the Work within _____ days from the date of this Contract. The Work will be performed on the Property in a good and workmanlike manner."

(4) Contract price. The model clause establishing the contract price reads: "I agree to pay, or cause to be paid, to you, or to your order, the sum of ___________________ dollars (U.S. $_____________________) when the Work is completed."

(5) Transfer of lien. The model clause regarding the transfer of the lien reads: "You transfer to Lender all of your rights and interests in this Contract."

(6) Completion by contractor, but not lender. The model clause specifying that the lender is not responsible for completing the construction reads: "You will complete the Work by the Completion Date. Lender is not responsible for completing the Work. Lender is not a guarantor of your performance. You will indemnify and hold Lender harmless against all claims related to the Work."

(7) Partial lien. The model clause regarding a partial lien reads: "If you do not complete the Work by the Completion Date in a good and workmanlike manner, then Lender will have a valid lien for the contract price, less the amount reasonably necessary to complete the Work. As an alternative, Lender may choose to complete the Work and the lien will be valid for the contract price."

(8) Changes and extras. The model clause regarding changes and extras reads: "All labor or material furnished outside of this Contract must be agreed upon in writing or it will be considered as performed under the original Contract and you will receive no extra money."

(9) Receipts and releases. The model clause regarding receipts and releases reads: "If I ask, you will give me valid receipts and releases for the Work from any subcontractor, worker, and supplier."

(10) No work commenced. The model clause specifying that no work has commenced prior to execution of the contract reads: "This Contract is executed, acknowledged, and delivered before any labor has been performed and any material has been furnished for the Work."

(11) Trustee's duties. The model clause regarding the trustee's duties reads:

Attached Graphic

(12) Preservation of claims and defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule, 16 C.F.R. §433.2, it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(13) Owner and contractor responsible. Texas Property Code, §41.007 specifies that a home improvement contract must contain a notice specifying that the owner and the contractor are responsible for meeting the terms of the contract. This notice must appear either in this contract or in the residential construction contract. The Property Code requires that the notice must be conspicuously printed, stamped, or typed in a font size equal to at least 10-point boldfaced type or computer equivalent and appear next to the owner's signature line on the contract. The wording of the notice is specified by the Property Code, which uses the pronouns "you" and "your" to refer to the owner. Licensees are encouraged to explain in the contract, prior to the notice, that "you" and "your" refer to the owner in this notice. The parties' signatures must be notarized. The licensee may use a different notary acknowledgment without having to submit the contract to the agency as a non-standard contract. The notice specifying that the owner and the contractor are responsible for meeting the terms of the contract, the model explanatory clause regarding the use of "you" and "your" in the notice, and the signature blanks read:

Attached Graphic

(14) Assignment. The parties may use a different assignment or a separate document for the assignment without having to submit the contract to the agency as a non-standard contract. The model assignment in which the contractor transfers and assigns the lien to the licensee reads:

Attached Graphic

(15) Notice of confidentiality rights disclosure. The security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the top of the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

(c) Model clauses for a Chapter 342, Subchapter G second lien home improvement loan promissory note for use in a transaction that does not allow for withdrawals or multiple advances.

(1) Identification.

(A) The model identification clause lists the account or contract number, the name and address of the lender, the date of the note, the name and address of the borrower, the property address, the principal amount, and the terms of payment. It also lists the following items that must be included on the promissory note under Regulation Z, 12 C.F.R. §1026.36(g):

(i) the lender's Nationwide Mortgage Licensing System and Registry identification number (labeled "Creditor/Lender NMLS ID");

(ii) the name of the individual residential mortgage loan originator with primary responsibility for the origination (labeled "Loan Originator"); and

(iii) the originator's Nationwide Mortgage Licensing System and Registry identification number (labeled "Loan Originator NMLS ID").

(B) The model identification clause reads:

Attached Graphic

(2) Security for payment. The model clause relating to the security for payment reads: "Liens created in the Contract secure this Note. You will have a security interest in the following described property: (property description)"

(3) Definitions. The model definitions section reads:

(A) "Owner" means (name of Owner), whose address is (address of Owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker.

(B) "Contractor" means (name of Contractor), whose address is (address of Contractor, including county) and includes those to whom the Contractor has assigned or transferred Contractor's rights and remedies.

(C) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement and Power of Sale dated _________________________ between Contractor and Owner.

(D) "Property" means the Property at (list address of the Property), whose legal description is (list legal description of the Property).

(E) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ___________________________ and includes all amounts secured by this Contract. The Note states that the amount I owe you is ______________ dollars (U.S. $___________________) plus interest. I have promised to pay this debt in regular periodic payments and to pay the debt in full not later than _________________.

(4) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause options for the borrower's promise to pay read:

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(C) The model payment schedule reads:

Attached Graphic

(5) Late charge.

(A) Generally. The general late charge provision for contracts using the scheduled installment earnings method or the true daily earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(B) High-cost mortgage loans. The model late charge provision for high-cost mortgage loans subject to the limitation on late charges in Regulation Z, 12 C.F.R. §1026.34(a)(8), reads: "If I don't pay all of a payment within 15 days after it is due, you can charge me a late charge. The late charge will be 4% of the amount of the payment past due."

(6) After maturity interest. The model clause specifies the maximum interest rate allowed by law for after maturity interest for contracts using the scheduled installment earnings method. A licensee may always choose a lower rate. The model provision for after maturity interest reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(7) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(8) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

Attached Graphic

(C) For contracts using the true daily earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(9) Deferment. The model provision regarding deferment reads: "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(10) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensee may always choose a lesser amount. The model fee for dishonored check provision reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(11) Default. The model provision specifying the conditions causing default reads:

Attached Graphic

(12) Property insurance. The model provision regarding property insurance reads:

Attached Graphic

(13) Credit insurance. If single premium credit insurance is offered, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium." The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Attached Graphic

(14) Mailing of notices to borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it."

(15) Statement of truthful information. The model provision specifying that the borrower gave truthful information reads: "I promise that all information I gave you is true."

(16) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the Property is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this loan agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice that you are demanding payment of all that I owe. This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this loan agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the loan agreement."

(17) No waiver of the lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(18) Collection expenses. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this loan agreement to the extent not prohibited by applicable law. These expenses include, for example, reasonable attorneys' fees."

(19) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(20) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than applicable law allows."

(21) Savings clause. The savings model clause stating that if any part of the contract is invalid, the rest remains valid reads: "If any part of this loan agreement is declared invalid, the rest of the loan agreement remains valid. If any part of this loan agreement conflicts with any law, that law will control. The part of the loan agreement that conflicts with any law will be modified to comply with the law. The rest of the loan agreement remains valid."

(22) Prior agreements. For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model clause stating that there are no prior agreements between the parties regarding the loan agreement reads: "This written loan agreement is the final agreement between you and me. It may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this loan agreement. Any change to this loan agreement must be in writing. Both you and I have to sign written agreements."

(23) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this loan agreement."

(24) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(25) Collateral. The model clause regarding the collateral reads: "The Property is subject to the Contract lien. I am responsible for all obligations in this Note."

(26) Preservation of claims and defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule, 16 C.F.R. §433.2, it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(27) Signature blocks. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should appear above the signature of the borrower. The licensee may also provide additional signature lines for witness signatures. The model signature block reads:

Attached Graphic

(d) Model clauses for a Chapter 342, Subchapter G second lien home improvement loan contract for use in a transaction that allows for withdrawals or multiple advances.

(1) Identification. The model identification clause listing the date and the account or contract number reads:

Attached Graphic

(2) Definitions. The model definitions section reads:

(A) "Owner" means (name of Owner), whose address is (address of Owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker. "I" or "me" means the Owner.

(B) "Contractor" means (name of Contractor), whose address is (address of Contractor, including county) and includes those to whom the Contractor has assigned or transferred Contractor's rights and remedies. "You" or "your" means the Contractor.

(C) "Lender" means (name of Lender), whose address is (address of Lender, including county) and includes those to whom the Lender has assigned or transferred Lender's rights and remedies. The Lender's NMLS ID is (NMLS ID of Lender). The loan originator's name is (name of loan originator with primary responsibility for the origination). The loan originator's NMLS ID is (NMLS ID of originator).

(D) "Trustee" means (name of Trustee), whose address is (address of Trustee, including county).

(E) "Property" means the Property at (list address of the Property), whose legal description is (list legal description of the Property).

(F) "Work" means the construction project as agreed to in writing between the Owner and Contractor.

(G) "Completion Date" means (date on which the Work will be completed).

(H) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust.

(I) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated _________________________________ and includes all amounts secured by this Contract. The Note states that the amount I owe you is _____________________________ dollars (U.S. $___________________) plus interest.

(J) "Loan Agreement" means the Note, Contract, and any other related document under which Lender has made a loan to me.

(K) "Applicable Law" means all controlling applicable federal, state, and local law.

(L) "Tenant at Sufferance" means a person who continues to possess the Property with no current right to possess it.

(M) "Forcible Detainer" means a lawsuit to remove a person from the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amount under this Contract.

(O) "Successor in Interest" means any party that has taken title to the Property.

(P) "Lien" means the Mechanic's and Materialman's Lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property.

(3) Construction of improvements. The model clause regarding construction of improvements reads: "You agree to furnish and pay for all labor and material needed to complete the Work within _____ days from the date of this Contract. The Work will be performed on the Property in a good and workmanlike manner."

(4) Contract price. The model clause establishing the contract price reads: "I agree to pay, or cause to be paid, to you, or to your order, the sum of _______________ dollars (U.S. $_______________) when the Work is completed."

(5) Note payable to lender. The model clause specifying that the note is payable to the lender reads: "In exchange for money from the Lender to you, I have signed a Note to the Lender in the amount of __________________ dollars (U.S. $__________________)."

(6) Lien to secure note. The model clause regarding security for the note reads: "To secure the amounts Lender provides to you, and the interest payable to Lender, I give you, and you transfer to Lender, the Lien. The Note is secured by a deed of trust, which I will sign. The deed of trust will renew and extend the Lien created by this Contract."

(7) Transfer of lien. The model clause regarding the transfer of the lien reads: "You transfer to Lender all of your rights and interests in this Contract."

(8) Exceptions to conveyance and warranty. Any exceptions to conveyance and warranty should be specified in the contract. The model clause regarding the exceptions to conveyance and warranty reads: "The exceptions to conveyance and warranty are: (List any exceptions to conveyance and warranty.)"

(9) Completion by contractor, but not lender. The model clause specifying that the lender is not responsible for completing the construction reads: "You will complete the Work by the Completion Date. Lender is not responsible for completing the Work. Lender is not a guarantor of your performance. You will indemnify and hold Lender harmless against all claims related to the Work."

(10) Partial lien. The model clause regarding a partial lien reads: "If you do not complete the Work by the Completion Date in a good and workmanlike manner, then Lender will have a valid lien for the contract price, less the amount reasonably necessary to complete the Work. As an alternative, Lender may choose to complete the Work and the lien will be valid for the contract price."

(11) Changes and extras. The model clause regarding changes and extras reads: "All labor or material furnished outside of this Contract must be agreed upon in writing or it will be considered as performed under the original Contract and you will receive no extra money."

(12) Receipts and releases. The model clause regarding receipts and releases reads: "If I ask, you will give me valid receipts and releases for the Work from any subcontractor, worker, and supplier."

(13) No work commenced. The model clause specifying that no work has commenced prior to execution of the contract reads: "This Contract is executed, acknowledged, and delivered before any labor has been performed and any material has been furnished for the Work."

(14) Owner's promises and rights. The model clause regarding the owner's promises and rights reads:

Attached Graphic

(15) Owner's duties. The model clause regarding the owner's duties reads:

Attached Graphic

(16) Contractor's duties. The model clause regarding the contractor's duties reads:

Attached Graphic

(17) Contractor's rights. The model clause regarding the contractor's rights reads:

Attached Graphic

(18) Trustee's duties. The model clause regarding the trustee's duties reads:

Attached Graphic

(19) General provisions. The model clause regarding general contract provisions reads:

Attached Graphic

(20) Preservation of claims and defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule, 16 C.F.R. §433.2, it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(21) Owner and contractor responsible. Texas Property Code, §41.007 specifies that a home improvement contract must contain a notice specifying that the owner and the contractor are responsible for meeting the terms of the contract. The notice must appear in either this contract or the residential construction contract. The Property Code requires that the notice must be conspicuously printed, stamped, or typed in a font size equal to at least 10-point boldfaced type or computer equivalent and appear next to the owner's signature line on the contract. The wording of the notice is specified by the Property Code, which uses the pronouns "you" and "your" to refer to the owner. Licensees are encouraged to explain in the contract, prior to the notice, that "you" and "your" refer to the owner in this notice. The parties' signatures must be notarized. The licensee may use a different notary acknowledgment without having to submit the contract to the agency as a non-standard contract. The notice specifying that the owner and the contractor are responsible for meeting the terms of the contract, the model explanatory clause regarding the use of "you" and "your" in the notice, and the signature blanks read:

Attached Graphic

(22) Assignment. The parties may use a different assignment or a separate document for the assignment without having to submit the contract to the agency as a non-standard contract. The model assignment in which the contractor transfers and assigns the lien to the licensee reads:

Attached Graphic

(23) Notice of confidentiality rights disclosure. The security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the top of the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

(e) Model clauses for a Chapter 342, Subchapter G second lien home improvement loan promissory note for use in a transaction that allows for withdrawals or multiple advances.

(1) Identification.

(A) The model identification clause lists the account or contract number, the name and address of the lender, the date of the note, the name and address of the borrower, the property address, the principal amount, and the terms of payment. It also lists the following items that must be included on the promissory note under Regulation Z, 12 C.F.R. §1026.36(g):

(i) the lender's Nationwide Mortgage Licensing System and Registry identification number (labeled "Creditor/Lender NMLS ID");

(ii) the name of the individual residential mortgage loan originator with primary responsibility for the origination (labeled "Loan Originator"); and

(iii) the originator's Nationwide Mortgage Licensing System and Registry identification number (labeled "Loan Originator NMLS ID").

(B) The model identification clause reads:

Attached Graphic

(2) Security for payment. The model clause relating to the security for payment reads: "The Deed of Trust and the Lien created in the Contract secure this Note. You will have a security interest in the following described property: (property description)"

(3) Definitions. The model definitions section reads:

(A) "Owner" means (name of Owner), whose address is (address of Owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker.

(B) "Contractor" means (name of Contractor), whose address is (address of Contractor, including county) and includes those to whom the Contractor has assigned or transferred Contractor's rights and remedies.

(C) "Lender" means (name of Lender), whose address is (address of Lender, including county) and includes those to whom the Lender has assigned or transferred Lender's rights and remedies.

(D) "Trustee" means (name of Trustee), whose address is (address of Trustee, including county).

(E) "Property" means the Property at (list address of the Property), whose legal description is (list legal description of the Property).

(F) "Work" means the construction project as agreed to in writing between the Owner and Contractor.

(G) "Completion Date" means (date on which the Work will be completed).

(H) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust.

(I) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ____________________ and includes all amounts secured by this Contract. The Note states that the amount I owe you is _____________________ dollars (U.S. $________________) plus interest.

(J) "Loan Agreement" means the Note, Contract, and any other related document under which Lender has made a loan to me.

(K) "Applicable Law" means all controlling applicable federal, state, and local law.

(L) "Tenant at Sufferance" means a person who continues to possess the Property with no current right to possess it.

(M) "Forcible Detainer" means a lawsuit to remove a person from the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amount under this Contract.

(O) "Successor in Interest" means any party that has taken title to the Property.

(P) "Lien" means the Mechanic's and Materialman's Lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property.

(4) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause options for the borrower's promise to pay read:

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(C) The model payment schedule reads:

Attached Graphic

(5) Late charge.

(A) Generally. The general model late charge provision for contracts using the scheduled installment earnings method or the true daily earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(B) High-cost mortgage loans. The model late charge provision for high-cost mortgage loans subject to the limitation on late charges in Regulation Z, 12 C.F.R. §1026.34(a)(8), reads: "If I don't pay all of a payment within 15 days after it is due, you can charge me a late charge. The late charge will be 4% of the amount of the payment past due."

(6) After maturity interest. The model clause specifies the maximum interest rate allowed by law for after maturity interest for contracts using the scheduled installment earnings method. A licensee may always choose a lower rate. The model provision for after maturity interest reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(7) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(8) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

Attached Graphic

(C) For contracts using the true daily earnings method - Section 342.301 rate loans, the model language reads:

Attached Graphic

(9) Deferment. The model provision regarding deferment reads: "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(10) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensee may always choose a lesser amount. The model fee for dishonored check provision reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(11) Default. The model provision specifying the conditions causing default reads:

Attached Graphic

(12) Property insurance. The model provision regarding property insurance reads:

Attached Graphic

(13) Credit insurance. If single premium credit insurance is offered, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium." The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Attached Graphic

(14) Mailing of notices to borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it."

(15) Statement of truthful information. The model provision specifying that the borrower gave truthful information reads: "I promise that all information I gave you is true."

(16) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the Property is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this Loan Agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice that you are demanding payment of all that I owe. This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the Loan Agreement."

(17) No waiver of the lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(18) Collection expenses. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this Loan Agreement to the extent not prohibited by Applicable Law. These expenses include, for example, reasonable attorneys' fees."

(19) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(20) Usury savings. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(21) Savings clause. The model savings clause stating that if any part of the contract is invalid, the rest remains valid reads: "If any part of this Loan Agreement is declared invalid, the rest of the Loan Agreement remains valid. If any part of this Loan Agreement conflicts with any law, that law will control. The part of the Loan Agreement that conflicts with any law will be modified to comply with the law. The rest of the Loan Agreement remains valid."

(22) Prior agreements. For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model clause stating that there are no prior agreements between the parties regarding the loan agreement reads: "This written Loan Agreement is the final agreement between you and me. It may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this Loan Agreement. Any change to this Loan Agreement must be in writing. Both you and I have to sign written agreements."

(23) Note secured by deed of trust. The model clause stating that the note is secured by a deed of trust reads: "In addition to this Note, the Deed of Trust protects the Note holder from losses that might result if I do not keep the promises that I make in this Note. The Deed of Trust describes how and under what conditions I may have to make immediate payment of all that I owe under this Note."

(24) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement."

(25) OCCC notice. Under §90.105 of this title (relating to OCCC Notice), the following required notice must be given by licensees to let consumers know how to file complaints: "For questions or complaints about this loan, contact (insert name of lender) at (insert lender's phone number and, at lender's option, one or more of the following: mailing address, fax number, website, e-mail address). The lender is licensed and examined under Texas law by the Office of Consumer Credit Commissioner (OCCC), a state agency. If a complaint or question cannot be resolved by contacting the lender, consumers can contact the OCCC to file a complaint or ask a general credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas 78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov. E-mail: consumer.complaints@occc.texas.gov."

(26) Collateral. The model clause regarding the collateral reads: "The Property is subject to the Contract lien. I am responsible for all obligations in this Note."

(27) Preservation of claims and defenses. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(28) Signature blocks. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should appear above the signature of the borrower. The licensee may also provide additional signature lines for witness signatures. The model signature block reads:

Attached Graphic

(f) Model clauses for a Chapter 342, Subchapter G second lien home improvement loan deed of trust for use in a transaction that allows for withdrawals or multiple advances.

(1) Definitions. The model definitions section reads:

(A) "Borrower" is _________________. Borrower's address is _____________________.

(B) "Contractor" is __________________. Contractor's address is _______________________.

(C) "Lender" is ____________________. Lender's address is ___________________________. Lender's NMLS ID is __________. The loan originator's name is _______________________________. The loan originator's NMLS ID is __________.

(D) "Trustee" is ____________________. Trustee's address is _______________________.

(E) "I" or "me" means ________________________________, the grantor under this Deed of Trust and the person who signed the Note ("Borrower").

(F) "Loan Agreement" means the Contract, Note, Security Document, Deed of Trust, any other related document, or any combination of those documents, under which Lender has made a loan to me.

(G) "Deed of Trust" means this document, which is dated ________, together with all riders to this document.

(H) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ______________ and includes all amounts secured by this Contract. The Note states that the amount I owe Lender is _________________ dollars (U.S. $_________) plus interest.

(I) "Property" means the property at (list address of the Property), whose legal description is (list legal description of the Property).

(J) "Applicable Law" means all controlling applicable federal, state, and local law.

(K) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or the Property by a condominium association, homeowners association, or similar organization.

(L) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. The term includes point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.

(M) "Escrow Items" means those items that are described in Section ___ of this Deed of Trust.

(N) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds paid by any third party (other than proceeds paid under my insurance) for: damage or destruction of the Property; condemnation or other taking of all or any part of the Property; conveyance instead of condemnation; or misrepresentations or omissions related to the value or condition of the Property.

(O) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amounts under this Deed of Trust.

(P) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §§2601-2617) and Regulation X (12 C.F.R. Part 1024), as amended, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Deed of Trust, "RESPA" refers to all requirements and restrictions that are imposed in regard to a "federally related mortgage loan" even if the Loan Agreement does not qualify as a "federally related mortgage loan" under RESPA.

(Q) "Successor in Interest" means any party that has taken title to the Property.

(R) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Deed of Trust. Such an arrangement usually takes the form of a long-term "ground lease."

(S) "Contract" means the Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust.

(T) "Lien" means the Mechanic's and Materialman's Lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property.

(2) Transfer of rights in property. The model provision regarding a transfer of rights in the property reads:

Attached Graphic

(3) Payment of late charges and prepayment. The model provision regarding the payment of late charges and prepayment of principal and interest reads:

Attached Graphic

(4) Funds for escrow items. The model provision regarding the funds for escrow items reads:

Attached Graphic

(5) Charges and liens. The model provision regarding charges and liens reads:

Attached Graphic

(6) Property insurance. The model provision regarding property insurance reads:

Attached Graphic

(7) Preservation, maintenance, protection, and inspection of property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage, or impair the Property, allow it to deteriorate, or commit waste. Whether or not I live in the Property, I will maintain it in order to prevent it from deteriorating or decreasing in value due to its condition. I will promptly repair the damage to the Property to avoid further deterioration or damage unless Lender and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring the Property only if Lender releases the insurance or condemnation proceeds for the damage to or the taking of the Property. Lender may release proceeds for the repairs and restoration in a single payment or in a series of payments as the Work is completed. I still am obligated to complete repairs or restoration of the Property even if there are not enough proceeds to complete the Work. If this Deed of Trust secures a unit in a condominium or planned unit development, I will perform all of my obligations under the declaration or covenants creating or governing the condominium or planned unit development, and any other relevant document. Lender or Lender's agent may inspect the Property. Lender may inspect the interior of the Property with reasonable cause. Lender will give me notice stating reasonable cause when or before the interior inspection occurs."

(9) Assignment of miscellaneous proceeds and forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

Attached Graphic

(10) Forbearance not a waiver. The model provision specifying that the borrower is not released from liability if the lender modifies the payment schedule reads: "If Lender doesn't enforce Lender's rights every time, Lender can still enforce them later."

(11) Joint and several liability, deed of trust execution, successors obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants ownership in the homestead and binds the person's successors and assigns reads:

Attached Graphic

(12) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(13) Mailing of notices to borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "Lender or I may mail or deliver any notice to the address above. Lender or I may change the notice address by giving written notice. Lender's duty to give me notice will be satisfied when Lender mails it."

(14) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement."

(15) Rules of construction. The model provision regarding rules of clause construction reads:

Attached Graphic

(16) Loan agreement copies. The model provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, Lender will give me copies of all documents I sign."

(17) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate and notice of acceleration reads: "If all or any interest in the Property is sold or transferred without Lender's prior written consent, Lender may require immediate payment in full of all that I owe under this Loan Agreement. Lender will not exercise this option if Applicable Law prohibits. If Lender exercises this option, Lender will give me notice that Lender is demanding payment of all that I owe. This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, Lender may use any remedy allowed by the Loan Agreement."

(18) Lender, contractor, and borrower's promises and agreements. The model provision regarding the lender, contractor, and borrower's promises and agreements reads: "LENDER, CONTRACTOR, AND I PROMISE AND AGREE:".

(19) Acceleration and remedies. The model provision regarding acceleration and remedies reads:

Attached Graphic

(20) Power of sale. The model provision regarding the power of sale reads:

Attached Graphic

(21) Borrower's right to reinstate after acceleration. The model provision regarding the borrower's right to reinstate after acceleration reads:

Attached Graphic

(22) Assignment of rents, appointment of receiver, and lender in possession. The model provision regarding the assignment of rents, appointment of receiver, and the lender in possession reads: "As additional security, I assign to you the rents of the Property, provided that you have the right, prior to acceleration or abandonment of the Property, to collect and retain the rents as they become due. Upon acceleration or abandonment, you, by agent or by court-appointed receiver, will be entitled to enter, take possession, manage the Property, and collect due and past due rents. All rents you or the court-appointed receiver collect will be applied first to payment of the cost of management of the Property and collection of rents, including receiver's fees, premiums on receiver's bonds, and reasonable attorneys' fees, and then to the sums secured by this Deed of Trust. You and the receiver will be liable to account only for rents received."

(23) Release. The model provision regarding the release of the lien securing the loan agreement reads: "Lender will cancel and return the Note to me and give me, in recordable form, a release of lien securing the Loan Agreement or a copy of any endorsement of the Note and assignment of the Lien to a Lender that is refinancing the Loan Agreement. I will pay only the cost of recording the release of lien."

(24) Trustees and trustee liability. The model provision regarding trustees and trustee liability reads:

Attached Graphic

(25) Assignment of contractor's lien, and commencement of work. The model provision regarding the assignment of the contractor's lien and specifying that no work was commenced before the contract was executed reads: "Contractor and I have entered into the Contract for improvements to be made to the Property. I will perform my duties under the Contract. Under the Contract, I gave Contractor a Lien on the Property. Contractor permanently transfers the Lien and any other interest Contractor has in the Property to Lender. As additional security, Contractor also agrees that the lien created by this Deed of Trust has priority over the Lien. The purpose of the Note is to pay in whole or in part the improvements to be made to the Property by the Contractor. Contractor and I agree that the Lien is for Lender's sole benefit. Any other interest Contractor has in the Property will be merged with the Lien, and may be enforced by Lender according to the terms of this Deed of Trust. Contractor and I further agree that no Work was performed or material delivered before the Contract was executed."

(26) Subrogation. The model provision regarding subrogation reads: "If I ask, Lender will use proceeds from the Loan Agreement to pay off all valid outstanding liens against the Property. Lender will then own all rights, superior titles, liens, and interests owned or claimed by any owner or holder of an outstanding lien or debt. Lender owns these things whether the lien or debt is transferred to Lender or whether it is released by the holder upon payment."

(27) Partial invalidity. The model provision regarding what happens if the sums secured and other charges violate applicable law reads: "If any portion of the sums secured by this Deed of Trust cannot be lawfully secured, payments minus those sums will be applied first to the portions not secured. If any charge provided for in this Loan Agreement, separately or together with other charges that are considered part of this Loan Agreement, violates Applicable Law, the charge is reduced to the extent necessary to eliminate the violation. Lender will refund the amount of interest or other charges paid to Lender in excess of the amount permitted by Applicable Law. At Lender's option, the amount in excess will either be refunded directly to me or will be applied to reduce the principal of the debt."

(28) Renewal and extension. The model provision regarding the renewal and extension of the note secured by the deed of trust reads: "The Note secured by this Deed of Trust is renewed and extended, but not in extinguishment of the debt under the Contract identified in the paragraph entitled "Assignment of Contractor's Lien, Commencement of Work" and the Note."

(29) Sale of loan, change of loan servicer, notice of grievance, and lender's right to comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply reads: "A full or partial interest in the Loan Agreement can be sold one or more times without prior notice to me. The sale may result in a change of the company servicing or handling the Loan Agreement. The company servicing or handling the Loan Agreement will collect my monthly payment and will comply with other servicing conditions required by the Loan Agreement or Applicable Law. In some cases, the company servicing or handling the Loan Agreement may change even if the Loan Agreement is not sold. If the company servicing or handling the Loan Agreement is changed, I will be given written notice of the change. The notice will state the name and address of the new company, the address to which my payments should be made, and any other information required by RESPA. Any notice of acceleration and opportunity to cure under the Loan Agreement will satisfy the notice and opportunity to address the alleged violation provisions of this Section. No agreement between Lender and me or any third party will limit Lender's ability to comply with Lender's duties under the Loan Agreement and Applicable Law. Lender and I are limiting all agreements so that all current or future interest or fees in connection with this Loan Agreement will not be greater than the highest amount allowed by Applicable Law. Lender and I intend to conform the Loan Agreement to the provisions of Applicable Law. If any part of the Loan Agreement is in conflict with the Applicable Law, then that part will be corrected or removed. This correction will be automatic and will not require any amendment or new document. Lender's right to cure any violation will survive my paying off the Loan Agreement. My right to cure will override any conflicting provision of the Loan Agreement. Lender's right to comply as provided in this Section will survive the payoff of the Loan Agreement. The provisions of this Section will supersede any inconsistent provision of the Loan Agreement."

(30) Hazardous substances. The model provision regarding hazardous substances reads:

Attached Graphic

(31) Lender's rights and Borrower's responsibilities. The model provision regarding the lender's rights and the borrower's responsibilities reads:

Attached Graphic

(32) Default. The model provision regarding the borrower's default reads: "Any default of my agreements with Lender will be a default of this Deed of Trust."

(33) Request for notice of default and foreclosure under superior mortgages or deeds of trust. The model provision regarding the lender and borrower's request for notice of default and foreclosure under superior mortgages or deeds of trust reads:

Attached Graphic

(34) Signature blocks. The parties' signatures must be notarized. The licensee may use a different notary acknowledgment without having to submit the deed of trust to the agency as non-standard. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should appear above the signature of the borrower. The model provision regarding signature blocks reads:

Attached Graphic

(35) Notice of confidentiality rights disclosure. The security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the top of the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

History

• Source Note: The provisions of this §90.603 adopted to be effective August 31, 2006, 31 TexReg 6694; amended to be effective March 15, 2007, 32 TexReg 1244; amended to be effective September 6, 2007, 32 TexReg 5676; amended to be effective January 3, 2008, 32 TexReg 9952; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.604 Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the second lien home improvement contracts plain language model clauses:

(1) For transactions involving a security interest in the consumer's principal dwelling, the Truth in Lending Act, 15 U.S.C. §1635(a), and Regulation Z, 12 C.F.R. §1026.23(b), require the creditor to deliver to the consumer a notice of the right to rescind the transaction. Model forms for the notice of the right to rescind are available at 12 C.F.R. Part 1026, Appendix H, Model Forms H-8 and H-9. The Truth in Lending Act right of rescission form for use in a transaction involving the consumer's principal dwelling reads:

Attached Graphic

(2) If the Texas constitutional homestead requirements apply to the transaction, the licensee must add a clause regarding notice of cancellation, place of singing the contract, and the five-day waiting period. The model clause regarding the notice of cancellation, place of signing the contract, and the five-day waiting period reads:

Attached Graphic

(3) Article 16, Section 50(a)(5) of the Texas Constitution provides that a contract for improvements on a homestead must expressly provide the owner with notice of the owner's right to cancel the contract. The model notice regarding the owner's right to cancel the contract reads: "NOTICE OF RIGHT TO CANCEL. THE OWNER MAY CANCEL THE CONTRACT WITHOUT PENALTY OR CHARGE WITHIN THREE DAYS AFTER THE EXECUTION OF THE CONTRACT BY ALL PARTIES, UNLESS THE WORK AND MATERIAL ARE NECESSARY TO COMPLETE IMMEDIATE REPAIRS TO CONDITIONS ON THE HOMESTEAD PROPERTY THAT MATERIALLY AFFECT THE HEALTH OR SAFETY OF THE OWNER OR PERSON RESIDING IN THE HOMESTEAD AND THE OWNER OF THE HOMESTEAD ACKNOWLEDGES SUCH IN WRITING."

(4) Texas Business and Commerce Code, Chapter 601 requires that notice must be given to the consumer regarding the consumer's right to cancel certain types of transactions. If this chapter is applicable, the notice that must be given by the licensee must appear in immediate proximity to the consumer's signature, or on the front page of the receipt if a contract is not used. The notice must be in boldfaced type and must be the equivalent of at least 10 points in the Times typeface. The statement to which the notice must be substantially similar reads: "YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT."

(5) Texas Business and Commerce Code, Chapter 601 also requires, if applicable, that a completed notice of cancellation form in duplicate be attached to the loan documents or receipt of the consumer transaction. This notice must be easily detachable from the contract or receipt, be in the same language as the contract or receipt, be in boldfaced type, and be the equivalent of at least 10 points in the Times typeface. The required notice of cancellation reads:

Attached Graphic

(6) The licensee may add information related to information set forth in the model clauses that is not otherwise prohibited by law.

(7) The licensee may substitute another term for "Lender" or "Borrower" that has the same meaning, or use pronouns such as "you," "we," and "us."

(8) The model clauses may be presented in any order, and may be combined or further segregated at the licensee's option.

(9) The licensee may insert descriptive headings or number provisions.

(10) The licensee may change the case of a word if otherwise permitted by the Texas Finance Code.

(11) The licensee may make other changes that do not affect the substance of the disclosures.

(12) A licensee may place its NMLS ID number, the individual residential mortgage loan originator's name, or the originator's NMLS ID on any portion of a document requiring this information, including the signature page. To the extent allowed by Regulation Z, 12 C.F.R. §1026.36(g), and the official commentary to that section, a licensee may omit:

(A) the licensee's NMLS ID number, if the licensee does not have an NMLS ID number and is not legally required to obtain one; and

(B) the individual residential mortgage loan originator's NMLS ID number, if the originator does not have an NMLS ID number and is not legally required to obtain one.

(13) A sample model contract that does not allow for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(14) A sample model promissory note that does not allow for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(15) A sample model contract that allows for withdrawals or multiple advances is presented in the following example.

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(16) A sample model promissory note that allows for withdrawals or multiple advances is presented in the following example.

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(17) A sample model deed of trust that allows for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

History

• Source Note: The provisions of this §90.604 adopted to be effective August 31, 2006, 31 TexReg 6694; amended to be effective March 15, 2007, 32 TexReg 1244; amended to be effective September 6, 2007, 32 TexReg 5676; amended to be effective January 3, 2008, 32 TexReg 9952; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501.

Subchapter G SPANISH DISCLOSURES

7 Tex. Admin. Code § 90.701 Applicability

(a) If a contract for a loan under Chapter 342, Subchapters E, F, or G is negotiated in Spanish, then the licensee must deliver a Spanish disclosure specified in §90.703(a) of this title (relating to Form of Disclosure) to the debtor.

(b) If a retail installment transaction under Chapter 348 is negotiated in Spanish, then the licensee may (but is not required to) deliver a Spanish disclosure specified in §90.703(b) of this title to the debtor.

(c) The disclosure requirement does not apply to open-end transactions.

History

• Source Note: The provisions of this §90.701 adopted to be effective August 31, 2006, 31 TexReg 6707; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635.

7 Tex. Admin. Code § 90.702 Negotiation in Spanish

(a) Negotiation terms. The disclosure specified in §90.703 of this title (relating to Form of Disclosure) must be given if a licensee provides information in relation to a credit transaction with a debtor or the debtor's representative regarding any of the following credit terms in Spanish:

(1) amount financed;

(2) finance charge;

(3) annual percentage rate;

(4) the amount of any payment or schedule of payments;

(5) total of payments; or

(6) security interest.

(b) Advertising exception. A licensee is not required to provide a disclosure specified in §90.703 of this title if a creditor advertises credit terms in Spanish that are specified in this section.

History

• Source Note: The provisions of this §90.702 adopted to be effective August 31, 2006, 31 TexReg 6707; amended to be effective September 9, 2010, 35 TexReg 8104.

7 Tex. Admin. Code § 90.703 Form of Disclosure

(a) For a loan under Chapter 342, Subchapters E, F, or G, if the licensee negotiates a term described by §90.702(a) of this title (relating to Negotiation in Spanish), then the licensee must deliver a Spanish disclosure described by this subsection to the debtor. The disclosure must be completed with amounts that are accurate within the tolerances described by Regulation Z, 12 C.F.R. Part 1026.

(1) For loans negotiated in Spanish that are subject to Chapter 342, Subchapter E, the licensee must provide, no later than the consummation of the loan:

(A) a Spanish translation of the loan contract that includes the disclosure form under Regulation Z, 12 C.F.R. §1026.18; or

(B) a copy of the "Notificación de Crédito Al Consumidor (Préstamo a Plazos)" as prescribed in the following figure:

Attached Graphic

(2) For loans negotiated in Spanish that are subject to Chapter 342, Subchapter F, the licensee must provide, no later than consummation of the loan:

(A) a Spanish translation of the loan contract that includes the disclosure form under Regulation Z, 12 C.F.R. §1026.18; or

(B) copies of both the "Notificación de Crédito Al Consumidor (Préstamo)," and the "Conceptos Financieros."

(i) The "Notificación de Crédito Al Consumidor (Préstamo)," for which the lender should select an appropriate late charge option, is presented in the following figure:

Attached Graphic

(I) Late Charge Option 1: "Late Charge: If I don't pay an entire payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(II) Late Charge Option 1 Spanish Translation: "Cargos por Retrasos: Si no doy un pago completo dentro de 10 días después de vencerse, me puedes cobrar un cargo por retraso. El cargo por retraso será el 5% de la cantidad del pago."

(III) Late Charge Option 2: "Late Charge: For a loan that has an amount financed of less than $100, the late charge for a payment that is unpaid for 10 days after it is due is 5% of the amount of the installment. For a loan that has an amount financed of $100 or more, the late charge for a payment that is unpaid for 10 days after it is due is the greater of $10 or 5% of the amount of the installment."

(IV) Late Charge Option 2 Spanish Translation: "Cargos por Retrasos: Para un préstamo en el cual la cantidad fínanciada es menor de $100, el cargo por retraso en un pago que no se liquida por 10 días después de vencerse es 5% de la cantidad del pago. Para un préstamo en el cual la cantidad fínanciada es de $100 o más, el cargo por retraso en un pago que no se liquida por 10 días después de vencerse es de $10 o 5% de la cantidad del pago atrasado, lo que sea mayor."

(ii) The "Conceptos Financieros" are presented in the following figure:

Attached Graphic

(3) For loans negotiated in Spanish that are subject to Chapter 342, Subchapter G, the licensee must provide copies of both of the following TILA-RESPA integrated disclosures in Spanish:

(A) No later than the date required for the loan estimate under Regulation Z, 12 C.F.R. §1026.19(e), the licensee must provide to the debtor a copy of the "Estimación de Préstamo" provided by 12 C.F.R. Part 1026, Appendix H, Model Forms H-28(A) through H-28(E) and H-28(I). The licensee must select an appropriate model form based on the type of loan.

(B) No later than the date required for the closing disclosure under Regulation Z, 12 C.F.R. §1026.19(f), the licensee must provide to the debtor a copy of the "Declaración de Cierre" provided by 12 C.F.R. Part 1026, Appendix H, Model Forms H-28(F) through H-28(H) and H-28(J). The licensee must select an appropriate model form based on the type of loan.

(b) If a retail installment transaction under Chapter 348 is negotiated in Spanish, then the licensee may at its option deliver one or both of the following to the debtor:

(1) a Spanish translation of the retail installment sales contract that includes the disclosure form under Regulation Z, 12 C.F.R. §226.18 or §1026.18; or

(2) a copy of the "Notificación de Crédito Al Consumidor (Contrato de Menudeo a Plazos para Vehículo Automotor)," for which the licensee should select the appropriate late charge payment option, as presented in the following figure:

Attached Graphic

(c) Licensees may delete inapplicable provisions contained in a model disclosure described by this section, except for the TILA-RESPA integrated disclosures required under subsection (a)(3).

History

• Source Note: The provisions of this §90.703 adopted to be effective November 5, 2015, 40 TexReg 7693.

7 Tex. Admin. Code § 90.704 Items Excluded From Translation Requirement

The summary or translation required under Texas Finance Code, §341.502(a-1) may retain the following elements in English without translation to Spanish:

(1) names and titles of individuals, companies and other persons;

(2) addresses;

(3) brand names, trade names, trademarks, registered service marks, or full or abbreviated designations of the make and model of goods or services;

(4) alphanumeric codes, numerals, dollar amounts expressed in numerals, or dates; or

(5) words or expressions not having a generally-accepted Spanish translation.

History

• Source Note: The provisions of this §90.704 adopted to be effective August 31, 2006, 31 TexReg 6707.

7 Tex. Admin. Code § 90.705 Multiple-Party Transactions

If there are multiple creditors in the transaction, only one creditor needs to provide the information required by §90.703 of this title (relating to Form of Disclosure). If there are multiple debtors in a transaction, the creditor may deliver the information required by this section to any one or more of the debtors. The information may, but need not be, signed by the borrower or creditor.

History

• Source Note: The provisions of this §90.705 adopted to be effective August 31, 2006, 31 TexReg 6707.

7 Tex. Admin. Code § 90.706 Legal Document

(a) The agreement entered in the English language is the legal document and determines the rights and obligations of the parties. The disclosures required by federal law entered in the English language are the legal disclosures and determine the disclosure obligations of the licensee.

(b) The licensee may at its option add the following disclaimer:

(1) "NOTICE REGARDING THE TRANSLATION INTO SPANISH: The English document is the legal document and reflects the parties' rights and obligations. The translation into Spanish of the document is provided for the convenience of the Borrower."

(2) Spanish Translation: "AVISO CON RESPECTO A LA TRADUCCIÓN AL ESPAÑOL: El documento en inglés es el documento legal y refleja los derechos y obligaciones de las partes. La traducción al español del documento se ofrece para la conveniencia del Prestatario."

History

• Source Note: The provisions of this §90.706 adopted to be effective August 31, 2006, 31 TexReg 6707; amended to be effective September 9, 2010, 35 TexReg 8104.

Part 6 CREDIT UNION DEPARTMENT

Chapter 91 CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS

Subchapter A GENERAL RULES

7 Tex. Admin. Code § 91.101 Definitions and Interpretations

(a) Words and terms used in this chapter that are defined in Finance Code §121.002, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Act--the Texas Credit Union Act (Texas Finance Code, Subtitle D).

(2) Allowance for loan and lease losses (ALLL)--a general valuation allowance that has been established through charges against earnings to absorb losses on loans and lease financing receivables. An ALLL excludes the regular reserve and special reserves.

(3) Applicant--an individual or credit union that has submitted an application to the commissioner.

(4) Application--a written request filed by an applicant with the department seeking approval to engage in various credit union activities, transactions, and operations or to obtain other relief for which the commission is authorized by the act to issue a final decision or order subject to judicial review.

(5) Appraisal--a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of a specifically described asset as of a specific date, supported by the presentation and analysis of relevant market information.

(6) Automated teller machine (ATM)--an automated, unstaffed credit union facility owned by or operated exclusively for the credit union at which deposits are received, cash dispensed, or money lent.

(7) Community of interest--a unifying factor among persons that by virtue of its existence, facilitates the successful organization of a new credit union or promotes economic viability of an existing credit union. The types of community of interest currently recognized are:

(A) Occupational--based on an employment relationship that may be established by:

(i) employment (or a long-term) contractual relationship equivalent to employment) by a single employer, affiliated employers or employers under common ownership with at least a 10% ownership interest;

(ii) employment or attendance at a school; or

(iii) employment in the same trade, industry or profession (TIP) with a close nexus and narrow commonality of interest, which is geographically limited.

(B) Associational--based on groups consisting primarily of natural persons whose members participate in activities developing common loyalties, mutual benefits, or mutual interests. In determining whether a group has an associational community of interest, the commissioner shall consider the totality of the circumstances, which include:

(i) whether the members pay dues;

(ii) whether the members participate in furtherance of the goals of the association;

(iii) whether the members have voting rights;

(iv) whether there is a membership list;

(v) whether the association sponsors activities;

(vi) what the association's membership eligibility requirements are; and

(vii) the frequency of meetings. Associations formed primarily to qualify for credit union membership and associations based on client or customer relationships, do not have a sufficient associational community of interest.

(C) Geographic--based on a clearly defined and specific geographic area where persons have common interests and/or interact. More than one credit union may share the same geographic community of interest. There are currently four types of affinity on which a geographic community of interest can be based: persons, who:

(i) live in;

(ii) worship in;

(iii) attend school in; or

(iv) work in that community. The geographic community of interest requirements are met if the area to be served is in a recognized single political subdivision, as defined in this rule.

(D) Other--The commissioner may authorize other types of community of interest, if the commissioner determines that either a credit union or foreign credit union has sufficiently demonstrated that a proposed factor creates an identifiable affinity among the persons within the proposed group. Such a factor shall be well-defined, have a geographic definition, and may not circumvent any limitation or restriction imposed on one of the other enumerated types.

(8) A credit union service organization (CUSO)--an organization authorized by §91.801 (relating to Investments in Credit Union Service Organizations). A consolidated CUSO is one where control or ownership by a credit union requires consolidation of the credit union and CUSO financial statements to comply with Generally Accepted Accounting Principles.

(9) Day--whenever periods of time are specified in this title in days, calendar days are intended. When the day, or the last day fixed by statute or under this title for taking any action falls on Saturday, Sunday, or a state holiday, the action may be taken on the next succeeding day which is not a Saturday, Sunday, or a state holiday.

(10) Department newsletter--the monthly publication that serves as an official notice of all applications, and by which procedures to protest applications are described.

(11) Field of membership (FOM)--refers to the totality of persons a credit union may accept as members. The FOM may consist of one group, several groups with a related community of interest, or several unrelated groups with each having its own community of interest.

(12) Finance Code or Texas Finance Code--the codification of the Texas statutes governing financial institutions, financial businesses, and related financial services, including the regulations and supervision of credit unions.

(13) Imminent danger of insolvency--a circumstance or condition in which a credit union is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the value of its assets exceeds its liabilities; or the credit union has a positive net worth ratio equal to two percent or less of its assets.

(14) Improved residential property--residential real estate containing on-site, offsite or other improvements sufficient to make the property ready for primarily residential construction, and real estate in the process of being improved by a building or buildings to be constructed or in the process of construction for primarily residential use.

(15) Interactive teller machine (ITM)--a video-based interactive technology which allows members to conduct transactions and credit union services driven by a centrally based teller, in a real time video or audio interaction.

(16) Indirect financing--a program in which a credit union makes the credit decision in a transaction where the credit is extended by the vendor and assigned to the credit union or a loan transaction that generally involves substantial participation in and origination of the transaction by a vendor.

(17) Loan and extension of credit--a direct or indirect advance of funds to or on behalf of a member based on an obligation of the member to repay the funds or repayable from the application of the specific property pledged by or on behalf of the member. The terminology also includes the purchase of a member's loan or other obligation, a lease financing transaction, a credit sale, a line of credit or loan commitment under which the credit union is contractually obligated to advance funds to or on behalf of a member, an advance of funds to honor a check or share draft drawn on the credit union by a member, or any other indebtedness not classified as an investment security.

(18) Loan-to-value ratio--the aggregate amount of all sums borrowed and secured by the collateral, including outstanding balances plus any unfunded commitment or line of credit from another lender that is senior to the credit union's lien divided by the current value of the collateral.

(19) Manufactured home--a HUD-code manufactured home as defined by the Texas Manufactured Housing Standards Act. The terminology may also include a mobile home, house trailer, or similar recreational vehicle if the unit will be used as the member's residence and the loan is secured by a first lien on the unit, and the unit meets the requirements for the home mortgage interest deduction under the Internal Revenue Code (26 U.S.C. Section 163(a), (h)(2)(D)).

(20) Market Value--the most probable price which an asset should bring in a competitive and open market under an arm's-length sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of ownership from seller to buyer where:

(A) Buyer and seller are typically motivated;

(B) Both parties are well informed or well advised, and acting in their own best interests;

(C) A reasonable time is allowed for exposure in the open market;

(D) Payment is made in cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(21) Metropolitan Statistical Area (MSA)--a geographic area as defined by the director of the U.S. Office of Management and Budget.

(22) Mobile office--a branch office that does not have a single, permanent site, including a vehicle that travels to various public locations to enable members to conduct their credit union business.

(23) Office--includes any service facility or place of business established by a credit union at which deposits are received, checks or share drafts paid, or money lent. This definition includes a credit union owned branch, a mobile branch, an office operated on a regularly scheduled weekly basis, a credit union owned ATM, or a credit union owned ITM or other electronic facility that meets, at a minimum, these requirements; however, it does not include the credit union's Internet website. This definition also includes a shared branch or a shared branch network if either:

(A) the credit union has an ownership interest in the service facility either directly or through a CUSO or similar organization; or

(B) the service facility is local to the credit union and the credit union is an authorized participant in the service center.

(24) Overlap--the situation which exists when a group of persons is eligible for membership in two or more state, foreign, or federal credit unions doing business in this state. Notwithstanding this provision, no overlap exists if eligibility for credit union membership results solely from a family relationship.

(25) Pecuniary interest--the opportunity, directly or indirectly, to make money on or share in any profit or benefit derived from a transaction.

(26) Person--an individual, partnership, corporation, association, government, governmental subdivision or agency, business trust, estate, trust, or any other public or private entity.

(27) Political Subdivision--a county, municipality, special district, school district, junior college district, housing authority, or other political subdivision of this state or any other state.

(28) Principal office--the home office of a credit union.

(29) Protestant--a credit union that opposes or objects to the relief requested by an applicant.

(30) Real estate or real property--an identified parcel or tract of land. The term includes improvements, easements, rights of way, undivided or future interest and similar rights in a tract of land, but does not include mineral rights, timber rights, growing crops, water rights and similar interests severable from the land when the transaction does not involve the associated parcel or tract of land.

(31) Remote service facility--an automated, unstaffed credit union facility owned or operated by, or operated for, the credit union, such as an automated teller machine, cash dispensing machine, point-of-sale terminal, or other remote electronic facility, at which deposits are received, cash dispensed, or money lent.

(32) Reserves--allocations of retained earnings including regular and special reserves, except for any allowances for loan, lease or investment losses.

(33) Resident of this state--a person physically located in, living in or employed in the state of Texas.

(34) Respondent--a credit union or other person against whom a disciplinary proceeding is directed by the department.

(35) Secured credit--a loan made or extension of credit given upon an assignment of an interest in collateral pursuant to applicable state laws so as to make the enforcement or promise more certain than the mere personal obligation of the debtor or promisor. Any assignment may include an interest in personal property or real property or a combination thereof.

(36) Shared service center--a facility which is connected electronically with two or more credit unions so as to permit the facility, through personnel at the facility and the electronic connection, to provide a credit union member at the facility the same credit union services that the credit union member could lawfully obtain at the principal office of the member's credit union.

(37) TAC--an acronym for the Texas Administrative Code, a compilation of all state agency rules in Texas.

(38) Title or 7 TAC--Title 7, Part VI of the Texas Administrative Code Banking and Securities, which contains all of the department's rules.

(39) Underserved area--a geographic area, which could be described as one or more contiguous metropolitan statistical areas (MSA) or one or more contiguous political subdivisions, including counties, cities, and towns, that satisfy any one of the following criteria:

(A) A majority of the residents earn less than 80 percent of the average for all wage earners as established by the U. S. Bureau of Labor Statistics;

(B) The annual household income for a majority of the residents falls at or below 80 percent of the median household income for the State of Texas, or the nation, whichever is higher; or

(C) The commission makes a determination that the lack of available or adequate financial services has adversely affected economic development within the specified area.

(40) Uninsured membership share--funds paid into a credit union by a member that constitute uninsured capital under conditions established by the credit union and agreed to by the member including possible reduction under §122.105 of the act, risk of loss through operations, or other forfeiture. Such funds shall be considered an interest in the capital of the credit union upon liquidation, merger, or conversion.

(41) Unsecured credit--a loan or extension of credit based solely upon the general credit financial standing of the borrower. The term shall include loans or other extensions of credit supported by the signature of a co-maker, guarantor, or endorser.

(b) The same rules of construction that apply to interpretation of Texas statutes and codes, the definitions in the Act and in Government Code §2001.003, and the definitions in subsection (a) of this section govern the interpretation of this title. If any section of this title is found to conflict with an applicable and controlling provision of other state or federal law, the section involved shall be void to the extent of the conflict without affecting the validity of the rest of this title.

History

• Source Note: The provisions of this §91.101 adopted to be effective November 13, 2000, 25 TexReg 11277; amended to be effective January 7, 2004, 29 TexReg 81; amended to be effective November 14, 2004, 29 TexReg 10253; amended to be effective November 16, 2005, 30 TexReg 7432; amended to be effective November 8, 2009, 34 TexReg 7620; amended to be effective November 23, 2017, 42 TexReg 6507; amended to be effective November 24, 2019, 44 TexReg 7037; amended to be effective August 10, 2025, 50 TexReg 5063.

7 Tex. Admin. Code § 91.103 Public Notice of Department Decisions

The commissioner shall cause notice of final actions taken by the department on certain activities to be published in the Texas Register and the department newsletter. Notice shall be published in both publications within 30 days of the action becoming final. The activities covered by this requirement are:

(1) an application for incorporation under Texas Finance Code §122.001;

(2) a request for an amendment to a credit union's articles of incorporation under Texas Finance Code §122.011;

(3) a request for an amendment to a credit union's bylaws for the expansion of its field of membership under Texas Finance Code §122.011;

(4) an application for merger or consolidation under Texas Finance Code §122.152;

(5) a request by a foreign credit union to do business in Texas under Texas Finance Code §122.013; and

(6) an application for conversion of a credit union's certificate of incorporation under Texas Finance Code §§122.201, 122.202, 122.203, or §91.1007 of this chapter (relating to Conversion to a Mutual Savings Institution).

History

• Source Note: The provisions of this §91.103 adopted to be effective May 10, 1998, 23 TexReg 4567; amended to be effective November 8, 2009, 34 TexReg 7623.

7 Tex. Admin. Code § 91.104 Public Notice and Comment on Certain Applications

(a) Upon receipt of a complete application for authorization to be granted by the department, the commissioner shall cause notice of such application to be published in the Texas Register and the department newsletter. Notice shall be published in both publications at least 30 days prior to taking action on the request. The activities covered by this requirement are:

(1) an application for incorporation under Texas Finance Code §122.001;

(2) a request for an amendment to a credit union's articles of incorporation under Texas Finance Code §122.011;

(3) a request for an amendment to a credit union's bylaws for an expansion of its field of membership under Texas Finance Code §122.011;

(4) an application for merger or consolidation under Texas Finance Code §122.152;

(5) an application for conversion of a credit union's certificate of incorporation under §91.1007 of this chapter (relating to Conversion to a Mutual Savings Institution); and

(6) a request by a foreign credit union to do business in Texas under Texas Finance Code §122.013.

(b) The commissioner may waive or delay notice of applications under subsection (a) of this section when a waiver or delay is in the public interest. The commissioner shall consider the welfare and stability of the affected credit union(s) in determining the public interest. If the commissioner determines that delaying public notice is in the public interest, the notice of application shall be published in each publication at the earliest feasible time.

History

• Source Note: The provisions of this §91.104 adopted to be effective May 10, 1998, 23 TexReg 4567; amended to be effective May 11, 2000, 25 TexReg 3943; amended to be effective November 8, 2009, 34 TexReg 7623.

7 Tex. Admin. Code § 91.105 Acceptance of Other Application Forms

Notwithstanding other requirements of this chapter, if another state or federal regulator's application and forms provide all the information required by Texas law, the commissioner may accept those forms. This does not limit the commissioner's power to require additional information necessary to complete an application or other form.

History

• Source Note: The provisions of this §91.105 adopted to be effective May 11, 2000, 25 TexReg 3943; amended to be effective November 8, 2009, 34 TexReg 7623.

7 Tex. Admin. Code § 91.110 Protest Procedures for Applications

A protestant to an application for authorization to be granted by the commissioner must file a written notice of protest, in such form as the commissioner may prescribe, within 30 days of the date that notice of the application is published in either the Texas Register or the department newsletter, whichever is later. The notice of protest must provide all information that the protestant wishes the commissioner to consider in evaluating the application.

History

• Source Note: The provisions of this §91.110 adopted to be effective May 11, 2000, 25 TexReg 3944.

7 Tex. Admin. Code § 91.115 Safety at Unmanned Teller Machines

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code §59.301, have the same meanings as defined in the Finance Code.

(b) Measurement of candle foot power. For the purposes of measuring compliance with the Finance Code §59.307, candle foot power should be determined under normal, dry weather conditions, without complicating factors such as fog, rain, snow, sand, or dust storm, or other similar condition.

(c) Safety evaluations.

(1) The credit union owner or operator of an unmanned teller machine shall evaluate the safety of each machine on a basis no less frequently than annually, unless the machine is exempted under the Finance Code §59.302.

(2) The safety evaluation shall consider at the least the factors identified in the Finance Code, §59.308.

(3) The credit union owner or operator of the unmanned teller machine may provide the landlord or owner of the property with a copy of the safety evaluation if an access area or defined parking area for an unmanned teller machine is not controlled by the credit union owner or operator of the machine.

(d) Notice. A credit union issuer of access devices shall furnish its members with a notice of basic safety precautions that each member should employ while using an unmanned teller machine. The notice must be personally delivered or sent to each member whose mailing address is in this state, according to records for the account to which the access device relates, and may be included with other disclosures related to the access device, including an initial or periodic disclosure statement furnished under the Electronic Fund Transfer Act (15 U.S.C. §1693 et seq.). The notice may be delivered electronically if permissible under Business & Commerce Code, §322.008.

(1) When notice is required. The credit union issuer must furnish the notice to its member whenever an access device is issued or renewed. If the credit union furnishes an access device to more than one member on the same account, the credit union is not required to furnish the notice to more than one of the members.

(2) Content of notice. The notice of basic safety precautions required by this subsection may include recommendations or advice regarding:

(A) security at walk-up or drive-up unmanned teller machines;

(B) protection of the member's code or personal identification numbers;

(C) procedures for reporting a lost or stolen access device;

(D) reaction to suspicious circumstances;

(E) safekeeping and secure disposition of unmanned teller machine receipts, such as the inadvisability of leaving an unmanned teller machine receipt near the unmanned teller machine;

(F) the inadvisability of surrendering information about the member's access device over the telephone or the Internet, unless to a trusted merchant in a call or transaction initiated by the member;

(G) safeguarding and protecting the member's access device, such as a recommendation that the member treat the access device as if it was cash;

(H) protection against unmanned teller machine fraud, such as a recommendation that the member promptly review the member's monthly statement and compare unmanned teller machine receipts against the statement; and

(I) other recommendations that the credit union reasonably believes are appropriate to facilitate the security of its unmanned teller machine users.

(e) Leased premises.

(1) Noncompliance by landlord. Pursuant to the Finance Code, §59.306, the landlord or owner of property is required to comply with the safety procedures of the Finance Code, Chapter 59, Subchapter D, if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the unmanned teller machine. If a credit union owner or operator of an unmanned teller machine on leased premises is unable to obtain compliance with safety procedures from the landlord or owner of the property, the credit union shall notify the landlord in writing of the requirements of the Finance Code, Chapter 59, Subchapter D, and of those provisions for which the landlord is in noncompliance.

(2) Enforcement. Noncompliance with safety procedures required by the Finance Code, Chapter 59, Subchapter D, by a landlord or owner of property after receipt of written notification from the owner or operator constitutes a violation of the Finance Code, Chapter 59, Subchapter D, which may be enforced by the Texas Attorney General.

(f) Video surveillance equipment. Video surveillance equipment is not required to be installed at all unmanned teller machines. The credit union owner or operator must determine whether video surveillance or unconnected video surveillance equipment should be installed at a particular unmanned teller machine site, based on the safety evaluation required under the Finance Code, §59.308. If a credit union owner or operator determines that video surveillance equipment should be installed, the credit union must provide for selecting, testing, operating, and maintaining appropriate equipment.

History

• Source Note: The provisions of this §91.115 adopted to be effective May 11, 2000, 25 TexReg 3944; amended to be effective November 16, 2005, 30 TexReg 7432; amended to be effective November 10, 2013, 38 TexReg 7704; amended to be effective November 23, 2017, 42 TexReg 6507.

7 Tex. Admin. Code § 91.120 Posting of Notice Regarding Certain Loan Agreements

(a) As required by the Business and Commerce Code §26.02, all credit unions are required to conspicuously post notices informing members of the requirements that certain loan agreements must be in writing. The notice must include the language and be in the format prescribed by the Finance Commission of Texas in §3.34 of this title (relating to Posting of Notice in All Finance Institutions).

(b) Each credit union shall post the notice required by subsection (a) of this section in the lobby of each of its offices other than off-premises electronic deposit facilities.

History

• Source Note: The provisions of this §91.120 adopted to be effective May 11, 2000, 25 TexReg 3944.

7 Tex. Admin. Code § 91.121 Complaint Notices and Procedures

(a) Purpose. This section implements Finance Code §15.408, which requires the Department to maintain a system to promptly and efficiently act on each complaint filed with the Department.

(b) Required Notice.

(1) Credit unions must provide their members with a notice that substantially conforms to the language and form of the following notice in order to let its members know how to file complaints: "If you have a problem with the services provided by this credit union, please contact us at: (Your Name) Credit Union Mailing Address Telephone Number or e-mail address. The credit union is incorporated under the laws of the State of Texas and under state law is subject to regulatory oversight by the Texas Credit Union Department. If any dispute is not resolved to your satisfaction, you may also file a complaint against the credit union by contacting the Texas Credit Union Department through one of the means indicated below: In Person or U.S. Mail: 914 East Anderson Lane, Austin, Texas 78752-1699, Telephone Number: (512) 837-9236, Facsimile Number: (512) 832-0278; email: complaints@cud.texas.gov., Website: www.cud.texas.gov."

(2) The title of this notice shall be "COMPLAINT NOTICE" and must be in all capital letters and boldface type.

(3) The credit union must provide the notice as follows:

(A) In each area where a credit union typically conducts business on a face-to-face basis, the required notice must be conspicuously posted. A notice is deemed to be conspicuously posted if a member with 20/20 vision can read it from the place where he or she would typically conduct business or if it is included in plain view on a bulletin board on which required communications to the membership (such as equal housing posters) are posted.

(B) If a credit union maintains a website, the required notice or a link to the required notice must be conspicuously posted on the homepage of the website.

(C) If a credit union distributes a newsletter, it must include the notice on approximately the same date at least once each year in any newsletter distributed to its members.

(D) If a credit union does not distribute a newsletter, the notice must be included with any privacy notice the credit union is required to provide or send its members.

(c) Filing, Receipt, and Handling of Complaints.

(1) The Department shall make available, on its public website (www.cud.texas.gov) and at its office, information on how to file a complaint.

(2) A person who alleges that a credit union has committed an act or failed to perform an act that may constitute a violation of the Texas Credit Union Act or Department rules may file a complaint in writing with the Department. The complainant may complete and submit to the Department the complaint form the Department maintains at the Department's office and on its public website, or the complainant may submit a complaint in a letter that addresses the matters covered by the complaint form. At a minimum, all complaints should contain information necessary for the proper processing of the complaint by the Department, including, but not limited to:

(A) complainant's name and how the complainant may be contacted;

(B) name and address of the credit union against whom the complaint is made;

(C) a brief statement of the nature of the complaint and relevant facts, including names of persons with knowledge, times, dates, and location; and

(D) Copies of any documents or records related to the complaint (original records should not be sent with a complaint).

(3) Anonymous complaints may be accepted by the Department, but the lack of a witness or the inability of the Department to secure additional information from the anonymous complainant may result in the Department's inability to secure sufficient evidence to pursue action against a credit union.

(4) The Department will review all complaints to determine whether they are within the Department's jurisdiction or authority to resolve and will send an acknowledgement letter to the complainant within five (5) business days of receipt of a complaint. At least quarterly until final disposition of the complaint, the Department shall provide status updates to the complainant and respondent credit union, orally or in writing, unless the notice would jeopardize an investigation.

(5) Upon determining that a complaint is within the Department's jurisdiction, the Department will inform the credit union respondent of the complaint and will request a written response from the credit union. Along with a request for response, the Department will transmit to the credit union a copy of the complaint and any attachments. Within fifteen (15) days from the date of the request for response, unless the period is extended by the Department, the credit union shall provide a substantive response and set forth the credit union's position with respect to the allegations in the complaint, which shall include all data, information and documentation supporting its position, or a description of corrective measures taken or intended to be taken. The Department may request, and the complainant and respondent shall provide, additional information or further explanation at any time during the review of the complaint.

(6) Once the Department has received the documentation from both parties, the Department will review the information and will process the complaint in accordance with the rules of the Department. The Department will advise both parties in writing of the final disposition of the complaint.

(7) The Department shall maintain a file on each complaint filed with the agency. The file shall include:

(A) the complainant's name and relationship to the institution;

(B) the date the complaint is received and resolved or closed by the Department;

(C) the basis of the complaint;

(D) a summary of the results of the review of the complaint including issuance of any enforcement action; and

(E) an explanation of the reason the file was closed, if the Department closed the file without taking action other than to review the complaint.

(8) The Department will maintain a database of complaints in order to identify trends or issues related to violations of state laws under the Department's jurisdiction.

(d) Complaints Closed with No Action Beyond Review. Certain complaints and disputes may be closed with no action taken other than to review the complaint. Such complaints may include those that are not within the Department authority to investigate or adjudicate, and which may be referred to as non-jurisdictional complaints. The Department, for example, will not address complaints concerning contractual matters or internal credit union practices that are not governed by the statutes or rules that the Department implements or enforces. The Department also may close without taking action other types of complaints, including undocumented factual disputes between a person and a credit union and complaints involving matters that are the subject of a pending lawsuit. The Department does not offer legal assistance and cannot represent individuals in settling claims or recovering damages. The Department does not own, operate, or control credit unions, and the Department does not establish their operating policies and procedures. Therefore, the Department may close without taking action complaints concerning the range of services a credit union offers, complaints about bad customer service, and disagreements over specific credit union policies, practices, or procedures, or about other matters that are not governed by a law or rule under the Department's jurisdiction. The Department will inform the complainant and respondent credit union when a complaint is closed with no action taken and will inform them of the reason for closing the case.

(e) Privacy. The information collected from complainants and respondents is solicited to provide the Department with information that is necessary and useful in reviewing complaints received from persons regarding their interactions with a credit union. A complainant is not required to give the Department any information; however, without such information, the Department's ability to complete a review, to investigate, or to prosecute a matter may be hindered. It is intended that the information a person provides to the Department will be used within the Department and for the purpose of investigating and prosecuting a complaint. A person should not include personal or confidential information such as social security, credit card, or account numbers, or dates of birth when corresponding with the Department. If it is necessary to supply a document that contains personal or confidential information, the information should be redacted before the document is submitted to the Department.

(f) The Department will annually produce a statistical analysis of complaints processed and related enforcement actions for the preceding fiscal year which must include at a minimum:

(1) total complaints filed, closed and outstanding;

(2) resolved complaints aggregated by source, basis of complaint, disposition, jurisdictional vs. non-jurisdiction, regulatory vs. non-regulatory penalties or fees assessed and the average number of days to resolve.

History

• Source Note: The provisions of this §91.121 adopted to be effective March 4, 2009, 34 TexReg 1399; amended to be effective March 14, 2010, 35 TexReg 1977; amended to be effective November 13, 2011, 36 TexReg 7540; amended to be effective November 23, 2017, 42 TexReg 6508; amended to be effective November 5, 2018, 43 TexReg 7342; amended to be effective November 28, 2021, 46 TexReg 7872.

7 Tex. Admin. Code § 91.125 Accuracy of Advertising

(a) As used in this rule, an advertisement is any informational communication, including oral, written, electronic, broadcast or any other type of communication, made to members, prospective members, or to the public at large in any manner designed to attract attention to the business of a credit union.

(b) No credit union shall disseminate or cause the dissemination of any advertisement that is in any way intentionally or negligently false, deceptive, or misleading. An advertisement shall be deemed by the Commissioner to be intentionally or negligently false, deceptive, or misleading if it:

(1) contains materially false claims or misrepresentations of material facts;

(2) contains materially implied false claims or implied misrepresentations of material fact;

(3) omits material facts;

(4) makes a representation likely to create an unjustified expectation about credit union products or services;

(5) states that the credit union's services are superior to or of a higher quality than that of another financial institution unless the credit union can factually substantiate the statement;

(6) states that a service is free when it is not, or contains intentionally untruthful or deceptive claims regarding costs and fees; and

(7) fails to disclose that membership is required to participate in or enjoy the advantage of the product or service (does not apply to advertisement to current members).

(c) Prior to placing an advertisement, a credit union must possess credible information which, when produced, substantiates the truthfulness of any assertion, representation or omission of material fact set forth in the advertisement.

(d) If the Commissioner notifies a credit union that an advertisement is deemed to be false, deceptive or misleading, the credit union will have ten days following the credit union's receipt of the notification to provide the Commissioner with information substantiating the truthfulness of the advertisement. If the credit union does not provide this information or the Commissioner, after receipt of the information, still deems the advertisement to be false, deceptive or misleading, the Commissioner may issue a cease and desist order to the credit union to stop the use of the advertisement.

History

• Source Note: The provisions of this §91.125 adopted to be effective November 16, 2005, 30 TexReg 7432.

Subchapter B ORGANIZATION PROCEDURES

7 Tex. Admin. Code § 91.201 Incorporation Procedures

(a) An application to incorporate a credit union shall be in writing and supported by such information and data as the commissioner may require to make the findings necessary for the issuance of a certificate of incorporation.

(b) Business Plan. The application must include a business plan that covers three years and provides detailed explanations of actions that are proposed to accomplish the primary functions of the credit union. The description should provide enough detail to demonstrate that the institution has a reasonable chance for success, will operate in a safe and sound manner, and will maintain adequate capital to support its operations. Specifically the plan must:

(1) Describe the credit union's business, including the products, member services, and other activities;

(2) Provide quarterly pro forma financial information for the three years of operation, including annual totals for the Income Statement;

(3) Describe in detail all of the assumptions used to prepare the projected financial information;

(4) Discuss the capital goals and the means to achieve them;

(5) Discuss the overall marketing/advertising strategy to reach potential members;

(6) Discuss the credit union's strategy for obtaining required share and deposit insurance protection for its members' accounts; and

(7) Describe the economic forecast for the three years of the plan.

(c) The commissioner shall determine whether or not an application is complete within thirty days of its receipt and provide written notice of the determination. If the application is deemed incomplete, the notice shall provide with reasonable specificity the deficiencies in the application.

(d) Upon the determination that an application is complete, the commissioner shall make or cause to be made an investigation and examination of the facts concerning the applicant. It is essential that the investigation and examination confirm to the satisfaction of the commissioner that the proposed institution will have a reasonable opportunity to succeed.

(e) Proposed credit unions must investigate the possibility of an overlap with existing state or federal credit unions doing business in this state prior to submitting an application. When an overlap situation does arise, officials of the involved entities must attempt to resolve the overlap issue. Typically, an overlap will not be considered adverse to the overlapped credit union if:

(1) the group has fewer than 3000 primary potential members or the overlap is otherwise incidental in nature;

(2) the overlapped credit union does not object to the overlap;

(3) there is limited participation by members or employees of the group in the original credit union after the expiration of a reasonable period of time; or

(4) a single occupational or associational based credit union overlaps a community chartered credit union.

(f) When the applicant and a credit union agree and/or the commissioner has determined that overlap protection is appropriate, an exclusionary clause will be included in the proposed field of membership for a period of 24 months from the date the proposed credit union commences business. The commissioner, for good cause shown, may extend this period for an additional 24 months.

(g) The commissioner may approve the application conditioned upon specific requirements being met, but the certificate of incorporation shall not be issued unless such conditions have been met within the time specified in the approval order or any extension as set forth in Finance Code §122.006.

History

• Source Note: The provisions of this §91.201 adopted to be effective May 11, 2000, 25 TexReg 3945; amended to be effective January 7, 2004, 29 TexReg 82; amended to be effective November 14, 2004, 29 TexReg 10253; amended to be effective November 8, 2009, 34 TexReg 7624.

7 Tex. Admin. Code § 91.202 Bylaw and Articles of Incorporation Amendments

(a) The Standard Bylaws for State Chartered Credit Unions ("Standard Bylaws"), approved by the commission on February 20, 2004, or as subsequently revised or amended, constitute the bylaws which shall be used by credit union incorporators.

(b) The commissioner is expressly authorized to approve deviations from and amendments to the standard bylaws, unless the deviation or amendment violates applicable law.

(c) Credit unions desiring to amend articles of incorporation or bylaws must submit a written application, in such form as the commissioner may prescribe. The application shall include the text of the amendment, the date that the board of directors adopted the amendment, a brief statement explaining the purpose of the amendment, information regarding the financial impact on the credit union if the amendment is approved, and any other information the commissioner may require to make a decision on the amendment.

(d) The commissioner shall determine whether or not an application is complete within thirty day of its receipt and provide written notice of the determination. If the application is deemed incomplete, the notice shall provide with reasonable specificity the deficiencies in the application.

(e) The commissioner does not need to provide notice as prescribed in §91.103 (relating to Public Notice of Department Decisions and §91.104 (relating to Public Notice and Comment on Certain Applications) for applications that apply for standard optional field of membership provisions (1), (2), (3), and (4) as contained in the Standard Bylaws "Appendix A".

(f) A credit union's board of directors may amend its bylaws to adopt any standard bylaw without approval by the commissioner provided:

(1) the wording of the amendment is identical to the Standard Bylaws; and

(2) the credit union submits a completed, fully executed Certification of Resolution of Amendment to Credit Union Bylaws ("Certification") to the commissioner. The commissioner will promptly acknowledge receipt of the Certification. The amendment will be effective as of the date the commissioner acknowledges receipt of the Certification.

History

• Source Note: The provisions of this §91.202 adopted to be effective May 11, 2000, 25 TexReg 3945; amended to be effective March 14, 2004, 29 TexReg 2305; amended to be effective November 16, 2005, 30 TexReg 7433; amended to be effective November 8, 2009, 34 TexReg 7624.

7 Tex. Admin. Code § 91.203 Share and Deposit Insurance Requirements

(a) All credit unions in the State of Texas shall obtain share insurance protection as provided in Chapter 95 of this title (pertaining to Share and Depositor Insurance Protection).

(b) With the approval of the commissioner, and if recognized by its insuring organization, a credit union may, from time to time as determined by its board of directors, issue uninsured membership shares which are subordinate to all other claims, including creditors, shareholders, and the insuring organization. The commissioner may approve the issuance of such accounts conditioned upon specific requirements being met.

History

• Source Note: The provisions of this §91.203 adopted to be effective November 8, 2009, 34 TexReg 7624.

7 Tex. Admin. Code § 91.205 Credit Union Name

(a) Unless a name change or assumed name has been approved by the commissioner in accordance with the Act and these rules, a credit union shall do business under the name in which its certificate of incorporation was issued.

(b) Subject to the requirements of this rule, a credit union may adopt an assumed name. The credit union's official name, however, must be used in all official or legal communications or documents, which includes account and membership agreements, loan contracts, title documents (except for vehicle titles, which may also be under the credit union's assumed name), account statements, checks, drafts, and correspondence with the Department or the National Credit Union Administration. The assumed name may also be used in those materials so long as it is identified as such (e.g. Generic Credit Union dba GCU). Further, a credit union using an assumed name shall clearly disclose the credit union's official name when the assumed name is used on any signs, advertising, mailings, or similar materials.

(c) A credit union shall not use any name other than its official name until it has received a certificate of authority to use an assumed business name from the commissioner and has registered the designation with the Secretary of State and the appropriate county clerk.

(d) The commissioner shall not issue a certificate of authority to use an assumed business name if the designation might confuse or mislead the public, or if it is not readily distinguishable from, or is deceptively similar to, a name of another credit union lawfully doing business with an office in this state.

(e) Credit union officials are responsible for complying with state and federal law applicable to corporate and assumed names. The Department does not have the power to determine or settle competing claims to a name under other statutes or under common law. Even though the Department may have issued a certificate of authority (based on the above criteria), a credit union could still be infringing on the naming rights of other parties. In particular, if the name a credit union selects is similar to a name already protected by state or federal trademark, a credit union could be forced to stop using the name. This can also be the case if another entity is already using a similar name in a related field, even if the entity does not own a state or federal registration.

(f) Before using an assumed name, a credit union shall take reasonable steps to ensure that use of the name will not cause a reasonable person to believe the credit union's different facilities are different credit unions or to believe that shares or deposits in one facility are separately insured from those of another of its facilities.

History

• Source Note: The provisions of this §91.205 adopted to be effective May 11, 2000, 25 TexReg 3947; amended to be effective November 16, 2005, 30 TexReg 7433; amended to be effective November 8, 2009, 34 TexReg 7625; amended to be effective November 23, 2017, 42 TexReg 6508.

7 Tex. Admin. Code § 91.206 Underserved Area Credit Unions--Secondary Capital Accounts

A credit union that has been approved for a designation as a Underserved Area Credit Union pursuant to §122.014, Finance Code may issue secondary capital accounts to members or nonmembers of the credit union on the following conditions:

(1) Prior to offering secondary capital accounts, the credit union shall file an application for approval with the commissioner. The application shall be supported by a written plan for use of the funds in the secondary capital accounts and subsequent liquidity needs to meet repayment requirements upon maturity of the accounts, along with such other information and data as the commissioner may require.

(2) The secondary capital account must be established as an uninsured secondary capital account or other form of non-share account, and shall not be insured by the National Credit Union Share Insurance Fund or any governmental or private entity.

(3) The secondary capital account must mature no earlier than five years.

(4) The secondary capital account shall not be redeemable prior to maturity.

(5) The secondary capital account holder's claim against the credit union must be subordinated to all other claims, including those of shareholders, creditors and the credit union's insuring organization.

(6) Funds deposited into the secondary capital account, including interest accrued and paid into the capital account, must be available to cover the credit union's realized operating losses that exceed its net available reserves and undivided earnings (i.e., reserves and undivided earnings exclusive of allowance accounts for loan losses), and to the extent funds are so used, the credit union shall not restore or replenish the account. The credit union may, in lieu of paying interest into the secondary capital account, pay interest accrued on the secondary capital account directly to the secondary capital account holder or into a separate account from which the secondary capital account holder may make withdrawals. Losses realized shall be distributed pro-rata among all secondary capital accounts held by the credit union at the time the losses are realized.

(7) The secondary capital account may not be pledged or provided by the account holder as security on a loan or other obligation with the credit union or any other party.

(8) In the event of merger or other voluntary dissolution of the credit union, other than merger into another Underserved Area designated credit union, the secondary capital accounts will, to the extent they are not needed to cover losses at the time of merger or dissolution, be closed and paid out to the account holder.

(9) A secondary capital account contract agreement must be executed by an authorized representative of the account holder and the credit union. The agreement must set forth all of the terms and conditions of this section and contain a disclosure and acknowledgement by the account holder that the secondary capital account is not redeemable, will not be insured, may be used to cover operating losses of the credit union and not be replaced or replenished, and is subordinate to all other claims on the assets of the credit union, including claims of member shareholders, creditors and the credit union's insuring organization. All such contract agreements must be retained by the credit union for the term of the agreement.

(10) In the event the credit union is classified as "critically under capitalized", "marginally capitalized", "minimally capitalized", "moderately capitalized" or "uncapitalized", or the credit union has failed to undertake any mandatory supervisory action, the commissioner or any entity insuring the accounts of the credit union, may prohibit payment of principal, dividends or interest on the credit union's secondary capital accounts in accordance with powers and procedures granted under state or federal laws, as applicable. Any such unpaid dividends or interest shall continue to accrue under the terms of the account to the extent permitted by law.

(11) Credit unions with secondary capital accounts shall record the funds on its balance sheet in an equity account entitled "uninsured secondary capital accounts". The capital value of the accounts shall be kept in accordance with generally accepted accounting principles.

History

• Source Note: The provisions of this §91.206 adopted to be effective March 14, 2004, 29 TexReg 2305; amended to be effective November 8, 2009, 34 TexReg 7625.

7 Tex. Admin. Code § 91.208 Notice of Known or Suspected Criminal Violations

(a) Each credit union shall exercise reasonable due diligence to discover, investigate, and report theft, embezzlement, and other types of criminal activity affecting the credit union. The credit union shall provide written notice to the Department within 30 calendar days for any of the following known or suspected criminal violations:

(1) Insider abuse involving any amount,

(2) Other transactions, including potential money laundering or violations of the Bank Secrecy Act, aggregating $5,000 or more,

(3) Losses resulting from robbery or burglary.

(b) When applicable, a credit union may meet the reporting requirements of this section by providing the Department a copy of a Suspicious Activity Report prepared in accordance with the NCUA Rules and Regulations 12 C.F.R. §748.1(c). The timeframe for reporting the activity to the Department in this manner may be extended up to 60 days when authorized by the regulation.

History

• Source Note: The provisions of this §91.208 adopted to be effective July 12, 2009, 34 TexReg 4511.

7 Tex. Admin. Code § 91.209 Call Reports and Other Information Requests

(a) Each credit union shall prepare and submit, in a manner prescribed by the commissioner, a quarterly financial and statistical report. Unless the commissioner orders otherwise, call reports (Form 5300) timely filed with the National Credit Union Administration will comply with the reporting requirements of this subsection. If a credit union fails to file the quarterly report on time, the commissioner may charge the credit union a penalty of $100 for each day or fraction of a day the report is in arrears.

(b) Any credit union that makes, files, or submits a false or misleading financial and statistical report required by subsection (a) of this section, is subject to an enforcement action pursuant to the Finance Code, Chapter 122, Subchapter F.

(c) A credit union shall prepare and forward to the Department any supplemental report or other document that the Commissioner may, from time to time require, and must comply with all instructions relating to completing and submitting the supplemental report or document. For the purposes of this section, the Commissioner's request may be directed to all credit unions or to a group of credit unions affected by the same or similar issue, shall be in writing, and must specifically advise the credit union that the provisions of this section apply to the request. If a credit union fails to file a supplemental report or provide a requested document within the timeframe specified in the instruction, after notice of non-receipt, the commissioner may levy a penalty of $50 for each day or fraction of a day such report or document is in arrears.

(d) If a credit union fails to file any report or provide the requested information within the specified time, the commissioner, or any person designated by the commissioner, may examine the books, accounts, and records of the credit union, prepare the report or gather the information, and charge the credit union a supplemental examination fee as prescribed in §97.113 of this title (relating to Fees and Charges). The credit union shall pay the fee to the department within thirty days of the assessment.

(e) Any penalty levied under this section shall be paid within 30 days of the levy. Penalties received after the due date will be subject to a monthly 10% fee unless waived by the commissioner for good cause shown.

(f) The Department may, in lieu of imposing the penalty authorized by subsection (a) of this section, order a credit union to pay an amount, fixed by the Commissioner, that is minimally sufficient to cause the NCUA to reduce or negate its own penalty assessment against the credit union under Section 202 of the Federal Credit Union Act (12 U.S.C. §1782) for late or false/misleading filing of a quarterly call report (Form 5300). The Department shall abate the penalty, in part if the National Credit Union Administration exercises its authority to impose a civil money penalty for the same late or false/misleading filing. The penalty, assessed by the Department, however, shall not be decreased below the amount authorized to be assessed under subsection (a) of this section.

History

• Source Note: The provisions of this §91.209 adopted to be effective March 8, 1984, 9 TexReg 1150; amended to be effective June 29, 1988, 13 TexReg 3017; amended to be effective July 8, 1994, 19 TexReg 4925; amended to be effective August 9, 1998, 23 TexReg 7767; amended to be effective April 7, 2002, 27 TexReg 2434; amended to be effective November 16, 2005, 30 TexReg 7434; amended to be effective July 12, 2009, 34 TexReg 4512; amended to be effective July 11, 2010, 35 TexReg 5807; amended to be effective November 9, 2014, 39 TexReg 8572; amended to be effective November 23, 2017, 42 TexReg 6508.

7 Tex. Admin. Code § 91.210 Foreign Credit Unions

(a) Definitions.

(1) Foreign credit union--a credit union that is not chartered or otherwise organized under the laws of this state or the United States.

(2) Local service area--an area that is within reasonable proximity of a foreign credit union's office, allowing members to be realistically served from that office.

(b) Application. Prior to commencing business in this state, a foreign credit union is required to file a written application supported by such information and data as the commissioner may require to make the findings necessary for the issuance of a certificate of authority pursuant to Finance Code §122.013.

(c) Approval. The application shall not be approved unless the commissioner finds that the applicant:

(1) is acting in good faith and the application does not contain a material misrepresentation;

(2) is financially sound and has no supervisory problems;

(3) will conduct its operations in the State of Texas in accordance with the intent and purpose of the Act and Commission rules;

(4) has provided evidence of compliance with the Finance Code, §201.102 concerning registering with the secretary of state to do business in Texas;

(5) has share and deposit insurance equivalent to that required for credit unions organized under the Act;

(6) has paid a permit fee of $500 for each and every branch office proposed to be established in the State of Texas;

(7) has fidelity bond coverage satisfactory to the commissioner; and

(8) has provided all other information the commissioner may require.

(d) Compliance with Texas law. A credit union chartered by another state shall comply with all applicable Texas laws, including those laws regarding home equity lending, loan interest rates, and consumer protection, to the same extent that those laws apply to a Texas credit union.

(e) Federal treaties. If a treaty or agreement exists between the United States and a foreign country which requires the commissioner to permit a foreign credit union to operate a branch in this state and the commissioner determines that the applicant has substantially the same characteristics as a credit union organized under the Act, then the applicant must comply with all provisions of the Act and commission rules, unless otherwise permitted by this section.

(f) Financial statements. Each foreign credit union that is operating a branch office within the State of Texas shall furnish to the commissioner a copy of its annual audited financial statements, if any, or other statements of financial conditions as the commissioner may require.

(g) Examinations. The commissioner is authorized to examine the books and records of any branch office operated in the State of Texas by a foreign credit union. The costs of examination, as prescribed in §97.113(d) of this title (relating to Supplemental Examinations), must be fully borne by the foreign credit union. The supplemental examination fee may be waived or reduced at the discretion of the commissioner.

(h) Agreements with other regulators. The commissioner shall enter into supervisory agreements with the foreign credit union regulators and, as necessary, the foreign credit unions, as authorized by Finance Code §15.411, to resolve any conflict of laws and to specify the manner in which the examination, supervision, and application processes will be coordinated with the regulators. The agreement may also prescribe the applicable laws governing the powers and authorities of the foreign branch and may address, but are not limited to, corporate governance and operational matters. The agreement, however, shall not limit the jurisdiction or authority of the commissioner to examine, supervise and regulate a foreign credit union that is operating or seeking to operate a branch in this state or to take any action or issue any order with respect to that branch.

(i) Field of membership. A certificate of authority to do business in this state is specifically issued to allow a foreign credit union to provide services to its existing field of membership. However, the commissioner may approve a foreign credit union's request to expand its field of membership to include groups with a community of interest that are within the foreign credit union's local service area if it is organized in a state or country that allows a credit union organized under the act to expand its field of membership to at least the same extent. After being satisfied that the group is within the foreign credit union local service area, the commissioner shall use the same criteria and the same procedures as used when a Texas credit union seeks to expand its field of membership. The commissioner shall make a reasonable effort to coordinate this determination with the foreign credit union's primary regulator to assure that each agency's material interests, authorities and responsibilities are fulfilled.

(j) Location of Group. For the purposes of a field of membership expansion, the group as a whole will be considered to be within the local service area when:

(1) A majority of the persons in the group live, work, or gather regularly within the local service area;

(2) The group's headquarters is located within the local service area; or

(3) The group's "paid from" or "supervised from" location is within the local service area.

(k) Prohibition against share/deposit production offices. A foreign credit union may not use its certificate of authority primarily for the purpose of deposit production. The foreign credit union is expected to reasonably help meet the credit needs of the groups in Texas that are served by the credit union. If the Commissioner determines that the foreign credit union's level of lending in Texas relative to the deposits from Texas members is less than half the average of total loans relative to total deposits for all credit unions domiciled in Texas, the credit union will not be permitted to further expand its field of membership nor open additional offices in Texas.

(l) Enforcement; penalty. The commissioner has grounds to issue a cease and desist order to an officer, employee, director, and/or the foreign credit union itself, if the commissioner determines from examination or other credible evidence that the credit union has violated or is violating any applicable Texas law or rules of the commission. If the foreign credit union does not comply with an order, the commissioner may assess an administrative penalty as authorized by §122.260, Finance Code, as well as suspend or revoke the certificate of authority.

History

• Source Note: The provisions of this §91.210 adopted to be effective May 11, 2000, 25 TexReg 3947; amended to be effective February 8, 2001, 26 TexReg 1131; amended to be effective June 8, 2003, 28 TexReg 4410.

Subchapter C MEMBERS

7 Tex. Admin. Code § 91.301 Field of Membership

(a) General. Membership in a credit union shall be limited to one or more groups, each of which (the Group) has its own community of interest as outlined under Texas Finance Code Section 122.051. The commissioner may impose a geographical limitation on any Group if the commissioner reasonably determines that the applicant credit union does not have the ability to serve a larger group or there are other operational or management concerns.

(b) Other persons eligible for membership. A number of persons by virtue of their close relationship to a Group may be included in the field of membership at the option of the applicant credit union. These include:

(1) members of the family or household of a member of the Group;

(2) volunteers performing services for or on behalf of the Group;

(3) organizations owned or controlled by a member or members of the Group, and any employees and members of those organizations;

(4) spouses of persons who died while in the Group;

(5) employees of the credit union; and

(6) subsidiaries of the credit union and their employees; and businesses and other organizations whose employees or members are within the Group.

(c) Multiple-groups.

(1) The commissioner may approve a credit union's original articles of incorporation and bylaws or a request for approval of an amendment to a credit union's bylaws to serve one or more communities of interest or a combination of types of communities of interest.

(2) In addition to general requirements, special requirements pertaining to multiple-Group applications may be required before the commissioner will grant such a certificate or approve such an amendment.

(A) Each Group to be included in the proposed field of membership of the credit union must have its own community of interest.

(B) Each associational or occupational Group must individually request inclusion in the proposed credit union's field of membership.

(d) Overlap protection.

(1) The commissioner will only consider the financial effect of an overlap proposed by an application to expand a credit union's field of membership or when a charter application proposes an overlap for a Group of 3,000 members or more.

(2) The commissioner will weigh the information in support of the application and any information provided by a protesting or affected credit union. If the applicant has the financial capacity to serve the financial needs of the proposed members, demonstrates economic feasibility, complies with the requirements of this rule, and no protestant reasonably establishes a basis for denying the request, it shall be approved.

(3) If a finding is made that overlap protection is warranted, the commissioner shall reject the application or require the applicant to limit or eliminate the overlap by adding exclusionary language to the text of the amendment, e.g., "excluding persons eligible for primary membership in any occupation or association based credit union that has an office within a specified proximity of the applicant credit union at the time membership is sought." Exclusionary clauses are rarely appropriate for inclusion on a geographic community of interest.

(4) Generally, if the overlapped credit union does not submit a notice of protest form, and the department determines that there is no safety and soundness problem, an overlap will be permitted. If, however, a notice of protest is filed, the commissioner will consider the following in performing an overlap analysis:

(A) whether the overlap is incidental in nature, i.e., the group(s) in question is so small as to have no material effect on the overlapped credit union;

(B) whether there is limited participation by members of the group(s) in the overlapped credit union after the expiration of a reasonable period of time;

(C) whether the overlapped credit union provides requested service;

(D) the financial effect on the overlapped credit union;

(E) the desires of the group(s); and

(F) the best interests of the affected group(s) and the credit union members involved.

(5) Where a sponsor organization expands its operations internally, by acquisition or otherwise, the credit union may serve these new entrants to its field of membership if they are part of the community of interest described in the credit union's bylaws. Where acquisitions are made which add a new subsidiary or affiliate, the group cannot be served until the entity is included in the field of membership through the application process.

(6) Credit unions affected by the organizational restructuring or merger of a group within its field of membership must apply for a modification of their fields of membership to reflect the group to be served.

(e) Underserved communities.

(1) All credit unions may include underserved areas or areas designated as a credit union development district in accordance with Subchapter K (related to Credit Union Development Districts) in their fields of membership, without regard to location. More than one credit union can serve the same underserved community.

(2) A credit union desiring to add an underserved community must document that the area meets the applicable definition in §91.101 (relating to Definitions and Interpretations). In addition, the credit union must develop a business plan specifying how it will serve the community. The business plan, at a minimum, must identify the credit and depository needs of the community and detail how the credit union plans to serve those needs. The credit union will be expected to regularly review the business plan to determine if the community is being adequately served. The commissioner may require periodic service status reports from a credit union pertaining to the underserved area to ensure that the needs of the area are being met, as well as requiring such reports before allowing a credit union to add an additional underserved area.

(f) Parity with Federal Credit Unions. Credit unions will be allowed to have, at a minimum, at least as much flexibility as federal credit unions have in field of membership regulation. If a credit union proposes a type of Group that the National Credit Union Administration has previously determined meets the Federal requirements, the commissioner shall approve the application unless the commissioner finds that the credit union has not demonstrated sufficient managerial and financial capacity to safely and soundly serve such expanded membership.

(g) Application. In order to request the approval of the commissioner to add a Group to its bylaws, a credit union must submit a written application to the Department. The applicant credit union shall have the burden to show to the Department such facts and data that support the requirements and considerations in this rule. In reviewing such application, the commissioner shall consider:

(1) Whether the Group has adequate unifying characteristics or a mutual interest such that the safety and soundness of the credit union is maintained;

(2) The ability of credit unions to maintain parity and to compete fairly with their counterparts;

(3) Service by the credit union that is responsive to the convenience and needs of prospective members;

(4) Protection for the interest of current and future members of the credit union; and

(5) The encouragement of economic progress in this State by allowing opportunity to expand services and facilities.

History

• Source Note: The provisions of this §91.301 adopted to be effective July 8, 1994, 19 TexReg 4926; amended to be effective February 11, 2001, 26 TexReg 1132; amended to be effective January 7, 2004, 29 TexReg 82; amended to be effective July 13, 2008, 33 TexReg 5294; amended to be effective July 31, 2016, 41 TexReg 5413; amended to be effective November 28, 2021, 46 TexReg 7873.

7 Tex. Admin. Code § 91.302 Election or Other Membership Vote By Electronic Balloting, Early Voting, Absentee Voting, or Mail Balloting

(a) All credit unions should actively promote member participation in elections and other membership votes as long as the costs are reasonable and the integrity of the vote is not compromised. Any credit union instituting alternative procedures or systems to benefit members who find it difficult or inconvenient to vote at annual or special meetings must ensure that the alternative is thoroughly explained and publicized so that all members will be able to take advantage of those procedures or systems.

(b) The board of directors, before holding an election or other membership vote that uses electronic balloting, early voting, absentee voting, or mail balloting, shall establish written election rules, including procedures to: control, tabulate and retain ballots; identify invalid ballots; and handle disputed election results and tie votes.

(c) Any elections or other membership vote using electronic balloting, early voting, absentee voting, or mail balloting are subject to the following conditions:

(1) The election tellers shall be appointed by the board of directors;

(2) At least 30 days prior to the annual or special meeting, the board of directors will cause either a printed ballot or notice of a ballot, along with appropriate instructions, to be mailed to all members eligible to vote;

(3) Completed electronic or mail ballots cast during early or absentee voting must be received prior to convening the annual or special meeting;

(4) The votes will be tallied by the tellers and the results of the vote will be made public at the annual or special meeting.

(d) In the event of a malfunction of the electronic balloting system, the board of directors may in its discretion order elections or other vote to be held by mail ballot only. The board may make reasonable adjustments to the voting time frames in subsection (c) of this section, or postpone the annual or special meeting if necessary, to complete the elections prior to the annual or special meeting.

History

• Source Note: The provisions of this §91.302 adopted to be effective August 15, 1984, 9 TexReg 4270; amended to be effective July 8, 1994, 19 TexReg 4929; amended to be effective November 13, 2000, 25 TexReg 11278; amended to be effective November 14, 2004, 29 TexReg 10253; amended to be effective July 13, 2008, 33 TexReg 5295.

7 Tex. Admin. Code § 91.310 Annual Report to Membership

(a) Every credit union shall provide to its membership an annual written report, as prescribed below. The report must be updated before the credit union's annual meeting and shall be available on the credit union's website throughout the year. Any credit union that does not maintain a website shall distribute the report at its annual meeting and must notify members at least annually that copies of the report are available upon request.

(b) The annual report shall cover the credit union's operations during the preceding calendar year and shall contain, at a minimum, the following information:

(1) the names and dates of expiration of the terms of office for each director on the credit union's board;

(2) the names of any honorary or advisory directors appointed by the board;

(3) a brief description of any changes, since the last report, to the credit union's:

(A) senior management staff;

(B) bylaws or articles of incorporation;

(C) financial condition and operating results;

(D) membership size and services offered; and

(4) the credit union's year end balance sheet and income/expense statement.

(c) For purposes of this rule, senior management staff shall include the chief executive officer, any assistant chief executive officers, including any vice-presidents and above, and the chief financial officer.

History

• Source Note: The provisions of this §91.310 adopted to be effective November 8, 2009, 34 TexReg 7625.

7 Tex. Admin. Code § 91.315 Members' Access to Credit Union Documents

(a) Required Notice. Every credit union shall provide notice to its membership of the availability of certain documents related to the credit union's finances and management.

(b) Delivery of Required Notice. A credit union shall post a copy of the required notice on its website throughout the year. The notice required by this section shall be published in the credit union's newsletter twice a year. If a credit union does not maintain a website and distribute a newsletter at least semiannually, the credit union shall provide the notice at least semiannually with each member's account statement.

(c) Documents Available to Members. Upon request, a member is entitled to review or receive a copy of the most recent version of the following credit union documents:

(1) balance sheet and income statement (the non-confidential pages of the latest call report may be given to meet this requirement);

(2) a summary of the most recent annual audit completed in accordance with §91.516 of this chapter (relating to Audits and Verifications);

(3) written board policy regarding access to the articles of incorporation, bylaws, rules, guidelines, board policies, and copies thereof; and

(4) Internal Revenue Service Form 990.

History

• Source Note: The provisions of this §91.315 adopted to be effective November 8, 2009, 34 TexReg 7627.

Subchapter D POWERS OF CREDIT UNIONS

7 Tex. Admin. Code § 91.401 Credit Union Ownership of Property

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Immediate family member--a spouse or other family member living in the same household.

(2) Premises--any real property where the credit union transacts or will transact business.

(3) Senior management employee--the chief executive officer, any assistant chief executive officers (e.g. vice presidents and above) and the chief financial officer.

(b) Restrictions on Ownership of Property. A credit union shall not acquire real property for any purpose other than majority use as premises.

(1) A credit union investing in real property, including a leasehold interest therein, with a good faith intention to use it in future expansion must put the majority of each property into service for credit union business within six years after making the investment.

(2) The Commissioner may extend the six-year period in paragraph (1) of this subsection. To seek an extension, a credit union must submit a written request and fully explain why it needs the extension. The Commissioner will approve or disapprove the request in writing based on safety and soundness considerations.

(c) Investment Limitations on Premises. Without the prior written consent of the Department, a credit union may not directly or indirectly invest an amount in excess of its net worth in premises. In support of an application for approval of an additional investment in premises, a credit union shall submit such statements and reports as the Department requires.

(1) When analyzing an application for an additional investment in credit union premises, the Department will consider:

(A) consistency with safe and sound credit union practices;

(B) the reasonableness of the amount of credit union premises and the annual expenditures required to carry them relative to the credit union's net worth and the nature and volume of operations; and

(C) the effect of the investment on future earnings.

(2) The Department will consider denying a request for an additional investment in credit union premises when:

(A) the additional investment would have a material negative effect on the credit union's earnings, capital, or liquidity; or

(B) the credit union has not demonstrated a reasonable need for the additional investment.

(3) The Department may impose appropriate special conditions for an approval of an additional credit union premises investment if it determines that they are necessary or appropriate to protect the safety and soundness of the credit union or to further other supervisory or policy considerations.

(d) Transactions with insiders.

(1) Without the prior approval of a disinterested majority of the board of directors recorded in the minutes or, if a disinterested majority cannot be obtained, the prior written approval of the commissioner, a credit union may not directly or indirectly:

(A) sell or lease an asset of the credit union to a director, committee member, or senior management employee, or immediate family member of such individual; or

(B) purchase or lease an asset in which a director, committee member, senior management employee, or immediate family member of such individual has an interest.

(2) All transactions with family members not defined as immediate family members in subsection (a)(1) of this section must be conducted at arm's length and in the interest of the credit union.

History

• Source Note: The provisions of this §91.401 adopted to be effective March 14, 2004, 29 TexReg 2306; amended to be effective March 14, 2010, 35 TexReg 1978; amended to be effective March 16, 2014, 39 TexReg 1703; amended to be effective November 8, 2015, 40 TexReg 7662; amended to be effective April 16, 2026, 51 TexReg 2355.

7 Tex. Admin. Code § 91.402 Insurance for Members

(a) Authority. A credit union may make insurance products available to its members, including insurance products at the individual member's expense, subject to the following conditions:

(1) Except as provided in paragraphs (2) and (3) of this subsection, the purchase of any type of insurance coverage by a member must be voluntary, and a copy of the signed and dated written election to purchase the insurance must be on file at the credit union.

(2) Insurance may be required on a loan if the coverage and the charges for the insurance bear a reasonable relationship to:

(A) the value of the collateral;

(B) the existing hazards or risk of loss, damage, or destruction; and

(C) the amount, term, and conditions of the loan.

(3) if the insurance is a condition of a loan, the credit union shall give the member written notice that clearly and conspicuously states:

(A) that insurance is required in connection with the loan; and

(B) that the member may purchase or provide the insurance from a carrier of the member's choice, or the member may assign any existing insurance coverage.

(4) An officer, director, employee, or committee member of a credit union may not accept anything of value from an insurance agent, insurance company, or other insurance provider offered to induce the credit union to sell or offer to sell insurance or other related products or services to the members of the credit union.

(5) If a credit union replaces an existing loan or renews a loan and sells the member new credit life or disability insurance, the credit union shall cancel the prior insurance and provide the member with a refund or credit of the unearned premium or identifiable charge before selling the new insurance to the member.

(6) The person selling or offering for sale any insurance product in any part of a credit union's office or on its behalf must be at all times appropriately qualified and licensed under applicable State insurance licensing standards with regard to the specific products being sold or recommended.

(b) Unsafe and Unsound Practice. It is an unsafe and unsound practice for any director, officer, or employee of a credit union, who is involved in the sale of insurance products to members, to take advantage of that business opportunity for personal profit. Recommendations to members to buy insurance should be based on the benefits of the policy, not the compensation received from the sale.

(c) Prohibited Practices. A director, officer, or employee of a credit union may not engage in any practice that would lead a member to believe that a loan or extension of credit is conditional upon either:

(1) The purchase of an insurance product from the credit union of or any of its affiliates; or

(2) An agreement by the member not to obtain, or a prohibition on the member from obtaining, an insurance product from an unaffiliated entity.

History

• Source Note: The provisions of this §91.402 adopted to be effective March 14, 2004, 29 TexReg 2306; amended to be effective March 13, 2006, 31 TexReg 1647; amended to be effective March 14, 2010, 35 TexReg 1978.

7 Tex. Admin. Code § 91.403 Debt Cancellation Products; Federal Parity; Adoption by Reference

(a) Authority. Provided it complies with this section, the Truth in Lending Act (15 U.S.C. 1601), and the applicable provisions of Regulation Z (12 C.F.R. Part 226), a credit union may offer any debt cancellation product, including a debt cancellation contract (DCC) and a debt suspension agreement (DSA), a federal credit union is permitted to offer. For the purposes of this section, a debt cancellation product is a two-party agreement between the credit union and the member under which the credit union agrees to waive, suspend, defer, or cancel all or part of a member's obligation to pay an indebtedness under a lease, loan, or other extension of credit upon the occurrence of a specified event. Debt cancellation products are considered loan products governed by this section and applicable provisions of the Finance Code, not insurance products and, consequently, are not regulated by the Texas Department of Insurance. The credit union may offer debt cancellation products for a fee pursuant to the authority set forth in Finance Code §123.003, relating to enlargement of powers and parity and the authority federal credit unions have to offer such products; the fee also is authorized by Finance Code §124.101, relating to borrower payment of loan expenses. If the debt cancellation product is offered for a fee, the member's participation in the debt cancellation program must be optional, and the member must be informed of the fee and that participation is optional.

(b) Anti-tying and Refund Rules. For any debt cancellation product offered by a credit union:

(1) The credit union may not extend credit nor alter the terms or conditions of an extension of credit conditioned upon the member entering into a debt cancellation product with the credit union; and

(2) If the debt cancellation product provides for a refund of unearned fees, the unearned fees must be calculated using a method that produces a result at least as favorable to the member as the actuarial method. Before the member purchases the debt cancellation product, the credit union must state in writing that the purchase of the debt cancellation product is optional, the conditions for and method of calculating any refund of the debt cancellation fee, including when fees are considered earned by the credit union, and that the member should carefully review all of the terms and conditions of the debt cancellation agreement prior to signing the agreement.

(c) Notice to Department. A credit union must notify the commissioner in writing of its intent to offer any type of debt cancellation product at least 30 days prior to the product being offered to members. The notice must contain a statement describing the type(s) of debt cancellation product(s) that the credit union will offer to its membership.

(d) Risk Management and Controls. Before offering any debt cancellation products, each credit union's board of directors, shall adopt written policies that establish and maintain effective risk management and control processes for these products. Such processes include appropriate recognition and financial reporting of income, expenses, assets and liabilities, and appropriate treatment of all expected and unexpected losses associated with the products. A credit union should also assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its debt cancellation program. In addition, the policies shall establish reasonable fees, if any, that will be charged, the appropriate disclosures that will be given, and the claims processing procedures that will be utilized.

(e) For purposes of this section "actuarial method" means the method of allocating payments made on a debt between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency is added to, the unpaid balance of the amount financed.

(f) Best Practices. The Commission seeks to preserve and promote parity with regard to federal credit unions, foreign credit unions, and other depository institutions, as referenced in Finance Code §§15.402(b) - (1) and 123.003. The National Credit Union Administration (NCUA) has provided as guidance for federal credit unions the standards set forth in the rules of the U.S. Office of the Comptroller of the Currency (OCC), related to DCCs and DSAs. The Commission, therefore, adopts by reference the guidance issued by NCUA in May 2003 (Letter No. 03-FCU-06). Credit unions should also look to OCC's rules, codified at 12 C.F.R. Part 37, for guidance as to best practices in the industry regarding the offer and sale of DCCs and DSAs. A copy of the NCUA letter and of the OCC rules may be obtained on the Department website at: www.cud.texas.gov.

History

• Source Note: The provisions of this §91.403 adopted to be effective May 13, 1999, 24 TexReg 3473; amended to be effective June 8, 2003, 28 TexReg 4411; amended to be effective March 6, 2005, 30 TexReg 1064; amended to be effective March 14, 2010, 35 TexReg 1979; amended to be effective November 5, 2018, 43 TexReg 7342.

7 Tex. Admin. Code § 91.404 Purchasing Assets and Assuming Deposits and Liabilities of Another Financial Institution

(a) Scope. A credit union must obtain the approval of the Department before purchasing all or substantially all of the assets and/or assuming certain deposits and other liabilities of another financial institution. This section does not apply to purchases of assets that occur as a result of a credit union's ordinary and ongoing business of acquiring obligations of its members.

(b) Approval Requirement.

(1) A credit union must file an application and obtain the written approval of the Department before entering into any type of purchase and assumption agreement.

(2) In determining whether to approve an application under this section, the Department will consider the purpose of the transaction, its impact on the safety and soundness of the credit union, and any effect on the credit union's existing members. The Department may deny the application if the transaction would have a negative effect on any of those factors.

History

• Source Note: The provisions of this §91.404 adopted to be effective March 14, 2010, 35 TexReg 1980.

7 Tex. Admin. Code § 91.405 Records Retention and Preservation

(a) General. Every credit union shall keep records of its transactions in sufficient detail to permit examination, audit and verification of financial statements, schedules, and reports it is required to file with the Department or which it issues to its members. Credit union accounts, books and other records shall be maintained in appropriate form and for the minimum periods prescribed by this section. The retention period for each record starts from the last entry or final action date and not from the inception of the record.

(b) Manner of maintenance. Records may be maintained in whatever manner, or format a credit union deems appropriate; provided, however, the records must clearly and accurately reflect the information required, provide an adequate basis for the examination and audit of the information, and be retrievable easily and in a readable and useable format. A credit union may contract with third party service providers to maintain records required under this part.

(c) Permanent retention. It is recommended that the following records be retained permanently in their original form:

(1) charter, bylaws, articles of incorporation, and amendments thereto; and

(2) currently effective certificates or licenses to operate under programs of various government agencies.

(d) Ten year retention. Records which are significant to the continuing operation of the credit union must be retained until the expiration of ten years following the making of the record or the last entry thereon or the expiration of the applicable statute of limitations, whichever is later. The records are:

(1) minutes of meetings of the members, the board of directors, and board committees;

(2) journal and cash record;

(3) general ledger and subsidiary ledgers;

(4) for active accounts, one copy of each individual share and loan ledger or its equivalent;

(5) comprehensive annual audit reports including evidence of account verification; and

(6) examination reports and official correspondence from the department or any other government agency acting in a regulatory capacity.

(e) Five year retention. The following records must be retained until the expiration of five years following the making of the record or the last entry thereon or the expiration of the applicable statute of limitations, whichever is later:

(1) records related to closed accounts including membership applications, joint membership agreements, payable on death agreements, signature cards, share draft agreements, and any other account agreements; loan agreements; and

(2) for an active account, any account agreement which is no longer in effect.

(f) Other records. Subject to applicable law, any other type of document not specifically delineated in this rule may be destroyed after five years or upon expiration of an applicable statute of limitations, whichever is longer.

(g) Data processing records. Provisions of this section apply to records produced by a data processing system. Output reports that substitute for standard conventional records or that provide the only support for entries in the journal and cash record should be retained for the minimum period specified in this rule.

(h) Protection and storage of records. A credit union shall provide reasonable protection from damage by fire, flood and other hazards for records required by this section to be preserved and, in selection of storage space, safeguard such records from unnecessary exposure to deterioration from excessive humidity, dryness, or lack of proper ventilation.

(i) Records destruction. The board of directors shall adopt a written policy authorizing the destruction of specified records on a continuing basis upon expiration of specified retention periods.

(j) Records preservation. All state chartered credit unions are required to maintain a records preservation program to identify and store vital records in order that they may be reconstructed in the event the credit union's records are destroyed. Storage of vital records is the responsibility of the board but may be delegated to the responsible person(s). A vital records storage center should be established at some location that is far enough from the credit union office to avoid the simultaneous loss of both sets of records in the event of a disaster. Records must be stored every calendar quarter within 30 days following quarter-end at which time records stored for the previous quarter may be destroyed. Stored records may be in any form which can be used to reconstruct the credit union's records. This includes machine copies, microfilm, or any other usable copy. The records to be stored shall be for the most recent month-end and are:

(1) a list of all shares and/or deposits and loan balances for each member's account. Each balance on the list is to be identified by an account name or number. Multiple balances of either shares or loans to one account shall be listed separately;

(2) a financial statement/statement of financial condition which lists all the credit union's assets and liability accounts;

(3) a listing of the credit union's banks, insurance policies and investments. This information may be marked "permanent" and updated only when changes are made.

(k) Records preservation compliance. Credit unions that have some or all of their records maintained by an off-site data processor are considered to be in compliance so long as the processor meets the minimum requirements of this section. Credit unions that have in-house capabilities shall make the necessary provisions to safeguard the backup of data on a continuing basis.

(l) Reproduction of records. A credit union shall furnish promptly, at its own expense, legible, true and complete copies of any record required to be kept by this section as requested by the department.

History

• Source Note: The provisions of this §91.405 adopted to be effective May 11, 2000, 25 TexReg 3950; amended to be effective March 13, 2006, 31 TexReg 1647; amended to be effective November 16, 2008, 33 TexReg 9073; amended to be effective March 16, 2014, 39 TexReg 1704.

7 Tex. Admin. Code § 91.406 Credit Union Service Contracts

A credit union may enter into contractual agreements with one or more credit unions or other organizations for the purpose of engaging in authorized activities that relate to electronic data processing, electronic fund transfers, or other member services on behalf of the credit union. Agreements must be in writing and shall advise all parties that the activities and services may be subject to commission rules and examination by the commissioner to the extent permitted by law.

History

• Source Note: The provisions of this §91.406 adopted to be effective March 14, 2004, 29 TexReg 2635.

7 Tex. Admin. Code § 91.407 Electronic Notification

A credit union may, in accordance with written board policy, satisfy any "written" member notification requirement of the Act, commission rules, or the credit union's bylaws by electronic means provided:

(1) the member agrees in writing or electronically to use electronic instead of hard-copy notifications;

(2) the member has the ability to print or download the notification;

(3) evidence of the electronic notification is retained in accordance with §91.405 (relating to Records Retention); and

(4) both the credit union and the member have the capacity to receive electronic messages.

History

• Source Note: The provisions of this §91.407 adopted to be effective March 14, 2004, 29 TexReg 2636.

7 Tex. Admin. Code § 91.408 User Fee for Shared Electronic Terminal

A credit union that owns an electronic terminal that is connected to a shared network may impose a fee on a non-member for the use of that terminal if imposition of the fee is disclosed in compliance with applicable federal law.

History

• Source Note: The provisions of this §91.408 adopted to be effective March 14, 2004, 29 TexReg 2636.

Subchapter E DIRECTION OF AFFAIRS

7 Tex. Admin. Code § 91.501 Director Eligibility and Disqualification

(a) Board Representation. The credit union's bylaws shall govern board selection and election procedures. No credit union shall adopt or amend its articles of incorporation or bylaws to designate or reserve one or more places on the board of directors for any classification that results in a restriction or infringement upon the equal rights of all members to vote for, or seek any position on, the board of directors of the credit union. In addition, each credit union shall adopt policies and procedures that are designed to assure that the elections of directors are conducted in an impartial manner.

(b) Qualifications. A member may not serve as director of a credit union if that member:

(1) has been convicted of any criminal offense involving dishonesty or breach of trust;

(2) is not eligible for coverage by the blanket bond required under the provisions of the Act, or §91.510 of this title (relating to Bond and Insurance Requirements);

(3) has had a final judgment entered against him/her in a civil action upon the grounds of fraud, deceit, or misrepresentation;

(4) has a payment on a voluntary obligation to the credit union that is more than 90 days delinquent or has otherwise caused the credit union to suffer a financial loss;

(5) has been removed from office by any regulatory or government agency as an officer, agent, employee, consultant or representative of any financial institution;

(6) has been personally made subject to an operating directive for cause while serving as an officer, director, or senior executive management person of a financial institution; or has caused or participated in a prohibited activity or an unsafe or unsound condition at a financial institution which resulted in the suspension or revocation of the financial institution's certificate of incorporation, or authority or license to do business;

(7) has failed to complete and return a director application in accordance with subsection (c) of this section; or

(8) refuses to take and subscribe to the prescribed oath or affirmation of office.

(c) Director application. Any member nominated for, or seeking election to, the board of directors shall submit a written application in such form as the credit union may prescribe. The application shall be submitted either to the nominating committee prior to its selection of nominees; or to the board chair within 30 days following the election of a member who was not nominated by the nominating committee or who was appointed by the board to fill a vacancy. The applications of the elected/appointed directors shall be incorporated into and made part of the minutes of the first board meeting following the election/appointment of those directors. Applications of unsuccessful candidates shall be destroyed or returned upon request. The commissioner may review and require that changes be made to any application form, which is deemed inadequate or unfairly discriminates against certain classes of members.

(d) Director continuing education. Directors must develop and maintain a fundamental, ongoing knowledge of the regulations and issues affecting credit union operations to assure a safe and sound institution. A credit union shall, by written board policy, establish appropriate continuing education requirements and provide sufficient resources for directors to achieve and maintain professional competence. The policy shall include a provision requiring the credit union to prepare, on an annual basis, a continuing education plan for its Directors that is appropriate to the size and financial condition of the credit union and the nature and scope of its operations.

(e) Prohibited conduct. A director shall not:

(1) Divulge or make use of, except in the performance of office duties, any fact, information, or document not generally available to the membership that is acquired by virtue of serving on the board of the credit union.

(2) Use the director's position to obtain or attempt to obtain special advantage or favoritism for the director, any relative of the director, or any person residing in the director's household.

(3) Accept, directly or indirectly, any gift, fee, or other present that is offered or could be reasonably be viewed as being offered to influence official action or to obtain information that the director has access to by reason of serving on the board of the credit union.

(f) Recall of director(s).

(1) Petition. Under procedures set out in the credit union's bylaws, members may request a special membership meeting to consider removing the entire board or individual directors for cause relating to serious mismanagement or a breach of fiduciary duties. The board shall conduct any resulting special meeting as prescribed in the credit union's bylaws.

(2) Membership Vote. The members of a credit union may remove a director by a vote of two-thirds of those members voting at the special meeting; provided, however, that:

(A) a separate vote is conducted for each director sought to be recalled;

(B) the members voting shall constitute not less than 10% of the membership eligible to vote in the recall election;

(C) all members are given at least 30 days notice of the meeting which shall state the reasons why the meeting has been called; and

(D) the affected director(s) is afforded an opportunity to be heard at such meeting prior to a vote on removal.

(3) Vacancy on the Board. If a vacancy occurs as a result of a recall, the vacancy shall be filled by the affirmative vote of a majority of the remaining directors. If the entire board is removed as a result of the recall, the members shall fill the vacancies at the recall meeting. Directors elected to fill a recall vacancy shall hold office only until the next annual meeting when any unexpired terms shall be filled by vote of the members.

(g) Absences. Any director who fails to attend three (3) consecutive regularly scheduled meetings without an excuse approved by a majority vote of the board, or who fails to attend six (6) regularly scheduled meetings during any twelve-month period following the director's election or appointment is automatically removed from office. A new person shall be appointed to fill any vacancies resulting from poor attendance within sixty days of the date of the meeting that led to the automatic removal. The commissioner in the exercise of discretion may extend the deadline for filling the vacancy.

History

• Source Note: The provisions of this §91.501 adopted to be effective May 11, 2000, 25 TexReg 3951; amended to be effective March 14, 2004, 29 TexReg 2636; amended to be effective July 8, 2007, 32 TexReg 3978; amended to be effective July 10, 2011, 36 TexReg 4110; amended to be effective July 13, 2014, 39 TexReg 5147.

7 Tex. Admin. Code § 91.502 Director/Committee Member Fees, Insurance, Reimbursable Expenses, and Other Authorized Expenditures

(a) Expense reimbursement. A credit union may reimburse out-of-pocket travel and related expenses that are reasonable and appropriate for the business activity undertaken. A credit union shall adopt a written board policy to administer and control travel expenses paid or incurred in connection with directors or committee members carrying out official credit union business.

(b) Payment of fees. Subject to the provisions of this rule, a credit union may pay a reasonable meeting fee to any of its directors, honorary directors, advisory directors, (hereafter referred to as directors) or committee members for attending duly called meetings at which appropriate credit union business is conducted. Any credit union electing to pay any type of meeting fee shall annually disclose to the membership the fees paid in the prior calendar year and scheduled to be paid in the current calendar year. This disclosure may be provided to the members as part of the credit union's annual report as prescribed in §91.310 of this title (relating to annual report to membership). A credit union, however, may not pay any meeting fees to a director or committee member if the credit union is operating under a Net Worth Restoration Plan; or an order issued under Finance Code §122.257 or §122.258.

(c) Enforcement Authority; Prohibition. The commissioner may prohibit or otherwise limit or restrict the payment of meeting fees to directors or committee members if, in the opinion of the commissioner, the credit union has paid, is paying, or is about to pay meeting fees that are excessive as defined in subsection (f) of this section.

(d) Use of credit union equipment. A credit union may provide personal computers, access to electronic mail, and other electronic conveniences to directors during their terms of office provided:

(1) the board of directors determines that the equipment and the electronic means are necessary and appropriate for the directors to fulfill their duties and responsibilities;

(2) the board of directors develops and maintains written policies and procedures regarding this matter; and

(3) the arrangement ceases immediately upon the person's leaving office.

(e) Insurance. A credit union may, in accordance with written board policy, provide health, life, accident, liability, or similar personal insurance protection for directors and committee members. The kind and amount of these insurance protections must be reasonable given the credit union's size, financial condition, and the duties of the director or committee member. The insurance protection must cease upon the director or committee member's leaving office, without providing residual benefits beyond those earned during the individual's term on the board or committee.

(f) Review by board. A credit union shall implement and maintain appropriate controls and other safeguards to prevent the payment of fees or expenses that are excessive or that could lead to material financial loss to the institution. At least annually, the board, in good faith, shall review the director/committee member fees and director/committee member-related expenses incurred, paid or reimbursed by the credit union and determine whether its policy continues to be in the best interest of the credit union. The Board's review shall be included as part of the minutes of the meeting at which the policy and the fees and expenses were studied. Fees and expenses shall be considered excessive when amounts paid are disproportionate to the services performed by a director or committee member, or unreasonable considering the financial condition of the institution and similar practices at credit unions of a comparable asset size, geographic location, and/or operational complexity.

(g) Guest travel. A credit union's board may authorize the payment of travel expenses that are reasonable in relation to the credit union's financial condition and resources for one guest accompanying a director or committee member to an approved conference or educational program. The payment will not be considered compensation for purposes of Finance Code §122.062 if:

(1) it is determined by the board to be necessary or appropriate in order to carry out the official business of the credit union; and

(2) it is in accordance with written board policies and procedures.

History

• Source Note: The provisions of this §91.502 adopted to be effective August 14, 2000, 25 TexReg 7632; amended to be effective July 11, 2004, 29 TexReg 6628; amended to be effective July 8, 2007, 32 TexReg 3979; amended to be effective July 10, 2011, 36 TexReg 4110; amended to be effective November 9, 2014, 39 TexReg 8572.

7 Tex. Admin. Code § 91.503 Change in Credit Union President

The board of directors, in executing its fiduciary responsibilities, may find it necessary to replace the credit union's president. The board shall submit written notification to the commissioner within ten days of any such personnel change. For purposes of this section, the term president refers to the individual responsible for the day-to-day operation of the credit union, irrespective of the actual title given to such individual.

History

• Source Note: The provisions of this §91.503 adopted to be effective January 7, 2004, 29 TexReg 82.

7 Tex. Admin. Code § 91.510 Bond and Insurance Requirements

(a) Fidelity bond. Each credit union shall purchase and maintain a blanket fidelity bond covering the officers, directors, employees, committee members, and its agents, against loss caused by dishonesty, burglary, robbery, larceny, theft, holdup, forgery or alteration of instruments, misplacement or mysterious disappearance. All carriers writing credit union blanket bonds must be authorized by the Insurance Commissioner for the state of Texas as an acceptable fidelity on bonds in this state.

(1) Subject to approval by the credit union's board of directors, the amount of coverage to be required for each credit union shall be determined by the credit union, based on its assessment of the level that would be safe and sound in view of the credit union's potential exposure to risk.

(2) Each credit union may maintain bond coverage in addition to that provided by the insurance underwriter industry's standard forms, through the use of endorsements, riders, or other forms of supplemental coverage, if, in the judgment of the credit union's board of directors, additional coverage is warranted.

(3) The commissioner may require additional coverage of any credit union when, in his opinion, the fidelity bond in force is insufficient to provide adequate fidelity coverage. It shall be the duty of the board of directors to obtain the additional coverage within 30 days after the date of written notice of the findings by the commissioner.

(b) Cancellation. A fidelity bond must include a provision requiring written notification by the fidelity to the commissioner prior to cancellation of any or all coverages set out in the bond which includes a brief statement of cause for termination.

(c) Other insurance. Each credit union shall, subject to approval by the board, purchase appropriate insurance coverages to insure the credit union and its assets against loss or damage by fire, liability, casualty or any other insurance risks.

(d) Board review. The board of directors of each credit union shall formally approve the credit union's bond and insurance coverages. In deciding whether to approve the coverages, the board shall review the adequacy of the standard coverage and the need for supplemental coverage. Documentation of the board's approval shall be included as part of the minutes of the meeting at which the board approves coverages. Additionally, the board of directors shall review the credit union's bond and insurance coverages at least annually to assess the continuing adequacy of coverage.

(e) Review by fidelity company. Credit unions which are analyzed by a fidelity company shall notify the commissioner of the analysis within 30 days of the review commencement. The report of the review is to be provided to the commissioner upon request. The confidentiality of the report shall be preserved in the same manner afforded a report of examination conducted by the department.

(f) Insuring organization's bond requirements. A credit union shall also comply with all bond requirements imposed by an insuring organization as a condition to maintain insurance on share and deposit accounts. Any credit union that fails to meet the minimum fidelity bond specifications contained within Part 741.201 of the NCUA Rules and Regulations may be deemed to be engaged in an unsafe practice pursuant to Finance Code §122.255.

History

• Source Note: The provisions of this §91.510 adopted to be effective August 14, 2000, 25 TexReg 7633; amended to be effective July 11, 2004, 29 TexReg 6628; amended to be effective July 8, 2007, 32 TexReg 3979.

7 Tex. Admin. Code § 91.515 Financial Reporting

(a) Each credit union having assets of $10 million or greater shall:

(1) prepare and maintain, on an accrual basis, accurate and complete records of its business transactions in accordance with generally accepted accounting principles, except as otherwise directed by regulatory requirements; and

(2) prepare its financial statements and reports, including reports to the members, board of directors, management and the department, in accordance with generally accepted accounting principles, except as otherwise directed by regulatory requirements.

(b) Credit unions having assets of less than $10 million may use another comprehensive basis of accounting.

(c) In addition to the quarterly report to the department as prescribed by the Act, the commissioner may require from all credit unions or from selected categories of credit unions other financial and statistical reports relating to financial condition and accounting practices.

History

• Source Note: The provisions of this §91.515 adopted to be effective May 11, 2000, 25 TexReg 3952; amended to be effective March 14, 2004, 29 TexReg 2637; amended to be effective October 9, 2022, 47 TexReg 6430.

7 Tex. Admin. Code § 91.516 Audits and Verifications

(a) Audit requirements. At least once every calendar year, the board of directors shall obtain or cause to be performed an annual audit of the credit union which must cover the period elapsed since the last audit period. A summary of the audit must be reported to the members at the next membership meeting. The audit must be conducted in accordance with generally accepted auditing standards by a licensee of the Texas State Board of Public Accountancy or as permitted under the provisions of §741.202(a) of the National Credit Union Administration's Rules and Regulations (12 CFR, Chapter VII, Part 741).

(b) Definitions.

(1) A record-keeping deficiency is serious if the commissioner reasonably believes that the board of directors and management of the credit union have not timely met financial reporting objectives and established practices and procedures sufficient to safeguard members' assets.

(2) A serious recordkeeping deficiency is persistent when it continues beyond a usual, expected or reasonable period of time.

(c) Verification obligation. The board of directors shall, at least once every two years, cause the share, deposit, and loan accounts to be verified against the records of the credit union as prescribed in §741.202(b) of the National Credit Union Administration's Rules and Regulations (12 CFR, Chapter VII, Part 741).

(d) Remedies. The commissioner may compel a credit union to obtain an audit and/or a verification of members' accounts, performed by an independent person, for any year in which any one of the following conditions is present:

(1) the credit union has not obtained an annual audit or caused an audit/verification to be performed;

(2) the credit union has obtained an audit/verification or performed an audit/verification which does not meet the specified requirements; or

(3) the credit union has experienced serious and persistent recordkeeping deficiencies.

(e) Opinion audit required. The commissioner may compel a credit union to obtain an opinion audit performed in accordance with Generally Accepted Auditing Standards by an independent person who is licensed by the state for any year in which the credit union has experienced persistent serious recordkeeping deficiencies. The objective of such an audit is to obtain an unqualified opinion on the credit union's financial statements.

History

• Source Note: The provisions of this §91.516 adopted to be effective May 11, 2000, 25 TexReg 3952; amended to be effective July 8, 2007, 32 TexReg 3980; amended to be effective July 10, 2011, 36 TexReg 4110.

Subchapter F ACCOUNTS AND SERVICES

7 Tex. Admin. Code § 91.601 Share and Deposit Accounts

(a) Accounts. A credit union may offer any type of share or deposit accounts and prescribe the terms and conditions relating to the accounts as established by written policies approved by the board of directors.

(b) Policies and procedures. Each credit union, before accepting any funds for any share or deposit accounts, shall adopt, implement and maintain appropriate policies and procedures which address, at a minimum, asset liability management and adequate liquidity levels.

(c) Limitation on deposit accounts. Acceptance of funds from a depositor authorized by the Act that is not within the credit union's field of membership is subject to the limitations prescribed by §123.201(b) of the Act. This restriction does not apply to a credit union accepting for deposit the money of:

(1) the United States or any agent or instrumentality of the United States;

(2) this or another state; or

(3) a political subdivision of this or another state.

(d) Nonmember deposit. The written documentation evidencing a deposit under subsection (c) of this section shall clearly and conspicuously disclose that the funds are not insured. This section does not apply to insured deposits from other credit unions or deposits received by a credit union with a low-income designation.

History

• Source Note: The provisions of this §91.601 adopted to be effective March 8, 1984, 9 TexReg 1153; amended to be effective July 8, 1994, 19 TexReg 4932; amended to be effective August 14, 2000, 25 TexReg 7633.

7 Tex. Admin. Code § 91.602 Solicitation and Acceptance of Brokered Deposits

(a) Definitions.

(1) Brokered deposit means any deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker.

(2) Deposit broker means a person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with financial institutions; or the business of placing funds with financial institutions for the purpose of selling interests in the deposit to third parties.

(b) Limitation. A credit union that has a net worth ratio of less than six percent as defined in §91.901 of this title (relating to Reserve Requirements) or is not deemed adequately capitalized by its insuring organization may not accept, renew or roll over any brokered deposit unless it has been granted a waiver by the commissioner.

(c) Risk management and due diligence. Credit unions utilizing brokered deposits shall ensure that proper risk management practices are in place, including appropriate written asset/liability management policies, business strategies, concentration limits, monitoring procedures, and contingency funding plans. In addition, credit unions must implement adequate due diligence procedures before entering into a business relationship with a deposit broker.

History

• Source Note: The provisions of this §91.602 adopted to be effective August 14, 2000, 25 TexReg 7634; amended to be effective July 11, 2004, 29 TexReg 6629.

7 Tex. Admin. Code § 91.608 Confidentiality of Member Records

(a) Confidentiality of members' accounts. No credit union officer, director, committee member or employee may disclose to any person, other than the member, or to any company or governmental body the individual savings, shares, or loan records of any credit union member, contained in any document or system, by any means unless specifically authorized to do so in writing by such members, except as follows:

(1) reporting credit experience to a bona fide credit reporting agency, another credit union, or any other bona fide credit-granting business and/or merchants information exchange, provided that applicable state and federal laws and regulations pertaining to credit collection and reporting are followed;

(2) furnishing information in response to a valid request from a duly constituted government agency or taxing authority, or any subdivision thereof, including law enforcement agencies;

(3) furnishing information, orally or in written form, in response to the order of a court of competent jurisdiction or pursuant to other processes of discovery duly issuing from a court of competent jurisdiction;

(4) furnishing reports of loan balances to co-borrowers, co-makers, and guarantors of loans of a member and of share or deposit account balances, signature card information, and related transactions to joint account holders;

(5) furnishing information to and receiving information from check and draft reporting, clearing, cashing and authorization services relative to past history of a member's draft and checking accounts at the credit union; or

(6) as otherwise authorized by law, including access by examiners of the Department.

(b) Non-disclosure statement. Nothing in this rule shall prohibit the credit union from releasing the name and address of members to assist the credit union in its marketing efforts or sale of third party products, provided, however, that the credit union obtains a written non-disclosure statement providing assurances that the information will be used exclusively for the benefit of the credit union and no other.

(c) Privacy policy. Each credit union shall develop, implement and maintain a written policy on the protection of nonpublic personal information of individual members in its possession. This policy shall be consistent with the disclosure and reporting requirements applicable to federally insured credit unions as addressed in Part 716 of NCUA Rules and Regulations.

(d) Relation to federal laws. This section shall not be construed as altering or affecting any applicable federal statute, regulation, or interpretation that affords a member greater protection than provided under this section.

History

• Source Note: The provisions of this §91.608 adopted to be effective July 8, 1994, 19 TexReg 4932; amended to be effective August 14, 2000, 25 TexReg 7634; amended to be effective July 11, 2004, 29 TexReg 6630.

7 Tex. Admin. Code § 91.610 Safe Deposit Box Facilities

(a) Purpose. Finance Code §59.110 requires credit unions to imprint keys issued to safe deposit boxes with the institution's routing number. In addition, it requires a report to the Department of Public Safety if the routing number is altered or defaced so that the correct routing number is illegible. The purpose of this section is to clarify the requirements of the noted section of the Finance Code.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Credit union--This term includes all state or federal credit unions that have been assigned a routing number unique to that institution.

(2) Routing number--The number printed on the face of a share draft or check in fractional form or in nine-digit form that identifies a paying financial institution.

(c) Imprinting requirements. A credit union which has been issued a routing number shall imprint that routing number on safe deposit box keys on either the head of the key or the shank of the key if there is adequate room. The typical locations to be used are indicated in the following instructions and diagram. The imprint can be made anywhere on the key that has the required space available. When positioning the die on the key, be careful to place the die on the key where it will imprint on a flat surface and not in the area of the key cuts or on any of the shank ridges or grooves. Imprinting in these areas may interfere with the proper working of the key in the lock and may cause damage. In the event these standard areas for the location of the imprint are unavailable, either because of grooves on the key shank or the fact that the head of the key already has names and other numbers imprinted on it, then the credit union may attach to the key a tag imprinted with the routing number. The tag used must be of such a nature as to be secure. Thus, a paper or cardboard tag or a tag affixed with string will not be acceptable. However, any other medium such as plastic or metal which can retain an imprint of a number shall be acceptable. The tag may be attached in any way to assure its affixation to the key. Typically, this will mean inserting the tag or a device to affix the tag through the hole in the head of the key normally used for placing keys on key chains. The tag method shall not be used if there is adequate room on the key itself for imprinting the numbers. There are four standard areas for the location of the imprinted routing number. These include: the head of the key, the shank of the key, and either place on the reverse side of the key. The standard imprint areas are shown as follows.

Attached Graphic

(d) Branch designation. A credit union may, but is not required to, add a three-digit branch designation to its routing number. Thus, the main credit union facility should receive the designation "001" and branch facilities should receive numbers consecutively beginning with "002" with successive numbers as needed. However, the credit union may control the branch numbering system used provided that the credit union maintains a master list of branch designations used for this purpose. The master list should be maintained at the main office of the credit union and shall include the three-digit branch designation and address of facility. The credit union then may imprint safe deposit box keys or tags with the routing number plus three-digit branch designation for full identification of the facility.

(e) Report of defaced or altered key. Within 10 days after an officer or employee of a credit union observes that a key used to access a safe deposit box has had the routing number altered or defaced or the tag removed, a report shall be prepared of such incident. The report shall be on a form promulgated by the Credit Union Department in the form of the attached Exhibit A. The report should be submitted to the Department of Public Safety, Attention: Criminal Law Enforcement, Box 4087, Austin, Texas 78773-0001. The report should be mailed no later than ten days after the incident. The credit union should retain one copy of the incident report for a period of three years. Nothing in this rule nor in the Finance Code §59.110 shall require a credit union to inspect routing numbers imprinted on a key or an attached tag to determine if the number has been altered or defaced.

(f) Effective date; applicability to existing keys. A credit union must imprint all safe deposit box keys on or after September 1, 1992. Additionally, the imprinting requirement applies to all keys issued prior to September 1, 1992. However, keys for boxes rented prior to September 1, 1992, need not be imprinted with the routing number unless and until a member presents a safe deposit box key at a credit union for access to a box. Nothing in this rule or the Finance Code §59.110 shall be construed to require a credit union to provide notice to its safe deposit box users or to otherwise require such members to present their keys for imprinting. However, on the first date after September 1, 1992, that a member presents a key which has not been imprinted, the credit union shall imprint the key with the routing numbers as required by Finance Code §59.110.

(g) Effect of change in routing number. In the event a credit union's routing number is changed as a result of a merger, acquisition, or other change, safe deposit box keys need not be replaced with a new routing number provided that the credit union maintains a master list of the routing numbers used to imprint keys.

Attached Graphic

History

• Source Note: The provisions of this §91.610 adopted to be effective July 8, 1994, 19 TexReg 4932; amended to be effective August 14, 2000, 25 TexReg 7635; amended to be effective July 8, 2007, 32 TexReg 3981.

Subchapter G LENDING POWERS

7 Tex. Admin. Code § 91.701 Lending Powers

(a) Authorization. A credit union may originate, invest in, sell, purchase, service, or participate in loans or otherwise extend credit in accordance with the Act, these Rules, and other applicable law.

(b) Written Policies. Before engaging in any lending activity, each credit union shall establish written lending policies that set prudent credit underwriting and documentation standards for each specific type of lending activity. The lending policies shall contain a general outline of the manner in which loans are made, serviced, and collected. In addition the policies must:

(1) Be consistent with safe and sound credit union practices;

(2) Be appropriate to the size and financial condition of the credit union and the nature and scope of its operations;

(3) Be compatible with the size and expertise of the credit union's lending staff;

(4) Be compliant with all related laws and regulations;

(5) Be reviewed and approved by the credit union's board of directors at inception and annually, thereafter;

(6) Address loan portfolio diversification standards to avoid undue concentrations of risk;

(7) Address loan documentation and underwriting standards that are clear and measurable;

(8) Address loan administration procedures for monitoring the loss exposure from the loan portfolio;

(9) Address loan pricing guidelines to ensure that the rate of return is consistent with the risk from the lending activity; and

(10) State the lending authority delegated to any individuals or committees by the board of directors.

(c) Loan Documentation. The lending policies shall include loan documentation practices that:

(1) Enable the credit union to make an informed lending decision and to assess risk, as necessary, on an ongoing basis;

(2) Identify the purpose of a loan and the source of repayment, and assess the ability of the borrower to repay the indebtedness in a timely manner; and

(3) Ensure that any claim against a member is legally enforceable.

(d) Credit Underwriting. A credit union shall establish and maintain prudent credit underwriting practices that:

(1) Are commensurate with the types of loans the credit union will make and consider the terms and conditions under which they will be made;

(2) Consider the nature of the markets in which loans will be made;

(3) Provide for consideration of the member's overall financial condition and resources, the financial responsibility of any guarantor, the nature and value of any underlying collateral, and the member's character and willingness to repay as agreed;

(4) Take adequate account of concentration of credit risk; and

(5) Are appropriate to the size of the credit union and the nature and scope of its activities.

(e) Loan Maturity Limit. Except when a higher maturity date is provided for elsewhere in this chapter, the maturity of any loan or extension of credit to a member may not exceed 15 years. Minimum payments, on a line of credit balance must be sufficient to amortize the outstanding balance over a reasonable period of time and not cause negative amortization.

(f) Liquidity. In addition to establishing controls for credit risks, credit unions shall establish procedures and guidelines to monitor and limit the total volume of loans outstanding, to ensure adequate liquidity. In setting such guidelines, the credit union shall consider various factors such as credit demand, the volatility of shares and deposits, and availability of alternative funding sources.

(g) Waivers. The commissioner in the exercise of discretion may grant a waiver in writing of any lending requirement described in this chapter. A decision to deny a waiver, however, is not subject to appeal. A waiver request must contain the following:

(1) The requirement to be waived, the higher limit or the ratio sought;

(2) An explanation of the need for the waiver or to raise the limit or ratio; and

(3) Documentation supporting the credit union's ability to manage the additional risk from this activity.

History

• Source Note: The provisions of this §91.701 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6266; amended to be effective March 14, 2004, 29 TexReg 2637; amended to be effective November 9, 2006, 31 TexReg 9017; amended to be effective November 7, 2010, 35 TexReg 9716.

7 Tex. Admin. Code § 91.703 Interest Rates

(a) Loans made by each credit union shall bear interest at a rate or rates as may be determined by the credit union's board of directors. A board may delegate all or part of its power to determine the interest rates on any lending transactions. The board may also authorize a refund of interest on loans under the conditions it may prescribe.

(b) A loan may provide for variable interest rates, so long as the factor or index governing the extent of the variation is not under the control of the credit union and can be readily ascertained from sources available to the public or any other index approved in writing by the commissioner which is not available to the public.

History

• Source Note: The provisions of this §91.703 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective November 7, 2010, 35 TexReg 9717.

7 Tex. Admin. Code § 91.704 Real Estate Lending

(a) Definitions. For the purposes of this section, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

(1) First lien means any mortgage that takes priority over any other lien or encumbrance on the same property and that must be satisfied before other liens or encumbrances may share in proceeds from the property's sale.

(2) Home loan means a loan that is:

(A) made to one or more individuals for personal, family, or household purposes; and

(B) secured in whole or part by:

(i) a manufactured home, as defined by Finance Code §347.002, used or to be used as the borrower's principal residence; or

(ii) real property improved by a dwelling designed for occupancy by four or fewer families and used or to be used as the borrower's principal residence.

(3) Improved residential real estate means residential real estate containing offsite improvements, such as access to streets, curbs, and utility connections, sufficient to make the property ready for residential construction, and real estate in the process of being improved by a building.

(4) Other acceptable collateral means any collateral in which the credit union has a perfected security interest, that has a quantifiable value, and is accepted by the credit union in accordance with safe and sound lending practices.

(5) Owner-occupied means that the owner of the underlying real property occupies a dwelling unit of the real property as a principal residence.

(6) Readily marketable collateral means insured deposits, financial instruments, and bullion in which the credit union has a perfected interest. Financial instruments and bullion must be saleable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, on an auction or similarly available daily bid and ask price market.

(b) Written Policies. Before engaging in any real estate lending, a credit union shall adopt and maintain written policies that are appropriate for the size of the credit union and the nature and scope of its operation. When formulating the real estate lending policy, the credit union should consider both internal and external factors, such as its size and condition, expertise of its lending staff, avoidance of undue concentrations of risk, compliance with all real estate laws and rules, and general market conditions. Each policy must be consistent with safe and sound lending practices and establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate. The policies shall, in addition to the general requirements of §91.701(b) of this title (relating to Lending Powers), address the following, as applicable:

(1) Title insurance;

(2) Escrow administration;

(3) Loan payoffs;

(4) Collection and foreclosure; and

(5) Servicing and participation agreements.

(c) Loan to Value Limitations.

(1) The board of directors shall establish its own internal loan-to-value limits for real estate loans based on type of loan. These internal limits, however, shall not exceed the following regulatory limits:

(A) Unimproved land held for investment/speculation--Loan to value limit 60%

(B) Construction and Development: commercial, multifamily, and other nonresidential--Loan to value limit 75%

(C) Interim Construction: owner-occupied residential real estate--Loan to value limit 90%

(D) Owner occupied residential real estate (other than home equity)--Loan to value limit 95%

(E) Other residential real estate such as a second or vacation home--Loan to value limit 90%

(F) Home equity--Loan to value limit 80%

(G) All Other--Loan to value limit 80%

(2) The regulatory loan-to-value limits should be applied to the underlying property that collateralizes the loan. In determining the loan to-value ratio, a credit union shall include the aggregate amount of all sums borrowed, including the outstanding balances, plus any unfunded commitment or line of credit from all sources on an item of collateral, divided by the market value of the collateral used to secure the loan.

(d) Maximum Maturities. Notwithstanding the general 15-year maturity limit on lending transactions to members, credit unions engaged in real estate lending are expected to have loan policies that establish prudent standards for loan structure including tenor and amortization that are within the risk parameters approved by the board of directors and consistent with the following regulatory limits:

(1) Improved residential real estate loans (principal residence, first lien)--40 years

(2) Improved residential real estate loans (secondary residence, first lien)--30 years

(3) Improved residential real estate loans (investment property, first lien)--20 years

(4) Interim construction loans--18 months

(5) Manufactured home (first lien)--20 years

(6) Home equity loans--20 years (second lien)--30 years (first lien)

(7) Home improvement loans--20 years

(8) A loan secured in part, by the insurance or guarantee of, or with an advance commitment to purchase the loan, in full or in part, by the Federal Government or any agency of the Federal Government, may be made for the maturity specified in the law, regulations or program under which the insurance, guarantee or commitment is provided

(e) Mortgage Fraud Notice. A credit union must provide to each applicant for a home loan a written notice at closing. The notice must be provided on a separate document, be in at least 14-point type, and have the following or substantially similar language: "Warning: Intentionally or knowingly making a materially false or misleading written statement to obtain property or credit, including a mortgage loan, is a violation of §32.32, Texas Penal Code, and, depending on the amount of the loan or value of the property, is punishable by imprisonment for a term of 2 years to 99 years and a fine not to exceed $10,000. "I/we, the undersigned home loan applicant(s), represent that I/we have received, read, and understand this notice of penalties for making a materially false or misleading written statement to obtain a home loan."I/we represent that all statements and representations contained in my/our written home loan application, including statements or representations regarding my/our identity, employment, annual income, and intent to occupy the residential real property secured by the home loan, are true and correct as of the date of loan closing." On receipt of the notice, the applicant shall verify the information and execute the notice. A credit union must keep the signed notice on file with the records required under §91.701 of this title.

(f) Excluded Transactions. It is recognized that there are a number of lending situations in which other factors significantly outweigh the need to apply the regulatory loan-to-value limits. As a result, an exception to the loan-to-value limits is permissible for the following loan categories:

(1) Loans that are covered through appropriate credit enhancements in the form of readily marketable collateral or other acceptable collateral.

(2) Loans guaranteed or insured by the U.S. government or its agencies, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the regulatory loan-to-value limit.

(3) Loans guaranteed, insured, or otherwise backed by the full faith and credit of the state, a municipality, a county government, or an agency thereof, provided that the amount of the guaranty, insurance, or assurance is at least equal to the portion of the loan that exceeds the regulatory loan-to-value limit.

(4) Loans that are to be sold promptly after origination, without recourse, to a financially responsible third party.

(5) Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs) where consistent with safe and sound credit union practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan.

(6) Loans that facilitate the sale of real estate acquired by the credit union in the ordinary course of collecting a debt previously contracted in good faith.

(g) Loans to 100% of Value. A credit union may make a loan in an amount up to 100% of the value of real property security if that part of the loan that exceeds the regulatory loan-to-value limit is guaranteed or insured by a private corporation, organization, or other entity. The board of directors must ensure that the credit union exercises appropriate due diligence to ensure that any such guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement.

(h) Registration of residential mortgage loan originators. Title V of the Housing and Economic Recovery Act of 2008 (Public Law 110-289) requires employees of a credit union who engage in the business of a mortgage loan originator to register with the Nationwide Mortgage Licensing System and Registry and to obtain a unique identifier. A credit union must comply with the requirements imposed by Part 761 of the NCUA Rules and Regulations.

History

• Source Note: The provisions of this §91.704 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6267; amended to be effective November 9, 2006, 31 TexReg 9018; amended to be effective March 2, 2008, 33 TexReg 1515; amended to be effective March 4, 2009, 34 TexReg 1399; amended to be effective November 7, 2010, 35 TexReg 9718; amended to be effective November 9, 2014, 39 TexReg 8572.

7 Tex. Admin. Code § 91.705 Home Improvement Loans

In addition to the requirements of this chapter, all loans in which the proceeds are used to construct new improvements or renovate existing improvements on a homestead property must also comply with the requirements of Section 50(a)(5), Article XVI, Texas Constitution.

History

• Source Note: The provisions of this §91.705 adopted to be effective August 9, 1999, 24 TexReg 6023.

7 Tex. Admin. Code § 91.706 Home Equity Loans

For any loan secured by an encumbrance against the equity in a homestead property, the terms and conditions set forth in this chapter and in Section 50, Article XVI, Texas Constitution will apply. If there is an irreconcilable conflict between a constitutional provision and the provision of this section, the constitutional requirement shall prevail.

History

• Source Note: The provisions of this §91.706 adopted to be effective August 9, 1999, 24 TexReg 6023.

7 Tex. Admin. Code § 91.707 Reverse Mortgages

A credit union may offer reverse mortgages to its members under the terms and conditions set forth in Section 50, Article XVI, Texas Constitution and other applicable law. In the event of an irreconcilable conflict between any specific requirement contained in this section and a constitutional provision, the constitutional requirement shall prevail.

History

• Source Note: The provisions of this §91.707 adopted to be effective August 9, 1999, 24 TexReg 6023.

7 Tex. Admin. Code § 91.708 Real Estate Appraisals or Evaluations

(a) Policies and Procedures. A credit union's board of directors is responsible for reviewing and adopting policies and procedures that establish and maintain an effective, independent real estate appraisal and evaluation program. A credit union's selection criteria for individuals who may perform appraisals or evaluations must provide for the independence of the individual performing the evaluation. That is, the individual has neither a direct nor indirect interest, financial or otherwise, in the property or transaction. The individual selected must also be competent to perform the assignment based upon the individual's qualifications, experience, and educational background. An individual may be an employee of a credit union if the individual qualifies under the conditions and requirements contained in Part 722 of the National Credit Union Administration Rules and Regulations.

(b) Loans Over $400,000. For real estate loans in which the loan amount or extension of credit exceeds $400,000, the credit union shall obtain a professional appraisal report by a state certified or licensed appraiser. The appraisal report shall be in writing and conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standards Board of the Appraisal Foundation, in Washington, D.C.

(c) Loans $400,000 or Less. For real estate loans with a loan amount or extension of credit of $400,000 or less, the services of a state certified or licensed appraiser is not necessary; however, the credit union must obtain an appropriate evaluation of real property collateral that is supported by a written estimate of market value either performed by a qualified individual who has demonstrated competency in performing evaluations or from tax appraisal data of a governmental entity.

(d) Right to Require an Appraisal. The commissioner may require an appraisal under this section, at the expense of the credit union, when the commissioner has reasonable cause to believe the value of the collateral is overstated.

(e) Existing Loans. In the case of renewal of a loan where there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the credit union's real estate collateral protection after the transaction, even with the advancement of additional funds, a written certification of current value by the original appraiser or an acceptable substitute shall satisfy this section.

(f) Other Appraisal Requirements. A credit union shall also comply with applicable real estate appraisal requirements contained within Part 722 of the National Credit Union Administration Rules and Regulations.

History

• Source Note: The provisions of this §91.708 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 11, 2002, 27 TexReg 6834; amended to be effective August 10, 2003, 28 TexReg 6267; amended to be effective November 9, 2006, 31 TexReg 9018; amended to be effective November 7, 2010, 35 TexReg 9720; amended to be effective August 30, 2020, 45 TexReg 5906.

7 Tex. Admin. Code § 91.709 Member Business and Commercial Loans

(a) Definitions. Definitions in TEX. FIN. CODE §121.002, are incorporated herein by reference. As used in this section, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

(1) "Borrower" means a member or any other person named as a borrower, obligor, or debtor in a loan or extension of credit; or any other person, including, but not limited to, a comaker, drawer, endorser, guarantor or surety who is considered to be a borrower under the requirements of subsection (i) of this section concerning aggregation and attribution for commercial loans.

(2) "Commercial loan" means a loan or an extension of credit to an individual, sole proprietorship, partnership, corporation, or business enterprise for commercial, industrial, agricultural, or professional purposes, including construction and development loans, any unfunded commitments, and any interest a credit union obtains in such loans made by another lender. A commercial loan does not include a loan made for personal expenditure purposes; a loan made by a corporate credit union; a loan made by a credit union to a federally insured credit union; a loan made by a credit union to a credit union service organization; a loan secured by a 1- to 4-family residential property (whether or not the residential property is the borrower's primary residence); a loan fully secured by shares in the credit union making the extension of credit or deposits in another financial institution; a loan secured by a vehicle manufactured for household use; and a loan that would otherwise meet the definition of commercial loan and which, when the aggregate outstanding balance plus unfunded commitments less any portion secured by shares in the credit union to a borrower, is equal to less than $50,000.

(3) "Controlling interest" means an interest in which a person directly or indirectly, or acting through or together with one or more other persons:

(A) owns, controls, or has the power to vote twenty-five (25) percent or more of any class of voting securities of another persons;

(B) controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person; or

(C) has the power to exercise a controlling influence over the management or policies of another person.

(4) "Immediate family member" means a spouse or other family member living in the same household.

(5) "Loan secured by a lien on a 1- to 4-family residential property" means a loan that, at origination, is secured wholly or substantially by a lien on a 1- to 4-family residential property for which the lien is central to the extension of the credit; that is the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a 1- to 4-family residential property if the estimated value of the real estate collateral at origination (after deducting any senior liens held by others) is greater than fifty (50) percent of the principal amount of the loan.

(6) "Loan secured by a lien on a vehicle manufactured for household use" means a loan that, at origination, is secured wholly or substantially by a lien on a new and used passenger car or other vehicle such as a minivan, sport-utility vehicle, pickup truck, and similar light truck or heavy-duty truck generally manufactured for personal, family, or household use and not used as a fleet vehicle or to carry fare-paying passengers, for which the lien is central to the extension of credit. A lien is central to the extension of credit if the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan wholly or substantially secured by a lien on a vehicle manufactured for household use if the estimated value of the collateral at origination (after deducting any senior liens held by others) is greater than fifty (50) percent of the principal amount of the loan.

(7) "Loan-to-value ratio for collateral" means the aggregate amount of all sums borrowed and secured by the collateral, including outstanding balances plus any unfunded commitment or line of credit from another lender that is senior to the credit union's lien, divided by the current collateral value. The current collateral value must be established by prudent and accepted commercial loan practices and comply with all regulatory requirements.

(8) "Member business loan" has the meaning assigned by 12 C.F.R. Part 723.

(9) "Net worth" has the meaning assigned by 12 C.F.R. Part 702.2.

(10) "Readily marketable collateral" means financial instruments and bullion that are salable under ordinary market conditions with reasonable promptness at a fair market value determined by quotations based upon actual transactions on an auction or similarly available daily bid and ask price market.

(11) "Residential property" means a house, townhouse, condominium unit, cooperative unit, manufactured home, a combination of a home or dwelling unit and a business property that involves only minor or incidental business use, real property to be improved by the construction of such structures, or unimproved land zoned for 1- to 4-family residential use but does not include a boat, motor home, or timeshare property, even if used as a primary residence. This applies to such structure whether under construction or completed.

(b) Parity. A credit union may make, commit to make, purchase, or commit to purchase any member business loan it could make if it were operating as a federal credit union domiciled in this state, so long as for each transaction the credit union complies with all applicable regulations governing such activities by federal credit unions. However, all such loans must be documented in accordance with the applicable requirements of this chapter.

(c) Commercial Loan Responsibilities and Operational Requirements. Prior to engaging in the business of making commercial loans, a credit union must address the responsibilities and operational requirements under this subsection:

(1) Written policies. A credit union must establish comprehensive written commercial loan policies approved by its board of directors instituting prudent loan approval, credit underwriting, loan documentation, and loan monitoring standards in accordance with this paragraph. The board must review its policies at least annually and, additionally, prior to any material change in the credit union's commercial lending program or related organizational structure, in response to any material change in the credit union's overall portfolio performance, or in response to any material change in economic conditions affecting the credit union. The board must update its policies when warranted. Policies under this paragraph must be designed to identify:

(A) type(s) of commercial loans permitted;

(B) trade area;

(C) the maximum amount of assets, in relation to net worth, allowed in secured, unsecured, and unguaranteed commercial loans and in any given category or type of commercial loan and to any one borrower;

(D) credit underwriting standards including potential safety and soundness concerns to ensure that action is taken to address those concerns before they pose a risk to the credit union's net worth; the size and complexity of the loan as appropriate to the size of the credit union; the scope of the credit union's commercial loan activities; the level and depth of financial analysis necessary to evaluate financial trends and the condition of the borrower and the ability of the borrower to meet debt service requirements; requirements for a borrower-prepared projection when historic performance does not support projected debt payments; the financial statement quality and degree of verification sufficient to support an accurate financial analysis and risk assessment; the methods to be used in evaluating collateral authorized, including loan-to-value ratio limits; the means to secure various types of collateral; and other risk assessment analyses including analysis of the impact of current market conditions on the borrower.

(E) loan approval standards including consideration, prior to credit commitment, of the borrower's overall financial condition and resources; the financial stability of any guarantor; the nature and value of underlying collateral; environmental assessment requirements; the borrower's character and willingness to repay as agreed; the use of loan covenants when warranted; and the levels of loan approval authority commensurate with the proficiency of the individuals or committee of the credit union tasked with such approval authority in evaluating and understanding commercial loan risk, when considered in terms of the level of risk the borrowing relationship poses to the credit union;

(F) loan monitoring standards including a system of independent, ongoing credit review and appropriate communication to senior management and the board of directors; the concentration of credit risk; and the risk management systems under subsection (d) of this section; and

(G) loan documentation standards including enabling the credit union to make informed lending decisions and assess risk, as necessary, on an ongoing basis; identifying the purpose of each loan and source(s) of repayment; assessing the ability of each borrower to repay the indebtedness in a timely manner; ensuring that any claim against a borrower is legally enforceable; and demonstrating appropriate administration and monitoring of each loan.

(2) Qualified Staff. A credit union must ensure that it is appropriately staffed with qualified personnel with relevant and necessary expertise and experience for the types of commercial lending in which the credit union is engaged, including appropriate experience in underwriting, processing, overseeing and evaluating the performance of a commercial loan portfolio, including rating and quantifying risk through a credit risk rating system and collections and loss mitigation activities for the types of commercial lending in which the credit union is engaged. At a minimum, a credit union making, purchasing, or holding any commercial loans must internally have a senior management employee that has a thorough understanding of the role of commercial lending in the credit union's overall business model and establish risk management processes and controls necessary to safely conduct commercial lending as provided by subsection (d) of this section.

(3) Use of Third-Party Experience. A third party may provide the requisite expertise and experience necessary for a credit union to safely conduct commercial lending if:

(A) the third party has no affiliation or contractual relationship with the borrower;

(B) the third party is independent from the commercial loan transaction and does not have a participation interest in a loan or an interest in any collateral securing a loan that the third party is responsible for reviewing, or an expectation of receiving compensation of any sort that is contingent on the closing of the loan, with the following exceptions:

(i) the third party may provide a service to the credit union that is related to the transaction, such as loan servicing;

(ii) the third party may provide the requisite experience to a credit union and purchase a loan or a participation interest in a loan originated by the credit union that the third party reviewed; and

(iii) the third party is a credit union service organization and the credit union has a controlling financial interest in the credit union service organization as determined under generally accepted accounting principles.

(C) the actual decision to grant a commercial loan resides with the credit union; and

(D) qualified credit union staff exercise ongoing oversight over the third party by regularly evaluating the quality of any work the third party performs for the credit union.

(4) De Minimis Exception. The responsibilities and operational requirements described in paragraphs (1) and (2) of this subsection do not apply to a credit union if it meets all of the following conditions:

(A) the credit union's total assets are less than $250 million;

(B) the credit union's aggregate amount of outstanding commercial loan balances (including any unfunded commitments, any outstanding commercial loan balances and unfunded commitments of participations sold, and any outstanding commercial loan balances and unfunded commitments sold and serviced by the credit union) total less than fifteen (15) percent of the credit union's net worth; and

(C) in a given calendar year, the amount of originated and sold commercial loans and the amount of originated and sold commercial loans the credit union does not continue to service, total fifteen (15) percent or less of the credit union's net worth.

(D) A credit union that relies on this de minimis exception is prohibited from engaging in any acts or practices that have the effect of evading the requirements of this subsection.

(d) Commercial Loan Risk Management Systems.

(1) Risk Management Processes. A credit union's risk management process must be commensurate with the size, scope and complexity of the credit union's commercial lending activities and borrowing relationships. The processes must, at a minimum, address the following:

(A) use of loan covenants, if appropriate, including frequency of borrower and guarantor financial reporting;

(B) periodic loan review, consistent with loan covenants and sufficient to conduct portfolio risk management, which, based upon current market conditions and trends, loan risk, and collateral conditions, must include a periodic reevaluation of the value and marketability of any collateral, and an updated loan-to-value ratio for collateral calculation;

(C) a credit risk rating system under paragraph (2) of this subsection; and

(D) a process to identify, report, and monitor commercial loans that are approved by the credit union as exceptions to the credit union's loan policies.

(2) Credit Risk Rating System. The credit risk rating system must be a formal process that identifies and assigns a relative credit risk rating to each commercial loan in a credit union's portfolio, using ordinal ratings to represent the degree of risk. The credit risk score must be determined through an evaluation of quantitative factors based on the financial performance of each commercial loan and qualitative factors based on the credit union's management, operational, market, and business environment factors. A credit risk rating must be assigned to each commercial loan at the inception of the loan. A credit risk rating must be reviewed as frequently as necessary to satisfy the credit union's risk monitoring and reporting policies, and to ensure adequate reserves as required by generally accepted accounting principles.

(3) Independent Review. Periodic independent reviews should be conducted by a person who is both qualified to conduct such a review and independent of the function being reviewed. The review should provide an objective assessment of the overall commercial loan portfolio quality and verify the accuracy of ratings and the operational effectiveness of the credit union's risk management processes. A credit union is not required to hire an outside third party to conduct this independent review, if it can be done in-house by a competent person that is considered unconnected to the function being reviewed.

(e) Collateral and Security for Commercial Loans.

(1) Collateral. A commercial loan must be secured by collateral commensurate with the level of risk associated with the size and type of the commercial loan. The collateral must be sufficient to ensure the credit union is protected by a prudent loan-to-value ratio for collateral along with appropriate risk sharing with the borrower and principal(s). A credit union making an unsecured commercial loan must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk of making an unsecured loan.

(2) Personal Guarantees. A credit union that does not require the full and unconditional personal guarantee from all principals of the borrower who have a controlling interest, as defined by subsection (a)(3) of this section, in the borrower must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk.

(f) Construction and Development Loans.

(1) Terms. In this subsection:

(A) "construction or development loan" means any financing arrangement to enable the borrower to acquire property or rights to property, including land or structures, with the intent to construct or renovate an income producing property, such as residential housing for rental or sale, or a commercial building, that may be used for commercial, agricultural, industrial, or other similar purposes. It also means a financing arrangement for the construction, major expansion or renovation of the property types referenced in this subsection. The collateral valuation for securing a construction or development loan depends on the satisfactory completion of the proposed construction or renovation where the loan proceeds are disbursed in increments as the work is completed. A loan to finance maintenance, repairs, or other improvements to an existing income-producing property that does not change the property's use or does not materially impact the property is not a construction or development loan.

(B) "cost to complete" means the sum of all qualifying costs necessary to complete a construction project and documented in an approved construction budget. Qualifying costs generally include on- or off-site improvements; building construction; other reasonable and customary costs paid to construct or improve a project, including a general contractor's fees; other expenses normally included in a construction contract such as bonding and contractor insurance; the value of the land, determined as the sum of the cost of any improvements to the land and the lesser of appraised market value or purchase price; interest as provided by this subparagraph; project costs as provided by this subparagraph; a contingency account to fund unanticipated overruns; and other development costs such as fees and related pre-development expenses. Interest expense is a qualifying cost only to the extent it is included in the construction budget and is calculated based on the projected changes in the loan balance up to the expected "as-complete" date for owner-occupied non-income-producing commercial real property or the "as stabilized" date for income-producing real estate. Project costs for related parties, such as developer fees, leasing expenses, brokerage commissions and management fees, are included in qualifying costs only if reasonable in comparison to the cost of similar services from a third party. Qualifying costs exclude interest or preferred returns payable to equity partners or subordinated debt holders, the developer's general corporate overhead, and selling costs to be funded out of sales proceeds such as brokerage commissions and other closing costs.

(C) "prospective market value" means the market value opinion determined by an independent appraiser in compliance with the relevant standards set forth in the Uniform Standards of Professional Appraisal Practice. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. Two (2) prospective value opinions may be required to reflect the time frame during which development, construction, or occupancy occur. The prospective market value "as-completed" reflects the real property's market value as of the time that development is to be completed. The prospective market value "as-stabilized" reflects the real property's market value as of the time the real property is projected to achieve stabilized occupancy. For an income producing property, stabilized occupancy is the occupancy level that a property is expected to achieve after the real property is exposed to the market for lease over a reasonable period of time and at comparable terms and conditions to other similar real properties.

(2) Policies. A credit union that elects to make a construction or development loan must ensure that its commercial loan policies under subsection (c) of this section meets the following conditions:

(A) qualified personnel representing the interest of the credit union must conduct a review and approval of any line item construction budget prior to closing the loan;

(B) a requisition and loan disbursement process approved by the credit union is established;

(C) release or disbursement of loan funds occurs only after on-site inspections which are documented in a written report by qualified personnel who represents the interest of the credit union and certifies that the work requisitioned for payment has been satisfactorily completed, and the remaining funds available to be disbursed from the construction and development loan is sufficient to complete the project; and

(D) each loan disbursement is subject to confirmation that no intervening liens have been filed.

(3) Establishing Collateral Values. The current collateral value must be established by prudent and accepted commercial loan practices and comply with all regulatory requirements. The collateral value depends on the satisfactory completion of the proposed construction or renovation where the loan proceeds are disbursed in increments as the work is completed and is the lesser of the project's cost to complete or its prospective market value.

(4) Controls and Processes for Loan Advances. A credit union that elects to make a construction and development loan must have effective commercial loan control procedures in place to ensure sound loan advances and that liens are paid and released in a timely manner. Effective controls should include segregation of duties, delegation of duties to appropriate qualified personnel, and dual approval of loan disbursements.

(g) Commercial Loan Prohibitions.

(1) Ineligible borrowers. A credit union may not grant a commercial loan to the following:

(A) any senior management employee directly or indirectly involved in the credit union's commercial loan underwriting, servicing, and collection process, and any of their immediate family members;

(B) any person meeting the requirements of subsection (i) of this section concerning aggregations and attribution for commercial loans, with respect to persons identified in subparagraph (A) of this paragraph; or

(C) any director, unless the credit union's board of directors approves granting the loan and the borrowing director was recused from the board's decision making process.

(2) Equity Agreements and Joint Ventures. A credit union may not grant a commercial loan if any additional income received by the credit union or its senior management employees is tied to the profit or sale of any business or commercial endeavor that benefits from the proceeds of the loan.

(3) Fees. No director, committee member, volunteer official, or senior management employee of a credit union, or immediate family member of such director, committee member, volunteer official, or senior management employee, may receive, directly or indirectly, any commission, fee, or other compensation in connection with any commercial loan made by the credit union. Employees, other than senior management, may be partially compensated on a commission or performance based incentive, provided the compensation is governed by a written policy and internal controls established by the board of directors. The board must review the policies and controls at least annually to ensure that such compensation is not excessive or expose the credit union to inappropriate risks that could lead to material financial loss. Loan origination employees are prohibited from receiving, in connection with any commercial loan made by the credit union, any compensation from any source other than the credit union. For the purposes of this paragraph, compensation includes non-monetary items and anything reasonably regarded as pecuniary gain or pecuniary advantage, including a benefit to any other person in whose welfare the beneficiary has a direct and substantial interest, but compensation does not include nonmonetary items of nominal value.

(h) Aggregate Member Business Loan Limit.

(1) Limits. The aggregate limit on a credit union's net member business loan balances is the lesser of 1.75 times the actual net worth of the credit union, or 1.75 times the minimum net worth required under 12 U.S.C. Section 1790d(c)(1)(A). For purposes of this calculation, member business loan means any commercial loan, except that the following commercial loans are not member business loans and are not counted toward the aggregate limit on member business loans:

(A) any loan in which a federal or state agency (or its political subdivision) fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full;

(B) any non-member commercial loan or non-member participation interest in a commercial loan made by another lender, provided the credit union acquired the non-member loans or participation interest in compliance with applicable laws and the credit union is not, in conjunction with one or more other credit unions, trading member business loans to circumvent the aggregate limit under this subsection; and

(C) any loan that is fully secured by a lien on a 1- to 4-family dwelling.

(2) Exceptions. Any loan secured by a lien on a vehicle manufactured for household use that will be used for commercial, corporate, or other business investment property or venture, and any other loan for an agricultural purpose are not commercial loans (if the outstanding aggregate net member business loan balance is $50,000 or greater), and must be counted toward the aggregate limit on a credit union's member business loans under this subsection.

(3) Exemption. A credit union that has a federal low-income designation, or participates in the federal Community Development Financial Institution program, or was chartered for the purpose of making member business loans, or which as of the date of the Credit Union Membership Access Act of 1998 had a history of primarily making commercial loans, is exempt from compliance with the aggregate member business loan limits in paragraph (1) of this subsection.

(4) Method of Calculation for Net Member Business Loan Balance. For the purposes of NCUA form 5300 reporting (call report), a credit union's net member business loan balance is determined by calculating the sum of the outstanding loan balance plus any unfunded commitments and reducing that sum by any portion of the loan that is: secured by shares in the credit union, by shares or deposits in other financial institutions, or by a lien on a borrower's primary residence; insured or guaranteed by any agency of the federal government, a state, or any political subdivision of a state; or subject to an advance commitment to purchase by any agency of the federal government, a state, or any political subdivision of a state; or sold as a participation interest without recourse and qualifying for true sales accounting under generally accepted accounting principles.

(i) Aggregation and Attribution for Commercial Loans.

(1) General Rule. A commercial loan or extension of credit to one borrower is attributed to another person, and each person will be considered a borrower, when:

(A) the proceeds of the commercial loan or extension of credit are to be used for the direct benefit of the other person, to the extent of the proceeds so used, as provided by paragraph (2) of this subsection;

(B) a common enterprise is deemed to exist between the persons as persons as provided by paragraph (3) of this subsection; or

(C) the expected source of repayment for each commercial loan or extension of credit is the same for each person as provided by paragraph (3) of this subsection.

(2) Direct Benefit. The proceeds of a commercial loan or extension of credit to a borrower is considered used for the direct benefit of another person and attributed to the other person when the proceeds, or assets purchased with the proceeds, are transferred in any manner to or for the benefit of the other person, other than in a bona fide arm's length transaction where the proceeds are used to acquire property, goods, or services from such other person.

(3) Common Enterprise.

(A) Description. A common enterprise is considered to exist and commercial loans to separate borrowers will be aggregated when:

(i) the expected source of repayment for each loan or extension of credit is the same for each borrower and neither borrower has another source of income from which the loan (together with the borrower's other obligations) may be fully repaid. An employer will not be treated as a source of repayment under this subparagraph because of wages and salaries paid to an employee unless the loans or extensions of credit are made:

(I) to borrowers who have a controlling interest in the employer as defined by subsection (a) of this section; and

(II) substantial financial interdependence exists between or among the borrowers. Substantial financial interdependence is deemed to exist when fifty (50) percent or more of one borrower's gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other borrower. Gross receipts and expenditures include gross revenues/expenses, intercompany loans, dividends, capital contributions, and other similar receipts or payments;

(ii) separate persons borrow from a credit union to acquire a business of enterprise of which those borrowers will own more than fifty (50) percent of the voting securities of voting interest, in which case a common enterprise is deemed to exist between the borrowers for purposes of combining the acquisition loans; or

(iii) the Department determines, based upon an evaluation of the facts and circumstances of particular transactions, that a common enterprise exists.

(B) Commercial Loans to Certain Entities. A commercial loan or extension of credit:

(i) to a partnership or joint venture is considered to be a commercial loan or extension of credit to each member of the partnership or joint venture. Excepted from this subdivision is a partner or member who: is not held generally liable, by the terms of the partnership or membership agreement or by applicable law, for the debts or actions of the partnership, joint venture, or association, provided those terms are valid against third parties under applicable law; and has not otherwise agreed to guarantee or be personally liable on the loan or extension of credit.

(ii) to a member of a partnership, joint venture, or association is generally not attributed to the partnership, joint venture, or associations, or to other members of the partnership, joint venture, or association, except as otherwise provided by paragraphs (2) and (3) of this subsection, provided that a commercial loan or extension of credit made to a member of a partnership, joint venture or association for the purpose of purchasing an interest in the partnership, joint venture or association, is attributed to the partnership, joint venture or association.

(C) Guarantors and Accommodation Parties. The derivative obligation of a drawer, endorser, or guarantor of a commercial loan or extension of credit, including a contingent obligation to purchase collateral that secures a commercial loan, is aggregated with other direct commercial loans or extensions of credit to such a drawer, endorser, or guarantor.

(j) Commercial Loans to One Borrower Limit. The total aggregate dollar amount of commercial loans by a credit union to any borrower at one time may not exceed the greater of fifteen (15) percent of the credit union's net worth or $100,000, plus an additional ten (10) percent of the credit union's net worth if the amount that exceeds the credit union's fifteen (15) percent general limit is fully secured at all times with a perfected security interest in readily marketable collateral. Any insured or guaranteed portion of a commercial loan made through a program in which a federal or state agency (or its political subdivision) insures repayment, guarantees repayment, or provides an advance commitment to purchase the commercial loan in full, is excluded from this limit.

(k) Finance Code Limitation. In addition to the other limitations of this section, a credit union may not make a loan to a member or a business interest of the member if the loan would cause the aggregate amount of loans to the member and the member's business interests to exceed an amount equal to 10 percent of the credit union's total assets as provided by TEX. FIN. CODE §124.003.

(l) Commercial Loans Regarding Federal or State Guaranteed Loan Programs. A credit union may follow the loan requirements and limits of a guaranteed loan program for loans that are part of a loan program in which a federal or state agency (or its political subdivision) insures repayment, guarantees repayment, or provides an advance commitment to purchase the loan in full if that program has requirements that are less restrictive than those required by this section.

(m) Transitional Provisions.

(1) Waivers. Upon the effective date of this section, any waiver approved by the Department concerning a credit union's commercial lending activity is rendered moot, except for waivers granted for the commercial loan to one borrower limit. Borrowing relationships granted by waivers will be grandfathered however, the debt associated with those relationships may not be increased.

(2) Administrative Constraints. Limitations or other conditions imposed on a credit union in any written directive from the Department are unaffected by the adoption of this section. As of the effective date of this section, all such limitations or other conditions remain in place until such time as they are modified by the Department.

History

• Source Note: The provisions of this §91.709 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective February 23, 2003, 28 TexReg 1377; amended to be effective March 6, 2005, 30 TexReg 1065; amended to be effective November 24, 2016, 41 TexReg 9099; amended to be effective November 5, 2018, 43 TexReg 7343; amended to be effective August 27, 2026, 51 TexReg 5532.

7 Tex. Admin. Code § 91.710 Overdraft Protection

(a) Written Policy. A credit union may advance money to a member to cover an account deficit without having a credit application from the borrower on file if the credit union has written policies and procedures adequate to address the credit, operational, and other risks associated with this type of program. The policy must:

(1) Set a cap on the total dollar amount of all overdrafts the credit union will honor consistent with the credit union's ability to absorb losses;

(2) Establish a time limit no later than 60 calendar days from the date first overdrawn to charge off the overdraft balance if the member does not repay the overdraft balance, or does not obtain an approved loan from the credit union;

(3) Limit the dollar amount of overdrafts the credit union will honor per account;

(4) Institute prudent practices related to suspension of overdraft protection services; and

(5) Establish the fee, if any, the credit union will charge members for honoring overdrafts.

(b) Safety and Soundness Requirements. A credit union must manage the risks associated with an overdraft protection program in accordance with safe and sound credit union principles. Accordingly, a credit union must establish and maintain effective risk management and control processes over its program. Such processes include appropriate recognition, treatment, and financial reporting, in accordance with generally accepted accounting principles, of income, expenses, assets, liabilities, and all expected and unexpected losses associated with the program. A credit union also shall assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its overdraft protection program.

(c) Communications with Member. A credit union shall carefully review its overdraft protection program to ensure that marketing and other communications concerning the program do not mislead members to believe that the program is a traditional line of credit or that payment of overdrafts is guaranteed. In addition, a credit union shall take reasonable precautions to make sure members are not misled about the correct amount of their account balance, or the costs or scope of the overdraft protection offered, and that it does not encourage irresponsible member financial behavior that potentially may increase risk to the credit union.

(d) Other Requirements. A credit union shall also comply with the overdraft service requirements contained within Part 205 of the Federal Reserve System Rules and Regulations (Regulation E).

History

• Source Note: The provisions of this §91.710 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6267; amended to be effective November 9, 2006, 31 TexReg 9019; amended to be effective November 7, 2010, 35 TexReg 9720.

7 Tex. Admin. Code § 91.711 Purchase and Sale of Member Loans

(a) Policies. A credit union may sell or purchase all or part of a participation interest in a member loan or pool of member loans in accordance with written policies adopted by the board of directors that address the following matters:

(1) The type of entities to which the credit union is authorized to sell participation interests in member loans;

(2) The types of member loans in which the credit union may purchase or sell a participation interest and the types of participation interests which may be purchased or sold;

(3) The underwriting standards to be applied in the purchase of participation interests in member loans;

(4) Limitations on the aggregate principal amount of participation interest in member loans that the credit union may purchase from a single entity as necessary to diversify risk, and limitations on the aggregate amount the credit union may purchase from all entities;

(5) Provision for the identification and reporting of member loans in which participation interests are sold or purchased; and

(6) Requirements for providing and securing in a timely manner adequate credit and other information needed to make an independent judgment.

(b) Purchase and Sale Agreements. The sale or purchase of a member loan or participation interest must be based on a written agreement between the parties. Agreements to purchase or sell a member loan or a participation interest shall, at a minimum:

(1) Identify the particular member loan(s) to be covered by the agreement;

(2) Provide for the transfer of credit and other borrower information on a timely and continuing basis;

(3) Provide for sharing, dividing, or assigning collateral;

(4) Identify the nature of the participation interest(s) sold or purchased;

(5) Set forth the rights and obligations of the parties and the terms and conditions of the sale; and

(6) Contain any terms necessary for the appropriate administration of the member loan and the protection of the participation interests of the credit union.

(c) Member Loan Servicing. A credit union may sell to or purchase from any participant the servicing of any member loan in which it owns a participation interest. If a party other than the credit union will be servicing the member loan(s), the credit union shall ensure that all contracts require the servicer to administer the member loan(s) in accordance with prudent industry standards, and provide for a possible change of the servicer if performance is inadequate.

(d) Definition. For purposes of this section, a member loan means a loan or extension of credit where the borrower(s) is a member of the credit union or a member of another participating credit union.

(e) Independent Credit Judgment. A credit union that purchases a participation interest in a member loan has the responsibility of conducting member loan underwriting procedures on the member loan to determine that it complies with the policies of the credit union and meets the credit union's credit standards. The credit union shall make a judgment on the creditworthiness of the borrower that is independent of the originating lender and any intermediary seller prior to the purchase of the participation interest and prior to any servicing action that alters the terms of the original agreement. This credit judgment may not be delegated to any person that is not an employee or independent agent of the credit union. A credit union that purchases a participation interest in a member loan may use information, such as appraisals or collateral inspections, furnished by the originating lender, or any intermediary seller; however, the purchasing credit union shall independently evaluate such information when exercising its independent credit judgment. The independent credit judgment shall be documented by a credit analysis that considers the underwriting, documentation, and compliance standards that would be required by a prudent lender and shall include an evaluation of the capacity and reliability of the servicer.

(f) Other Requirements. A credit union purchasing a participation interest in a member loan from a lender that is not a credit union insured by the National Credit Union Share Insurance Fund, must also comply with applicable requirements contained within Part 741 of the National Credit Union Administration Rules and Regulations.

(g) Sales with Recourse. When a member loan or participation interest is sold with recourse, it shall be considered, to the extent of the recourse, an extension of credit by the purchaser to the seller, as well as an extension of credit from the seller to the borrower(s).

History

• Source Note: The provisions of this §91.711 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6268; amended to be effective November 9, 2006, 31 TexReg 9019; amended to be effective November 7, 2010, 35 TexReg 9720.

7 Tex. Admin. Code § 91.712 Plastic Cards

(a) Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Card Activation - process of sending new plastic cards from the issuer to the legitimate cardholder in an "inactive" mode and making the card usable. Upon receiving the card, the legitimate cardholder must call or log on to the issuer/processor's website and go through a member verification process before the card is "activated".

(2) Card Security Code - a set of unique numbers encoded on the magnetic strip of plastic cards used to combat counterfeit fraud.

(3) Neural Network - a computer program that monitors usage patterns of an account and typical fraud patterns. The program analyzes activity to determine fraud risk scores to detect potentially fraudulent activity.

(4) Plastic Cards - includes credit cards, debit cards, automated teller machine (ATM) or specific network cards; and predetermined stored value and smart cards with micro-processor chips.

(b) Credit cards. A credit union may issue credit cards in accordance with the credit union's written policies, which shall include at a minimum:

(1) Credit policies to set individual limits for credit card accounts:

(2) A process for reviewing each member's payment and/or credit history periodically for the purpose of determining risk; and

(3) The credit underwriting standards for each type of card program offered.

(c) Program Review.

(1) A credit union shall review, on at least an annual basis, its plastic card program with particular emphasis on:

(A) The amount of losses caused by theft and fraud;

(B) The loss prevention measures (and their adequacy) currently employed by the credit union;

(C) The availability and possible implementation of other loss prevention measures such as card activation, card security codes, neural networks, and other evolving technology; and

(D) A cost benefit analysis of supplemental insurance coverage for theft and fraud related losses.

(2) The review shall be documented in writing, with any approved changes to the plastic card program being entered into the minutes of the board meeting.

History

• Source Note: The provisions of this §91.712 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6268; amended to be effective November 9, 2006, 31 TexReg 9020; amended to be effective November 5, 2018, 43 TexReg 7343.

7 Tex. Admin. Code § 91.713 Indirect Lending

(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.

History

• Source Note: The provisions of this §91.713 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6268; amended to be effective November 12, 2006, 31 TexReg 9020; amended to be effective November 7, 2010, 35 TexReg 9721.

7 Tex. Admin. Code § 91.714 Leasing

(a) Definitions. For the purposes of this section:

(1) The term net lease means a lease under which the credit union will not, directly or indirectly, provide or be obligated to provide for:

(A) the servicing, repair or maintenance of leased property during the lease term;

(B) the purchasing of parts and accessories for the leased property, except that improvements and additions to the leased property may be leased to the lessee upon its request in accordance with the full-payout requirements of subsection (c)(2)(A) of this section;

(C) the loan of replacement or substitute property while the leased property is being serviced;

(D) the purchasing of insurance for the lessee, except where the lessee has failed to discharge a contractual obligation to purchase or maintain insurance; or

(E) the renewal of any license, registration, or filing for the property unless such action by the credit union is necessary to protect its interest as an owner or financier of the property.

(2) The term full-payout lease means a lease transaction in which any unguaranteed portion of the estimated residual value relied on by the credit union to yield the return of its full investment in the lease property, plus the estimated cost of financing the property over the term of the lease, does not exceed 25% of the original cost of the property to the lessor. In general, a lease will qualify as a full payout lease if the scheduled payments provide at least 75% of the principal and interest payments that a lessor would receive if the finance lease were structured as a market-rate loan.

(3) The term realization of investment means that a credit union that enters into a lease financing transaction must reasonably expect to realize the return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease from:

(A) Rentals; and

(B) The estimated residual value of the property at the expiration of the term of the lease.

(b) Permissible activities. Subject to the limitations of this section and §91.401 of this title (relating to Credit Union Ownership of Property), a credit union may engage in leasing activities. These activities include obtaining an assignment of a lessor's interest in a lease of such property and incurring obligations incidental to its position as the legal or beneficial owner and lessor of the leased property.

(c) Finance Leasing.

(1) A credit union may conduct leasing activities that are functional equivalent of loans made under those leases. Such financing leases are subject to the same restrictions that would be applicable to a loan.

(2) To qualify as the functional equivalent of a loan:

(A) The lease must be a net, full-payout lease representing a non-cancelable obligation of the lessee, notwithstanding the possible early termination of the lease;

(B) The portion of the estimated residual value of the property relied upon by the lessor to satisfy the requirements of a full-payout lease must be reasonable in light of the nature of the leased property and all relevant circumstances so that realization of the lessor's full investment plus the cost of financing the property depends primarily on the creditworthiness of the lessee, and not on the residual market value of the leased property; and

(C) At the termination of the financing lease, either by expiration or default, property acquired must be liquidated or released on a net basis as soon as practicable. Any property held in anticipation of releasing must be reevaluated and recorded at the lower of fair market value or the value carried on the credit union's books.

(d) General Leasing. A credit union may invest in tangible personal property, including vehicles, manufactured homes, equipment, or furniture, for the purpose of leasing that property. In contrast to financing leases, lease investments made under this authority need not be the functional equivalent of loans.

(e) Leasing Salvage Powers. If a credit union believes that there has been an unanticipated change in conditions that threatens its financial position by significantly increasing its exposure to loss, it may:

(1) As the owner and lessor, take reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease;

(2) As the assignee of a lessor's interest in a lease, become the owner and lessor of the leased property pursuant to its contractual right, or take any reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease; or

(3) Include any provision in a lease, or make any additional agreements, to protect its financial position or investment in the circumstances set forth in paragraphs (1) and (2) of this subsection.

(f) Written Policies. A credit union engaged in lease underwriting must adopt written policies and develop procedures that reflect lease practices that control risk and comply with applicable laws. Any leasing activity must be consistent with the lending policies and underwriting requirements in §91.701 of this title (relating to Lending Powers). Any credit union engaged in making or buying leases also must adopt written polices and procedures that address the additional risks associated with leasing.

(g) Insurance Requirements. A credit union must maintain a contingent liability insurance policy with an endorsement for leasing or be named as the co-insured if the credit union does not own the leased property. Contingent liability insurance protects the credit union if it is sued as the owner of the leased property. A credit union must use an insurance company with a nationally recognized industry rating of at least a B+. Credit union members must still carry the normal liability and property insurance on the leased property and the credit union must be named as an additional insured on the liability insurance policy and as the loss payee on the property insurance policy.

(h) Holding Period. At the expiration of the lease (including any renewals or extensions with the same lessee), or in the event of a default on a lease agreement prior to the expiration of the lease term, a credit union shall either liquidate the off-lease property or re-lease it under a conforming lease as soon as practicable. The credit union must value off-lease property at the lower of current fair market value or book value promptly after the property becomes off-lease property.

History

• Source Note: The provisions of this §91.714 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective November 12, 2006, 31 TexReg 9021; amended to be effective August 27, 2026, 51 TexReg 5532.

7 Tex. Admin. Code § 91.715 Exceptions to the General Lending Policies

(a) Credit unions may provide for the consideration of loan requests from creditworthy members whose credit needs do not fit within the credit union's general lending policies. A credit union may provide for prudently underwritten exceptions to its lending policies. However, the Board is responsible for establishing written standards for the review and approval of exception loans.

(b) Each credit union establishing exceptions to its general lending policies shall establish an appropriate internal process for the review and approval of loans that do not conform to its own internal policy standards. The approval of any such loan shall also be supported by a written justification that clearly sets forth all of the relevant credit factors that support the underwriting decision. The justification and approval documents for such loans will be maintained as a part of the permanent loan file. Each credit union shall monitor compliance with its lending policies and individually report exception loans of a significant size to its board of directors.

(c) Exception loans shall be identified in the credit union's records and their aggregate amount reported at least annually to the board of directors. The aggregate amount of all such loans shall not exceed 10 percent of the credit union's net worth.

History

• Source Note: The provisions of this §91.715 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6269; amended to be effective November 12, 2006, 31 TexReg 9021.

7 Tex. Admin. Code § 91.716 Prohibited Fees

A credit union shall not make any loan or extend any credit if, either directly or indirectly, any commission, fee, or other compensation from any person or entity other than the credit union is to be received by the credit union's directors, committee members, senior management employees, loan officers, or any immediate family members of such individuals, in connection with underwriting, insuring, servicing, or collecting the loan or extension of credit.

History

• Source Note: The provisions of this §91.716 adopted to be effective August 9, 1999, 24 TexReg 6023.

7 Tex. Admin. Code § 91.717 More Stringent Restrictions

The Commissioner may impose more stringent restrictions on a credit union's loans if the Commissioner determines that such restrictions are necessary to protect the safety and soundness of the credit union.

History

• Source Note: The provisions of this §91.717 adopted to be effective August 9, 1999, 24 TexReg 6023.

7 Tex. Admin. Code § 91.718 Charging Off or Setting Up Reserves

(a) The commissioner, after a determination of value in accordance with generally accepted accounting principles, may order that assets in the aggregate, to the extent that such assets have depreciated in value, or to the extent the value of such assets, including loans, are overstated in value for any reason, be charged off, or that a special reserve or reserves equal to such depreciation or overstated value be established.

(b) A credit union's financial statements shall provide for full and fair disclosure of all assets, liabilities, and members' equity, including such valuation allowance accounts as may be necessary to present fairly the financial position; and all income and expenses necessary to present fairly the results of operations for the period concerned.

(c) The Board of directors is responsible for ensuring that the credit union has controls in place to consistently determine the allowance for loan and lease losses (ALLL) in accordance with its written polices, generally accepted accounting principles, and relevant supervisory guidance. Policies shall be appropriately tailored to the size and complexity of the credit union and its loan and lease portfolio. As a minimum, a credit union shall develop, maintain, and document the methodology used to determine the amounts of an appropriate ALLL and provisions for loan and lease losses. Adjustments to the ALLL shall be made prior to the end of each calendar quarter in order to accurately reflect the loss exposure on the quarterly call reports.

History

• Source Note: The provisions of this §91.718 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6269; amended to be effective November 12, 2006, 31 TexReg 9021.

7 Tex. Admin. Code § 91.719 Loans to Officials and Senior Management Employees

(a) Prohibition on Preferential Rates, Terms, and Conditions. The rates, terms, conditions, and availability of any loan or other extension of credit made to, or endorsed or guaranteed by, a director, senior management employee, member of the credit committee, or an immediate family member of any such individual shall not be more favorable than the rates, terms, conditions, and availability of comparable loans or credit to other credit union members.

(b) Approval of Governing Board. Before making a loan, extending credit, or becoming contractually liable to make a loan or extend credit to a director, senior management employee, member of the credit committee, or an immediate family member of such individual, the board of directors must approve the transaction if the loan or the extension of credit or aggregate of outstanding loans and extensions of credit to any one person, the person's business interests, and the members of the person's immediate family is greater than 15% of the credit union's net worth. A loan fully secured by shares in the credit union or deposits in other financial institutions shall not be subject to, or included in, the aggregate amounts included in this section.

(c) Definition. For purposes of this section, senior management employees shall include the chief executive officer, any assistant chief executive officers (e.g. vice presidents and above), and the chief financial officer; and immediate family members shall include a person's spouse or any other person living in the same household.

(d) Aggregate Limit on Insider Loans. The aggregate of all outstanding loans or extensions of credit made to, or endorsed or guaranteed by, all directors, credit committee members, senior management employees, and immediate family members of all such individuals, shall not exceed 20% of the credit union's total assets. The requirements described in this subsection shall apply unless waived in writing by the commissioner for good cause shown.

(e) Reports to Governing Board. At least annually, the president shall make a report to the board of directors on the outstanding indebtedness of all directors, credit committee members, senior management employees, and immediate family members of such individuals. The Board's review shall be included as part of the minutes of the meeting at which the report was presented. The report required by this section shall include the following information:

(1) The amount of each indebtedness; and

(2) A description of the terms and conditions (including the interest rate, the original amount and date, maturity date, payment terms, security, if any, and any other unusual term or condition) of each extension of credit.

(f) Governing Board Option. At the discretion of the Board, the reporting requirement of subsection (e) of this section may be waived for any individual if the aggregate amount of all outstanding loans and extensions of credit to that person, the person's business interests, and the members of the person's immediate family do not exceed the greater of $25,000 or one-quarter of one percent (.25%) of the credit union's net worth.

History

• Source Note: The provisions of this §91.719 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6269; amended to be effective March 14, 2004, 29 TexReg 2637; amended to be effective November 12, 2006, 31 TexReg 9022; amended to be effective November 7, 2010, 35 TexReg 9721.

7 Tex. Admin. Code § 91.720 Small-Dollar, Short-Term Credit

(a) General. Credit unions are encouraged to offer small-dollar credit products that are affordable, yet safe and sound, and consistent with applicable laws. The goal in offering these small-dollar credit products should be to help members avoid, or transition away from, reliance on high-cost debt. To accomplish this goal, credit unions should offer products with reasonable interest rates, low fees, and payments that reduce the principal balance of the loan or extension of credit.

(b) Definition. For purposes of this section, small-dollar, short term credit product is defined as a low denomination loan or extension of credit having a term of 12 months or less, where the amount financed does not exceed $2,000. Each credit union is responsible for establishing appropriate dollar limits and terms based upon its size and sophistication of operations, and its net worth.

(c) Limitation. Accessibility and expediency are important factors for many members with emergency or other short-term needs. Therefore, small-dollar credit products must balance the need for quick availability of funds with the fundamentals of responsible lending. Sound underwriting criteria should focus on a member's history with the credit union and ability to repay a loan within an acceptable timeframe. Given the small dollar amounts of each individual credit request, documenting the member's ability to repay can be streamlined and may need to include only basic information, such as proof of recurring income. The aggregate total of streamlined underwritten small-dollar credit products outstanding, however, shall not exceed 20% of the credit union's net worth.

(d) Fees. A credit union may require a member to pay reasonable expenses and fees incurred in connection with making or closing a loan. With respect to expenses and fees being assessed on small-dollar, short-term credit products, the expenses and fees are presumed to be reasonable if the aggregate total is $20 or less. In addition, if the credit union refinances a small-dollar, short-term credit product, it may charge such expenses and fees only once in a 180-day period. Credit unions may also charge a late fee as permitted by Finance Code §124.153.

(e) Payments. Credit unions should structure payment programs in a manner that reduces the principal owed. For closed-end products, loans should be structured to provide for affordable and amortizing payments. Lines of credit should require minimum payments that pay off principal. Excessive renewals or the prolonged failure to reduce the outstanding balance are signs that the product is not meeting the member's credit needs and will be considered an unsound practice.

(f) Required Savings. Credit unions may structure small-dollar credit programs to include a savings component. The funds in this account may also serve as a pledge against the loan or extension of credit.

History

• Source Note: The provisions of this §91.720 adopted to be effective July 11, 2010, 35 TexReg 5807; amended to be effective July 3, 2022, 47 TexReg 3663.

Subchapter H INVESTMENTS

7 Tex. Admin. Code § 91.801 Investments in Credit Union Service Organizations

(a) Definitions. As used in this section:

(1) A credit union service organization (CUSO) is an organization whose primary purpose is to strengthen or advance the credit union movement, serve or otherwise assist credit unions or their operations, and provide products or services authorized by this section to credit unions and their members.

(2) An investment in a CUSO includes the following:

(A) an investment in the stock, bonds, debentures, or other equity ownership interest of the CUSO; and

(B) loans granted by a third party to the CUSO which are guaranteed in writing by the credit union.

(3) A financing program is a plan, approved by the credit union's board of directors, that provides for multiple extensions of credit to a CUSO during the regular course of business.

(b) Authority. A credit union by itself, or with other parties, may organize, invest in or make loans to a CUSO only if it is structured and operated in a manner that demonstrates to the public that it maintains a legal existence separate from the credit union. A credit union and a CUSO must operate so that:

(1) their respective business transactions, accounts, and records are not intermingled;

(2) each observes the formalities of its separate corporate or other organizational procedures;

(3) each is adequately capitalized as a separate unit in light of normal obligations reasonably foreseeable in a business of its size and character;

(4) each is held out to the public as a separate and distinct enterprise;

(5) all transactions between them are at arm's length and consistent with sound business practices as to each of them;

(6) unless the credit union has guaranteed a loan to the CUSO, all borrowings by the CUSO indicate that the credit union is not liable; and

(7) their respective activities are in compliance with any licensing or registration requirements imposed by applicable federal or state law.

(c) Notice; Authorization; Supplemental Information; Written Objection.

(1) Required Notice. Before committing to any aggregate investment or loan to a CUSO in an amount greater than 15% of the credit union's net worth, a credit union shall provide at least thirty days' written notice to the commissioner of its intent to make or increase its investment in a CUSO, or make a loan to or enter into a financing program with a CUSO. Subject to the net worth threshold, a credit union shall also provide notice of its intent to engage in additional or substitute activities in an existing CUSO or its intent to materially alter an existing loan or financing program with a CUSO. The written notice shall include as applicable:

(A) a description of the organizational and legal structure of the CUSO and the proposed method of capitalizing the organization;

(B) a description of the loan, including the purpose, terms, guarantors, and collateral;

(C) a description of the products or services to be offered by the CUSO and the customer base it will serve;

(D) an explanation of how the CUSO will primarily serve credit unions or members of credit unions, or how the activities of the CUSO could be conducted directly by a credit union or are incidental to the conduct of the business of a credit union; and

(E) a representation that the activities will be conducted in accordance with applicable law, the requirements of this section, and in a manner that will limit exposure of the credit union to no more than the loss of funds invested in, or loaned to, the CUSO.

(2) Authorization to Proceed. If the commissioner issues a non-objection letter, the credit union may proceed with the proposed transaction when it receives the letter. Otherwise, a credit union may proceed with the proposed transaction or the CUSO may engage in the new activities 30 days after the department receives the required notice, unless the commissioner takes one of the following actions before the expiration of that time period:

(A) the commissioner notifies the credit union that it must file additional information supplementing the required notice. If a credit union is required to file additional information, it may proceed with the proposed transaction or the CUSO may engage in the new activities 30 days after the department receives the requested information, unless the commissioner issues a written objection before the expiration of that time period; or

(B) the commissioner notifies the credit union of an objection to the proposed transaction or new activity.

(3) Request for Supplemental Information. A credit union shall provide any additional information reasonably requested by the commissioner.

(4) Action on a Notice. The commissioner shall object to a proposed transaction or activity if the commissioner finds that:

(A) there is inadequate capital to support the proposed transaction or activity;

(B) the proposed transaction or activity does not comply with this section;

(C) the credit union's concentrated exposures to the CUSO give rise to safety and soundness issues; or

(D) the credit union has regulatory or operational deficiencies which would materially affect its ability to properly and effectively manage and monitor the risk associated with the CUSO.

(5) Written Objection. If the commissioner determines that an objection should be interposed, the commissioner will notify the credit union in writing of the determination and the actions the credit union must take to proceed with the proposed transaction or activity. A credit union receiving notification of an objection may appeal the commissioner's finding to the commission in the manner provided by Chapter 93, Subchapter C of this title (relating to Appeals of Preliminary Determinations on Applications).

(d) Limitations. The board of directors of a credit union that organizes, invests in, or lends to any CUSO shall adopt and maintain written policies, which establish appropriate limits and standards for this type of investment including the maximum amount relative to the credit union's net worth, that will be invested in or loaned to any one CUSO. The maximum amount invested in any one CUSO may not exceed the statutory limit established by Texas Finance Code §124.352(b). Total investments in and total loans to CUSOs shall not, in the aggregate, exceed 10% of the total unconsolidated assets of the credit union, unless the credit union receives the prior written approval of the commissioner. The amount of loans to CUSOs, cosigned, endorsed, or otherwise guaranteed by the credit union, shall be included in the aggregate for the purpose of determining compliance with the limitations of this section.

(e) Prohibitions. No credit union may invest in or make loans to a CUSO:

(1) if any officer, director, committee member, or employee of the credit union or any member of the immediate family of such persons owns or makes an investment in or has made or makes a loan to the CUSO;

(2) unless the organization is structured as a corporation, limited liability company, registered limited liability partnership, or limited partnership;

(3) unless the credit union has obtained written legal advice that the CUSO has been designed in a manner that will limit the credit union's potential exposure to no more than the amount of funds invested in or loaned to the CUSO;

(4) if the CUSO engages in any revenue-producing activity other than the performance of services for credit unions or members of credit unions, and such activity equals or exceeds one half (1/2) of the CUSO's total revenue;

(5) unless prior to investing in or making a loan to a CUSO the credit union obtains a written agreement which requires the CUSO to follow GAAP, render financial statements to the credit union at least quarterly, and provide the department, or its representatives, complete access to the CUSO's books and records at reasonable times without undue interference with the business affairs of the CUSO;

(6) unless the CUSO is adequately bonded or insured for its operations;

(7) unless the CUSO obtains an annual opinion audit, by a licensed Certified Public Accountant, on its financial statements in accordance with generally accepted auditing standards, unless the investment in or loan to the CUSO by any one or more credit unions does not exceed $100,000, or the CUSO is wholly owned and the CUSO is included in the annual consolidated financial statement audit of its parent credit union; or

(8) if any director of the credit union is an employee of the CUSO, or anticipates becoming an employee of the CUSO upon its formation.

(f) Permissible activities and services. The commissioner may, based upon supervisory, legal, or safety and soundness reasons, limit any CUSO activities or services, or refuse to permit any CUSO activities or services. Otherwise, a credit union may invest in or loan to a CUSO that is engaged in providing products and services that include, but are not limited to:

(1) operational services including credit and debit card services, cash services, wire transfers, audits, ATM and other EFT services, share draft and check processing and related services, shared service center operations, electronic data processing, development, sale, lease, or servicing of computer hardware and software, alternative methods of financing and related services, other lending related services, and other services or activity, including consulting, related to the routine daily operations of credit unions;

(2) financial services including financial planning and counseling, securities brokerage and dealer activities, estate planning, tax services, insurance services, administering retirement, or deferred compensation and other employee or business benefit plans;

(3) internet-based or related services including sale and delivery of products to credit unions or members of credit unions;

(4) Property management services; or

(5) any other product, service or activity deemed economically beneficial or attractive to credit unions or credit union members if approved, in writing, by the commissioner.

(g) Compensation. A credit union director, senior management employee, or committee member or immediate family member of any such person may not receive any salary, commission, or other income or compensation, either directly or indirectly, from a CUSO affiliated with their credit union, unless received in accordance with a written agreement between the CUSO and the credit union. The agreement shall describe the services to be performed, the rate of compensation (or a description of the method of determining the amount of compensation) and any other provisions deemed desirable by the CUSO and the credit union. The agreement, and any amendments, must be approved by the board of directors of the credit union and the board of directors (or equivalent governing body) of the CUSO prior to any performance of service or payment and annually thereafter. For purposes of this section, senior management employee shall include the chief executive officer, any assistant chief executive officers (vice presidents and above), and the chief financial officer. Immediate family shall include a person's spouse or any other person living in the same household.

(h) Examination fee. If the commissioner requests a CUSO to make its books and records available for inspection and examination, the CUSO shall pay a supplemental examination fee as prescribed in §97.113(e) of this title (relating to Supplemental examination fees). The commissioner may waive the supplemental examination fee or reduce the fee.

(i) Exception. A credit union which has a net worth ratio greater than six percent (6%) and is deemed adequately capitalized by its insuring organization may make an investment in or make loans to a CUSO that is not limited by the restriction set forth in subsection (e)(4) of this section, provided the activities of the CUSO are limited to activities which could be conducted directly by a credit union or are incidental to the conduct of the business of a credit union. Notwithstanding this exception, all other provisions of the act and this chapter applicable to a CUSO apply. In the event a credit union's net worth declines below the required thresholds, the credit union may not renew, extend the maturity of, or restructure an existing loan, advance additional funds, or increase the investment in the CUSO without the prior written approval of the commissioner.

(j) Change in Valuation. If the limitations established by this section are reached or exceeded solely because of the profitability of the CUSO and the related GAAP valuation of the investment under the equity method, divestiture is not required. A credit union may continue to invest up to the limitation without regard to the increase in the GAAP valuation resulting from a CUSO's profitability.

History

• Source Note: The provisions of this §91.801 adopted to be effective March 8, 1984, 9 TexReg 1155; amended to be effective August 7, 1984, 9 TexReg 4028; amended to be effective March 8, 1994, 19 TexReg 1327; amended to be effective May 13, 1999, 24 TexReg 3473; amended to be effective August 14, 2000, 25 TexReg 7635; amended to be effective January 7, 2004, 29 TexReg 83; amended to be effective July 11, 2004, 29 TexReg 6630; amended to be effective July 10, 2005, 30 TexReg 3863; amended to be effective November 11, 2007, 32 TexReg 7921; amended to be effective March 4, 2009, 34 TexReg 1400; amended to be effective March 8, 2012,37TexReg 1505; amended to be effective June 18, 2012, 37 TexReg 4410; amended to be effective November 24, 2019, 44 TexReg 7039.

7 Tex. Admin. Code § 91.802 Other Investments

(a) Definitions. Unless the context clearly indicates otherwise, these words and terms, when used in this section, shall have the following meanings. Any technical words, terms, or phrases that are not specifically defined in this section shall be construed in a manner consistent with the Texas Code of Construction Act (Tex. Govt. Code §311.001).

(1) Asset-backed security--A bond, note, or other obligation issued by a financial institution, trust, insurance company, or other corporation secured by either a pool of loans, extensions of credit which are unsecured or secured by personal property, or a pool of personal property leases.

(2) Bailment for hire contract--A contract whereby a third party, bank, or other financial institution, for a fee, agrees to exercise ordinary care in protecting the securities held in safekeeping for its customers; also known as a custodial agreement.

(3) Bankers' acceptance--A time draft that is drawn on and accepted by a bank, and that represents an irrevocable obligation of the bank.

(4) Borrowing repurchase transaction--A transaction whereby a credit union either:

(A) agrees to sell a security to a counterparty and to repurchase the same or any identical security from that counterparty at a future date and at a specified price; or

(B) borrows funds from a counterparty and collateralizes the loan with securities owned by the credit union.

(5) Cash forward agreement--An agreement to purchase or sell a security with delivery and acceptance being mandatory and at a future date in excess of 30 days from the trade date.

(6) Counterparty--An entity with which a credit union conducts investment-related activities in such a manner as to create a credit risk exposure for the credit union to the entity.

(7) Eurodollar deposit--A deposit denominated in U. S. dollars in a foreign branch of a United States financial institution.

(8) Federal funds transaction--A short-term or open-ended transfer of funds to a financial institution.

(9) Financial institution--A bank or savings association, the deposits of which are insured by the Federal Deposit Insurance Corporation, a federal or state-chartered credit union, or the National Credit Union Central Liquidity Facility.

(10) Investment--Any security, obligation, account, deposit, or other item authorized for investment by the Act or this section. For the purposes of this section, the term does not include an investment authorized by §124.351(a)(1) of the Texas Finance Code.

(11) Investment repurchase transaction--A transaction in which a credit union agrees to purchase a security from a counterparty and to resell the same or any identical security to that counterparty at a later date and at a specified price.

(12) Mortgage related security--A security which meets the definition of mortgage related security in United States Code Annotated, Title 15, §78c(a)(41).

(13) Nationally recognized statistical rating organization (NRSRO)--A rating organization such as Standard and Poor's, Moody's, or Fitch which is recognized by the Securities and Exchange Commission

(14) Ordinary care--The degree of care, which an ordinarily prudent and competent person engaged in the same line of business or endeavor should exercise under similar circumstances.

(15) Security--An investment that has a CUSIP number or that is represented by a share, participation, or other interest in property or in an enterprise of the issuer or an obligation of the issuer that:

(A) either is represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer;

(B) is of a type commonly traded on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or traded as a medium for investment; and

(C) either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.

(16) Settlement date--The date originally agreed to by a credit union and a vendor for settlement of the purchase or sale of a security.

(17) Small business-related securities--Is a security as defined in Section 3(a)(53) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(53). This definition does not include Small Business Administration securities permissible under section 107(7) of the Federal Credit Union Act.

(18) Trade date--The date a credit union originally agrees, whether orally or in writing, to enter into the purchase or sale of a security.

(19) Yankee dollar deposit--A deposit in a United States branch of a foreign bank, the deposits of which are insured by the Federal Deposit Insurance Corporation, that is licensed to do business in the state in which it is located, or a deposit in a state chartered, foreign controlled bank.

(b) Policy. A credit union may invest funds not used in loans to members, subject to the conditions and limitations of the written investment policy of the board of directors. The investment policy may be part of a broader, asset-liability management policy. The board of directors must review and approve the investment policy at least annually to ensure that the policies adequately address the following issues:

(1) The types of investments that are authorized to be purchased.

(2) The aggregate limit on the amount that may be invested in any single investment or investment type, set as a percentage of net worth. This requirement does not apply to certificates of deposit or other accounts issued by a financial institution that are fully insured (including accumulated interest) by either the Federal Deposit Insurance Corporation or the National Credit Union Administration.

(3) The delegation of investment authority to the credit union's officials or employees, including the person or persons authorized to purchase or sell investments, and a limit of the investment authority for each individual or committee.

(4) The authorized broker-dealers or other third-parties that may be used to purchase or sell investments, and the internal process for assessing the credentials and previous record of the individual or firm.

(5) The risk management framework given the level of risk in the investment portfolio. This will include specific methods for evaluating, monitoring, and managing the credit risk, interest-rate risk, and liquidity risk from the investment activities.

(6) The authorized third-party safekeeping agents.

(7) If the credit union operates a trading account, the policy shall specify the persons authorized to engage in trading account activities, trading account size limits, stop loss and sale provisions, time limits on inventoried trading account investments, and internal controls that specify the segregation of risk-taking and monitoring activities related to trading account activities.

(8) The procedure for reporting to the board of directors investments and investment activities that become noncompliant with the credit union's investment policy subsequent to the initial purchase.

(c) Authorized activities.

(1) General authority. A credit union may contract for the purchase or sale of a security provided that delivery of the security is by regular-way settlement. Regular-way settlement means delivery of a security from a seller to a buyer within the time frame that the securities industry has established for that type of security. All purchases and sales of investments must be delivery versus payment (i.e., payment for an investment must occur simultaneously with its delivery).

(2) Cash forward agreements. A credit union may enter into a cash forward agreement to purchase or sell a security, provided that:

(A) the period from the trade date to the settlement date does not exceed 90 days;

(B) if the credit union is the purchaser, it has written cash flow projections evidencing its ability to purchase the security;

(C) if the credit union is the seller, it owns the security on the trade date; and

(D) the cash forward agreement is settled on a cash basis at the settlement date.

(3) Investment repurchase transactions. A credit union may enter an investment repurchase transaction provided:

(A) the purchase price of the security obtained in the transaction is at or below the market price;

(B) the repurchase securities are authorized investments under Texas Finance Code §124.351 or this section;

(C) the credit union has entered into signed contracts with all approved counterparties;

(D) the counterparty is rated in one of the three highest long-term or counterparty rating categories by a NRSRO; and

(E) the credit union receives a daily assessment of the market value of the repurchase securities, including accrued interest, and maintains adequate margin that reflects a risk assessment of the repurchase securities and the term of the transaction.

(4) Borrowing repurchase transactions. A credit union may enter into a borrowing repurchase transaction, which is a borrowing transaction subject to §123.201 of the Texas Finance Code, provided:

(A) any investments purchased by the credit union with either borrowed funds or cash obtained by the credit union in the transaction are authorized investments under Texas Finance Code §124.351 and this section;

(B) the credit union has entered into signed contracts with all approved counterparties; and

(C) investments referred to in subparagraph (A) of this paragraph mature no later than the maturity date of the borrowing repurchase transaction; and

(D) the counterparty is rated in one of the three highest long-term or counterparty rating categories by a NRSRO.

(5) Federal funds. A credit union may enter into a federal funds transaction with a financial institution, provided that the interest or other consideration received from the financial institution is at the market rate for federal funds transactions and that the transaction has a maturity of one or more business days or the credit union is able to require repayment at any time.

(6) Yankee dollars. A credit union may invest in yankee dollar deposits.

(7) Eurodollars. A credit union may invest in eurodollar deposits.

(8) Bankers' acceptance. A credit union may invest in bankers' acceptances.

(9) Open-end Investment Companies (Mutual Funds). A credit union may invest funds in an open-end investment company established for investing directly or collectively in any investment or investment activity that is authorized under Texas Finance Code §124.351 and this section, including qualified money market mutual funds as defined by Securities and Exchange Commission regulations.

(10) U.S. Government-sponsored enterprises. A credit union may invest in obligations of U.S. Government sponsored enterprises such as, for example: the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Farm Credit Bank.

(11) Commercial paper. A credit union may invest in commercial paper issued by a corporation domiciled within the United States and having a short-term or commercial paper rating of no less than A1 or P1 by Standard & Poor's or Moody's, respectively, or an equivalent rating by a NRSRO.

(12) Corporate bonds. A credit union may invest in corporate bonds issued by a corporation domiciled in the United States. The bonds must be rated by a NRSRO in one of the two highest long-term rating categories and have remaining maturities of seven years or less.

(13) Municipal bonds. A credit union may invest in municipal bonds rated by a NRSRO in one of the two highest long-term rating categories with remaining maturities of seven years or less.

(14) Mortgage-related securities. With the exception of the residual interest of the mortgage-related security, a credit union may invest in mortgage-related securities backed by mortgages secured by real estate upon which is located a residential dwelling, a mixed residential and commercial structure, or a residential manufactured home. The security must be rated by a NRSRO in one of the two highest long-term rating categories.

(15) Asset-backed securities. Provided the underlying collateral is domestic- and consumer-based, a credit union may invest in asset-backed securities which are rated by a NRSRO in one of the two highest long-term rating categories.

(16) Small business-related securities. A credit union may invest in small business-related securities that represent an interest in one or more promissory notes or leases of personal property evidencing the obligation of a domestic small business concern and originated by a financial institution, insurance company, or similar institution which is regulated and supervised by a Federal or State authority. The securities must be rated by a NRSRO in one of the two highest long-term rating categories and have remaining maturities of seven years or less.

(17) Derivative authority. A credit union may enter into certain derivative transactions exclusively for the purpose of decreasing interest rate risk. The transaction is used to manage risk arising from otherwise permissible credit union activities and not entered into for speculative purposes. Permissible derivatives include interest rate swaps, options on swaps, interest rate caps, interest rate floors, and Treasury futures. Derivative authority is restricted to the provisions outlined under Subpart B of Part 703 of the National Credit Union Administration Rules and Regulations.

(d) Documentation. A credit union shall maintain files containing credit and other information adequate to demonstrate evidence of prudent business judgment in exercising the investment powers under the Act and this rule including:

(1) Except for investments that are issued, insured or fully guaranteed as to principal and interest by the U.S. Government or its agencies, enterprises, or corporations or fully insured (including accumulated interest) by the National Credit Union Administration or the Federal Deposit Insurance Corporation, a credit union must conduct and document a credit analysis of the issuing entity and/or investment before purchasing the investment. The credit union must update the credit analysis at least annually as long as the investment is held.

(2) Credit and other due diligence documentation for each investment shall be maintained as long as the credit union holds the investment and until it has been both audited and examined. Before purchasing or selling a security, a credit union must obtain either price quotations on the security (or a similarly-structured security) from at least two broker-dealers or a price quotation on the security (or similarly-structured security) from an industry-recognized information provider. If a credit union is unable to obtain a price quotation required by this subsection for a particular security, then it can compare prices using nominal or option-adjusted spreads, or spreads to TBA (to-be-announced) mortgage backed securities. This requirement to obtain a price quotation does not apply to new issues purchased at par or at original issue discount.

(3) The reference to and use of NRSRO credit ratings in this rules provides a minimum threshold and is not an endorsement of the quality of the ratings. Credit unions must conduct their own independent credit analyses to determine that each security purchased presents an acceptable credit risk, regardless of the rating.

(e) Classification. A credit union must classify a security as hold-to-maturity, available-for-sale, or trading, in accordance with generally accepted accounting principles and consistent with the credit union's documented intent and ability regarding the security.

(f) Purchase or Sale of Investments Through a Third-Party.

(1) A credit union may purchase and sell investments through a broker-dealer as long as the broker-dealer is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or is a financial institution whose broker-dealer activities are regulated by a federal or state regulatory agency.

(2) Before purchasing an investment through a broker-dealer, a credit union must analyze and annually update the following information.

(A) The background of the primary sales representative and the local broker-dealer firm with whom the credit union is doing business, using information available from federal or state securities regulators and securities industry self-regulatory organizations, such as the Financial Industry Regulatory Authority and the North American Securities Administrators Association, about any enforcement actions against the broker-dealer firm, its affiliates, or associated personnel.

(B) If the broker-dealer is acting as the credit union's counterparty, the ability of the broker-dealer and its subsidiaries or affiliates to fulfill commitments, as evidenced by capital strength, liquidity, and operating results. The credit union should consider current financial data, annual reports, long-term or counterparty ratings that have been assigned by NRSROs, reports of NRSROs, relevant disclosure documents such as annual independent auditor reports, and other sources of financial information.

(3) Paragraphs (1) and (2) of this subsection do not apply when a credit union purchases a certificate of deposit or share certificate directly from a bank, credit union, or other financial institution.

(g) Discretionary Control Over Investments and Investment Advisers.

(1) Except as provided in paragraph (2) of this subsection, a credit union must retain discretionary control over its purchase and sale of investments. A credit union has not delegated discretionary control to an investment adviser when the credit union reviews all recommendations from the investment adviser and is required to authorize a recommended purchase or sale transaction before its execution.

(2) A credit union may delegate discretionary control over the purchase and sale of investments in an aggregate amount not to exceed 100% of its net worth at the time of delegation to persons other than the credit union's officials or employees, provided each such person is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940 (15 U.S.C. 80b).

(3) Before transacting business with an investment adviser to which discretionary control has been granted, and annually thereafter, a credit union must analyze the adviser's background and information available from federal and state securities regulators and securities industry self-regulatory organizations, including any enforcement actions against the adviser, associated personnel, and the firm for which the adviser works.

(4) A credit union may not compensate an investment adviser with discretionary control over the purchase and sale of investments on a per transaction basis or based on capital gains, capital appreciation, net income, performance relative to an index, or any other incentive basis.

(5) A credit union must obtain a report from its investment adviser at least monthly that details the investments under the adviser's control and their performance.

(h) Investment Practice Permitted to Federal Credit Unions. If an applicant credit union proposes to make the same type of investment which a federally chartered credit union has been granted permission to make, the commissioner shall grant the application unless the commissioner finds that due to the financial position or the state of management of the applicant credit union, the proposed investments or deposits would not be sound or prudent investment practices for the applicant credit union. The commissioner may instead grant the application conditionally, grant in modified form, or deny the application.

(i) Modification or Revocation of Investment Authority. If the commissioner finds that due to the financial condition or management of a credit union, an investment practice authorized by this section has ceased to be a safe and prudent practice, the commissioner shall inform the board of directors of the credit union, in writing, that the authority to engage in the practice has been revoked or modified. The credit union's directors and management shall immediately take steps to begin liquidating the investments in question or make the modification required by the commissioner. The commissioner for cause shown may grant the credit union a definite period of time to comply with the commissioner's orders. Credit unions which continue to engage in investment practices after their authority to do so has been revoked or modified will be treated as if the authority to engage in the practice had never been granted, and their actions may be deemed an unsound practice and a willful violation of an order of the commissioner and may be grounds for appropriate supervisory action against the credit union, its directors or officers.

(j) Waivers.

(1) The commissioner in the exercise of discretion may grant a written waiver, consistent with safety and soundness principles, of a requirement or limitation imposed by this subchapter. A decision to deny a waiver is not subject to appeal. A waiver request must contain the following:

(A) A copy of the credit union's investment policy;

(B) The higher limit or ratio sought;

(C) An explanation of the need to raise the limit or ratio; and

(D) Documentation supporting the credit union's ability to manage this activity;

(2) In determining action on a waiver request made under this subsection, the commissioner will consider the:

(A) Credit union's financial condition and management, including compliance with regulatory net worth requirements. If significant weaknesses exist in these financial and managerial factors, the waiver normally will be denied.

(B) Adequacy of the credit union's policies, practices, and procedures. Correction of any deficiencies may be included as conditions, as appropriate, if the waiver is approved.

(C) Credit union's record of investment performance. If the credit union's record of performance is less than satisfactory or otherwise problematic, the waiver normally will be denied.

(D) Credit union's level of risk. If the level of risk poses safety and soundness problems or material risks to the insurance fund, the waiver normally will be denied.

History

• Source Note: The provisions of this §91.802 adopted to be effective February 20, 1986, 11 TexReg 699; amended to be effective May 6, 1988, 13 TexReg 1979; amended to be effective May 9, 1989, 14 TexReg 2025; amended to be effective December 8, 1992, 17 TexReg 8233; amended to be effective July 8, 1994, 19 TexReg 4938; amended to be effective February 11, 2001, 26 TexReg 1134; amended to be effective August 11, 2002, 27 TexReg 6835; amended to be effective November 14, 2004, 29 TexReg 10254; amended to be effective November 11, 2007, 32 TexReg 7921; amended to be effective July 12, 2009, 34 TexReg 4512; amended to be effective November 13, 2011, 36 TexReg 7540;amended to be effective November 8, 2015, 40 TexReg 7663.

7 Tex. Admin. Code § 91.803 Investment Limits and Prohibitions

(a) Limitations. Except for deposits placed in a Federal Reserve Bank, a credit union may invest no more than 50% of its net worth with any single obligor or related obligors. This limitation does not apply to the extent that the investment is insured or guaranteed by the United States government, or an agency, sponsored enterprise, corporation, or instrumentality, of the United States government, or to any trust or trusts established for investing, directly or collectively, in such securities, obligations, or instruments. For the purposes of this section, obligor is defined as an issuer, trust, or originator of an investment, including the seller of a loan participation investment.

(b) Designated Depository. As a single exception to subsection (a) of this section, a credit union's board of directors may establish the maximum aggregate deposit limit for a single financial institution approved by the board as the credit union's designated depository. This deposit limit shall be a percentage of net worth and must be based on the credit union's liquidity trends and funding needs as documented by its asset/liability management policy. This authority is contingent upon the credit union appropriately documenting its due diligence to demonstrate that the investments in this designated depository do not pose a safety and soundness concern. The credit union's board of directors shall review and approve at least annually the maximum aggregate deposit limit for its designated depository. The review shall include a current due diligence analysis of the financial institution.

(c) Prohibited Activities.

(1) Definitions.

(A) Adjusted trading--selling an investment to a counterparty at a price above its current fair value and simultaneously purchasing or committing to purchase from the counterparty another investment at a price above its current fair value.

(B) Collateralized mortgage obligation (CMO)--a multi-class bond issue collateralized by mortgages or mortgage-backed securities.

(C) Commercial mortgage related security--a mortgage related security except that it is collateralized entirely by commercial real estate, such as a warehouse or office building, or a multi-family dwelling consisting of more than four units.

(D) Fair value--the price at which a security can be bought or sold in a current, arm's length transaction between willing parties, other than in a forced or liquidation sale.

(E) Real estate mortgage investment conduit (REMIC)--a nontaxable entity formed for the sole purpose of holding a fixed pool of mortgages secured by an interest in real property and issuing multiple classes of interests in the underlying mortgages.

(F) Residual interest--the remainder cash flows from a CMO/REMIC, or other mortgage-backed security transaction, after payments due bondholders and trust administrative expenses have been satisfied.

(G) Short sale--the sale of a security not owned by the seller.

(H) Stripped mortgage-backed security--a security that represents either the principal-only or the interest-only portion of the cash flows of an underlying pool of mortgages or mortgage-backed securities.

(I) Zero coupon investment--an investment that makes no periodic interest payments but instead is sold at a discount from its face value. The holder of a zero coupon investment realizes the rate of return through the gradual appreciation of the investment, which is redeemed at face value on a specified maturity date.

(2) A credit union may not:

(A) Use financial derivatives for replication, or for any purposes other than hedging;

(B) Engage in adjusted trading or short sales;

(C) Purchase stripped mortgage backed securities;

(D) Purchase residual interests in CMOs/REMICs, or other structured mortgage backed securities;

(E) Purchase mortgage servicing rights as an investment but may retain mortgage servicing rights on a loan originated by the credit union and sold on the secondary market;

(F) Purchase commercial mortgage related securities of an issuer other than a U.S. Government sponsored enterprise;

(G) Purchase any security that has the capability of becoming a first credit loss piece which supports another more senior security;

(H) Purchase a zero coupon investment with a maturity date that is more than 10 years from the settlement date;

(I) Purchase investments whereby the underlying collateral consists of foreign receivables or foreign deposits;

(J) Purchase securities used as collateral by a safekeeping concern;

(K) Purchase exchangeable mortgage backed securities, unless they are fully compliant with the provisions outlined in Part 703 of the National Credit Union Administration Rules and Regulations; or

(L) Purchase securities convertible into stock at the option of the issuer.

(d) Investment pilot program.

(1) The commissioner may authorize a limited number of credit unions to engage in other types of investment activities under an investment pilot program. A credit union wishing to participate in an investment pilot program shall submit a request that addresses the following items:

(A) Board policies approving the activities and establishing limits on them;

(B) A complete description of the activities, with specific examples of how the credit union will conduct them and how they will benefit the credit union;

(C) A demonstration of how the activities will affect the credit union's financial performance, risk profile, and asset-liability management strategies;

(D) Examples of reports the credit union will generate to monitor the activities;

(E) A projection of the associated costs of the activities, including personnel, computer, audit, etc.;

(F) A description of the internal systems to measure, monitor, and report the activities, and the qualifications of the staff and/or official(s) responsible for implementing and overseeing the activities; and

(G) The internal control procedures that will be implemented, including audit requirements.

(2) In connection with a request to participate in an investment pilot program, the commissioner will consider the general nature and functions of credit unions, as well as the specific financial condition and management of the applicant credit union, as revealed in the request, examinations, or such other information as may be available to the commissioner. The commissioner may approve the request, approve the request conditionally, approve it in modified form, or deny it in whole or in part. A decision by the commissioner concerning participation in an investment pilot program is not appealable.

(3) The commissioner may find that an investment pilot program previously authorized is no longer a safe and prudent practice for credit unions generally to engage in, that it has become inconsistent with applicable state or federal law, or that it has ceased to be a safe and prudent practice for one or more credit unions in light of their financial condition or management. Upon such a finding, the commissioner will send written notice informing the board of directors of any or all of the credit unions engaging in such a practice that the authority to engage in the practice has been revoked or modified. When the commissioner so notifies any credit union, its directors and officers shall forthwith take steps to liquidate the investments in question or to make such modifications as the commissioner requires. Upon demonstration of good cause, the commissioner may grant a credit union some definite period of time in which to arrange its affairs to comply with the commissioner's direction. The commissioner deems credit unions that continue to engage in investment practices after their authority to do so has been revoked or modified to be engaging in an unsound practice.

History

• Source Note: The provisions of this §91.803 adopted to be effective March 8, 1984, 9 TexReg 1155; amended to be effective July 8, 1994, 19 TexReg 4939; amended to be effective July 9, 2001, 26 TexReg 5001; amended to be effective July 11, 2004, 29 TexReg 6632; amended to be effective November 11, 2007, 32 TexReg 7922; amended to be effective November 13, 2011, 36 TexReg 7544; amended to be effective November 8, 2015, 40 TexReg 7664; amended to be effective November 24, 2019, 44 TexReg 7040.

7 Tex. Admin. Code § 91.804 Custody And Safekeeping

(a) A credit union's purchased investments and repurchased collateral must be in its possession, recorded as owned by the credit union through the federal reserve book-entry system, or be held by a board-approved safekeeper under a bailment for hire contract or a custodial arrangement subject to regulation by the Securities and Exchange Commission. Any safekeeper used by a credit union must be regulated and supervised by either the Securities and Exchange Commission or a federal or state financial institution regulatory agency. For the purposes of this section a bailment for hire contract has the same meaning as in §91.802 (relating to Other Investments). Annually, a credit union must analyze the ability of any safekeeper used by the credit union to fulfill its custodial responsibilities, as evidenced by capital strength and financial conditions. The credit union should consider current financial data, annual reports, reports of nationally-recognized statistical rating organizations (NRSROs), relevant disclosure documents such as annual independent auditor reports, and other sources of financial information. At least monthly, a credit union must obtain and reconcile a statement of purchased investments and repurchased collateral held in safekeeping.

(b) A credit union that invests funds in a certificate of deposit in a financial institution as defined in §91.802 (relating to Other Investments) shall hold such certificate of deposit in the name of the credit union or, if held by a safekeeper or registered broker-dealer, in the safekeeper's or registered broker-dealer's name as custodial nominee for a credit union. Any certificate of deposit held by a safekeeper or registered broker-dealer as custodial nominee for a credit union or the credit union's registered broker or dealer must be eligible for extended or flow-through insurance coverage to the credit union through either the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund.

History

• Source Note: The provisions of this §91.804 adopted to be effective August 14, 2000, 25 TexReg 7636; amended to be effective July 11, 2004, 29 TexReg 6632; amended to be effective March 6, 2005, 30 TexReg 1065; amended to be effective November 11, 2007, 32 TexReg 7922; amended to be effective November 13, 2011, 36 TexReg 7544.

7 Tex. Admin. Code § 91.805 Loan Participation Investments

(a) A credit union may purchase a participation interest in a loan, where the borrower is neither a member of the credit union or a member of another participating credit union, as permitted by §124.351(a)(8) of the Texas Finance Code, provided the following conditions are satisfied:

(1) the purchase complies with all regulatory requirements to the same extent as if the credit union had originated the loan;

(2) the originating lender retains at least 10 percent of the outstanding balance of the loan through the life of the loan;

(3) the purchase complies with the credit union's investment policy, which, at a minimum, must:

(A) establish the same degree of independent credit and collateral analysis as if the credit union was the originator; and

(B) establish commitment limits for aggregate purchased participations, out-of-area participations, and loans originated by individual lead institutions.

(4) the written loan participation agreement fully describes the lead institution's responsibilities, establishes requirements for obtaining timely borrower credit information, addresses remedies upon default, and outlines dispute resolution procedures.

(b) Financial Reporting. A participation interest in a non-credit union member loan purchased under this section shall be reported in accordance with generally accepted accounting principles.

(c) Other Requirements. A credit union purchasing a loan participation investment must also comply with applicable requirements contained within Part 741 of the National Credit Union Administration Rules and Regulations.

History

• Source Note: The provisions of this §91.805 adopted to be effective August 14, 2000, 25 TexReg 7636; amended to be effective November 11, 2007, 32 TexReg 7923; amended to be effective November 13, 2011, 36 TexReg 7544; amended to be effective November 8, 2015, 40 TexReg 7665.

7 Tex. Admin. Code § 91.808 Reporting Investment Activities to the Board of Directors

(a) A credit union shall provide its board of directors a monthly comprehensive report of investment activities, including:

(1) investments purchased and sold during the month;

(2) unrealized market gains or losses compared to book value for each security at month's end;

(3) fair or market value of each security;

(4) total book value of investments outstanding at month's end;

(5) unrecorded and unreported obligations to buy or sell investments; and

(6) amount of investments, other than deposits and investments in designated depositories, that are not either issued by, or fully guaranteed as to principal and interest by, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the United States or any agency, enterprise, corporation, or instrumentality of the United States, or in any trust or trusts established for investing, directly or collectively, in such securities, obligations or instruments.

(b) The credit union shall also provide a quarterly report to the board of directors that summarizes the volatility of the entire security portfolio, if the aggregate amount of securities with one or more of the features included below exceeds the credit union's net worth:

(1) embedded options;

(2) remaining maturities greater than three years; or

(3) coupon formulas that are related to more than one index or are inversely related to, or multiples of, an index.

(c) The report described in subsection (b) of this section must provide a reasonable and supportable estimate of the potential impact, in percentage and dollar terms, of an immediate and sustained parallel shift in market interest rates of plus and minus 300 basis points on the:

(1) fair value of each security in the entire portfolio;

(2) fair value of the entire security portfolio as a whole; and

(3) credit union's net worth.

(d) For the purposes of this section, an embedded option means a characteristic of an investment that gives the issuer or holder the right to alter the level and timing of the cash flows of the investment. Embedded options include call and put provisions and interest rate caps and floors. Since a prepayment option in a mortgage is a type of call provision, a mortgage-backed security composed of mortgages that may be prepaid is an example of an investment with an embedded option.

History

• Source Note: The provisions of this §91.808 adopted to be effective February 11, 2001, 26 TexReg 1137; amended to be effective November 11, 2007, 32 TexReg 7923; amended to be effective July 5, 2012, 37 TexReg 4888.

7 Tex. Admin. Code § 91.809 Purchase of Assets and Assumption of Liabilities

(a) With approval of the Commissioner, a credit union may initiate a program of purchasing loans or assuming an assignment of deposits, shares, or liabilities from:

(1) Any credit union;

(2) Any other financial-type institution (including depository institutions, mortgage banks, consumer finance companies, insurance companies, loan brokers, and other loan sellers or liability traders); or

(3) Any successor in interest to any institution identified in subsection (a)(1) or (a)(2) of this section.

(b) Commissioner approval is not required for:

(1) Purchases of student loans or real estate secured loans to facilitate the packaging of a pool of loans to be sold or pledged on the secondary market under NCUA regulations 12 C.F.R. §701.23(b)(1)(iii) or (iv), or purchases of member loans under §91.711 of this title (relating to Purchase and Sale of Member Loans);

(2) Assumption of deposits, shares or liabilities as rollovers or transfers of member retirement accounts or in which an insured credit union perfects a security interest in connection with an extension of credit to any member;

(3) Purchases of assets, including loans, or assumptions of deposits, shares, or liabilities from any deposit insured credit union, except a purchase or assumption as a part of a merger under §91.1003 of this title (relating to Mergers/Consolidations); or

(4) Purchases of loan participations as defined in and meeting the requirements of §91.805 of this title (related to Loan Participation Investments).

(c) A credit union seeking approval under subsection (a) of this section must submit a letter application to the commissioner stating the nature of the transaction and describing the proposed program. The application must include:

(1) Copies of relevant transaction documents;

(2) The credit union board's resolution approving the credit union to submit the application and engage in the proposed activity;

(3) Evidence that the credit union board has reviewed and approved the credit union's due diligence efforts;

(4) Proposed policies under which the program will operate, and which must comply with the requirements outlined in §§91.802(b), 91.803 and 91.808 (relating to Other Investments; Investment Limits and Prohibitions; and Loan Participation Investments);

(5) Demonstrated internal expertise to understand and mitigate the risks associated with the activity proposed;

(6) Evidence of requested approval by NCUA under NCUA regulations 12 C.F.R. §741.8, if federally insured, or bond covenants from American Share Insurance if necessary;

(7) Any other information relevant to the transaction and the program; and

(8) Information requested by the Commissioner or the Department.

(d) A federally insured credit union purchasing assets or assuming liabilities of another entity must also comply with applicable requirements contained within the NCUA regulations 12 C.F.R. Part 741.

(e) A credit union shall submit the letter of application as defined in subsection (c) of this section no later than 60 days prior to the planned closing date of any program-related transaction(s). Late applications may be considered when there are extenuating circumstances deemed acceptable to the Commissioner. Final approval/disapproval shall be given in writing by the Commissioner and shall include the basis for the decision.

History

• Source Note: The provisions of this §91.809 adopted to be effective June 24, 2021, 46 TexReg 3731.

Subchapter I RESERVES AND DIVIDENDS

7 Tex. Admin. Code § 91.901 Reserve Requirements

(a) Definitions. The words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Net worth means the retained earnings balance of the credit union as determined under generally accepted accounting principles. Retained earnings consist of undivided earnings, regular reserves, and any other appropriations designated by management, the insuring organization, or the commission. This means that only undivided earnings and appropriations of undivided earnings are included in net worth. Net worth does not include the allowance for loan and lease losses account.

(2) Net worth ratio means, with respect to a credit union, the ratio of the net worth of the credit union to the total assets of the credit union.

(3) Total assets means the average of the total assets as measured using one of the following methods:

(A) Average Quarterly Balance--the average of quarter-end balances of the four most recent calendar quarters; or

(B) Average Monthly Balance--the average of month-end balances over the three calendar months of the calendar quarter; or

(C) Average Daily Balance--the average daily balance over the calendar quarter; or

(D) Quarter-End Balance--the quarter-end balance of the calendar quarter as reported on the credit union's call report.

(b) In accordance with the requirements of §122.104 of the Act, state-chartered credit unions shall set aside a portion of their current gross income, prior to the declaration or payment of dividends, as follows:

(1) A credit union with a net worth ratio below 7.0% shall increase the dollar amount of its net worth by the following amounts at the indicated intervals until its net worth ratio equals 7.0% of total assets. Regardless of the dividend period, net worth must increase quarterly by an amount equivalent to at least 0.1% per quarter of its total assets.

(2) For a credit union in operation less than ten years and having assets of less than $10 million, a business plan must be developed that reflects, among other items, net worth projections consistent with the following:

(A) 2.0% net worth ratio by the end of the third year of operation;

(B) 3.5% net worth ratio by the end of the fifth year of operation;

(C) 6.0% net worth ratio by the end of the seventh year of operation; and

(D) 7.0% net worth ratio by the time it reaches $10 million in total assets or by the end of the tenth year of operation, whichever is shorter.

(3) Special reserves. In addition to the regular reserve, special reserves to protect the interest of members may be established by board resolution or by order of the commissioner, from current income or from undivided earnings. In lieu of establishing a special reserve, the commissioner may direct that all or a portion of the undivided earnings and any other reserve fund be restricted. In either case, such directives must be given in writing and state with reasonable specificity the reasons for such directives.

(4) Insuring organization's capital requirements. As applicable, a credit union shall also comply with any and all net worth or capital requirements imposed by an insuring organization as a condition to maintaining insurance on share and deposit accounts. For federally-insured credit unions this includes all prompt corrective action requirements contained within Part 702 of the NCUA Rules and Regulations.

(5) Decrease in Required Reserve Transfer. The commissioner, on a case-by-case basis, and after receipt of a written application, may permit a credit union to transfer an amount that is less than the amount required under paragraph (1) of this subsection. A credit union shall submit such statements and reports as the commissioner may, in his discretion, require in support of a decreased transfer request. The application must be received no later than 14 days before the quarter end and shall include but not be limited to:

(A) an explanation of the need for the reduced transfer amount;

(B) financial statement reflecting the fiscal impact of the required transfer; and

(C) documentation supporting the credit union's ability to resume the required transfer at a future date certain.

(c) Revised business plan for new credit unions. A credit union that has been in operation for less than ten years and has assets of less than $10 million shall file a written revised business plan within 30 calendar days of the date the credit union's net worth ratio has failed to increase consistent with its current business plan. Failure to submit a revised business plan, or submission of a plan not adequate to either increase net worth or increase net worth within a reasonable time; or failure of the credit union to implement its revised business plan, may trigger the regulatory actions described in subsection (b)(4) of this section.

(d) Unsafe practice. Any credit union which has less than a 6.0% net worth ratio may be deemed to be engaged in an unsafe practice pursuant to §122.255 of the Finance Code. The determination may be abated if, the credit union has entered into and is in compliance with a written agreement or order with the department or is in compliance with a net worth restoration or revised business plan approved by the department to increase its net worth ratio. If a credit union has a net worth ratio below 6.0% or is otherwise engaged in an unsafe practice, the department may impose the following administrative sanctions in addition to, or in lieu of, any other authorized supervisory action:

(1) all unencumbered reserves, undivided earnings, and current earnings are encumbered as special reserves;

(2) dividends and interest refunds may not be declared, advertised, or paid without the prior written approval of the commissioner; and

(e) any changes to the credit union's board of directors or senior management staff must receive the prior written approval of the commissioner. Supervisory action. Notwithstanding any requirements in this section, the department may take enforcement action against a credit union with capital above the minimum requirement if the credit union's circumstances indicate such action would be appropriate.

History

• Source Note: The provisions of this §91.901 adopted to be effective March 8, 1984, 9 TexReg 1156; amended to be effective July 8, 1994, 19 TexReg 4940; amended to be effective March 17, 1995, 20 TexReg 1525; amended to be effective August 14, 2000, 25 TexReg 7636; amended to be effective July 11, 2004, 29 TexReg 6633; amended to be effective November 11, 2007, 32 TexReg 7923; amended to be effective November 8, 2009, 34 TexReg 7628; amended to be effective November 8, 2015, 40 TexReg 7666; amended to be effective November 24, 2019, 44 TexReg 7041; amended to be effective October 9, 2022, 47 TexReg 6431.

7 Tex. Admin. Code § 91.902 Dividends

(a) Dividend eligibility shall be prescribed by written board policy.

(b) When a credit union is subject to a cease and desist order or is otherwise notified that it is deemed to be in a troubled condition or engaged in an unsafe practice, the credit union must obtain prior written approval of the commissioner before it declares or pays any dividend or interest refund. A request for approval to pay a dividend or interest refund under this section must be in writing and must include the following supporting information:

(1) the proposed dividend and/or interest refund rate and the estimated total dollar amount of payment;

(2) an analysis of the credit union's ability to make the payment from current earnings without incurring an operating loss for the period; and

(3) an explanation of the progress in resolving the areas of concern detailed in the cease and desist order or the examiner's findings schedule of the most recent report of examination.

History

• Source Note: The provisions of this §91.902 adopted to be effective March 8, 1984, 9 TexReg 1156; amended to be effective July 8, 1994, 19 TexReg 4941; amended to be effective August 14, 2000, 25 TexReg 7637; amended to be effective November 11, 2007, 32 TexReg 7924.

Subchapter J CHANGES IN CORPORATE STATUS

7 Tex. Admin. Code § 91.1003 Mergers/Consolidations

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Acquirer--The credit union that will continue in operation after the merger/consolidation.

(2) Acquiree--The credit union that will cease to exist as an operating credit union at the time of the merger/consolidation.

(3) Covered person--The chief executive officer (CEO) or person acting in a similar capacity; the four most highly compensated employees other than the CEO, and any member of the board of directors or supervisory committee.

(4) Merger inducement--Any payment of money, the distribution of property, or other economic benefit offered, provided, or promised to a member of the Acquiree that is conditioned on the member voting, refraining from voting, or voting in a particular manner on a proposed merger or the successful completion of a merger. A merger inducement does not include:

(A) a dividend or interest payment distributed proportionally among members based on each member's applicable account balance relative to the total balances on which the dividend or interest is paid;

(B) an interest rebate distributed proportionally among members based on each member's share of the total interest paid to the credit union; or

(C) dividends, interest, or other payments made in the ordinary course of business that are generally available to members and not tied to the proposed merger/consolidation;

(D) products, services, or pricing available to all members of Acquirer and Acquiree;

(E) nominal promotional items distributed in the ordinary course of business;

(F) access to products, services, or facilities of Acquirer following the merger/consolidation, including expanded branch access or service offerings;

(G) merger-related financial arrangements for the Acquiree's CEO and the four most highly compensated employees other than the CEO; or

(H) benefits to members of the board of directors that are permissible under 7 TAC §91.502 (relating to Director/Committee Member Fees, Insurance, Reimbursable Expenses, and Other Authorized Expenditures).

(5) Merger-related financial arrangement--Any agreement, arrangement, or understanding under which a covered person, or an entity affiliated with a covered person, receives or is entitled to receive a substantial increase in compensation or benefits that is contingent upon, related to, or provided in connection with the completion of a merger/consolidation, including:

(A) any increase in compensation or benefits provided to the covered person during the 24 months preceding the date on which the boards of directors of Acquirer and Acquiree approve the plan for merger/consolidation; and

(B) any increase in compensation or benefits that will be provided to the covered person in connection with the merger/consolidation; and

(C) the aggregate value of all increases in direct or indirect compensation, including salary, bonuses, leave, deferred compensation, accelerated or early payment of retirement benefits, or any other financial reward, excluding compensation or benefits available to all employees of the Acquirer on identical terms and conditions.

(6) Substantial--An amount exceeding the greater of 15% of a person's existing compensation or 15% of the value of the person's existing benefits, or $10,000.

(b) Merger/Consolidation; No Inducements. Two or more credit unions organized under the laws of this state, another state, or the United States, may merge/consolidate, in whole or in part, with each other, or into a newly incorporated credit union to the extent permitted by applicable law, subject to the requirements of this rule. An Acquirer may not directly or indirectly, including through a credit union service organization, an affiliate, a contractor, or other third party, offer, provide, arrange, or promise a merger inducement to any member of the Acquiree.

(c) Notice of Intent to Merge/Consolidate. The Acquirer and Acquiree shall notify the commissioner in writing of their intent to merge/consolidate within ten days after their boards of directors formally agree in principle to a proposition to merge/consolidate.

(d) Plan for Merger/Consolidation. Upon approval of a proposition for merger/consolidation by the boards of directors, the Acquirer and Acquiree must prepare a plan for the proposed merger/consolidation. The plan shall include:

(1) The terms and conditions of the merger/consolidation including a detailed description of all merger-related financial arrangements;

(2) the current financial reports of each credit union;

(3) the current delinquent loan summaries for each credit union;

(4) the combined financial reports of the Acquirer and Acquiree, including an assessment, in accordance with generally accepted accounting principles, of net worth of each credit union prior to the merger/consolidation and the combined net worth of the Acquirer after the merger/consolidation;

(5) an analysis of the adequacy of the combined Credit Losses account;

(6) an explanation of any proposed adjustments to the members' shares, or provisions for reserves, dividends, or undivided earnings;

(7) a summary of the products and services proposed to be available to the members of the Acquirer, with an explanation of any changes from the current products and services provided to the members;

(8) a summary of the advantages and disadvantages of the merger/consolidation;

(9) the projected location of the main office and any branch location(s) after the merger/consolidation and whether any existing office locations will be permanently closed; and

(10) provisions and/or liabilities with respect to notification and payment to creditors; and

(11) any other items deemed critical to the merger/consolidation by the Acquirer's and Acquiree's boards of directors.

(e) Submission of an Application to Merge/Consolidate to Department.

(1) An application for approval of the merger/consolidation will be complete when the following information is submitted to the commissioner:

(A) the merger/consolidation plan, as described in this section;

(B) any proposed agreement, arrangement, or understanding arising from or required to implement the merger/consolidation;

(C) a copy of the corporate resolution of each board of directors approving the merger/consolidation plan;

(D) the proposed Notice of Special Meeting of the members;

(E) a copy of the ballot form to be sent to the members;

(F) a statement as to whether the transaction is subject to the Hart-Scott Rodino Act premerger notification filing requirements;

(G) board minutes of Acquirer and Acquiree referencing the merger/consolidation during the 24 months preceding board approval of the merger/consolidation plan;

(H) any additional information requested by the commissioner;

(I) a certification executed by the chief executive officers and chairpersons of the Acquirer and Acquiree stating that no merger-related financial arrangements exist other than those disclosed in the Notice of Special Meeting;

(J) for a credit union seeking a waiver of member approval of the merger/consolidation plan, a written request stating the reasons for the waiver; and

(K) for an Acquirer that is not federally insured and does not intend to become federally insured:

(i) a written statement that it is aware of the federal requirements prescribed by 12 U.S.C. 1831t(b), including all notification requirements; and

(ii) proof that its accounts will be insured by the non-federal insurer.

(2) If the Acquirer is organized under the laws of another state or of the United States, the commissioner may accept an application to merge or consolidate that is prescribed by the state or federal supervisory authority of the Acquirer, provided that the commissioner may require additional information to determine whether to deny or approve the merger/consolidation plan. An application submitted under this paragraph will be complete upon receipt of all information requested by the commissioner.

(3) Notice of the proposed merger/consolidation must be published in the Texas Register and Department Newsletter as prescribed in §91.104 (relating to Public Notice and Comment on Certain Applications).

(f) Commissioner Action on the Application.

(1) The commissioner may grant preliminary approval of an application for merger/consolidation conditioned upon specific requirements being met, but final approval shall not be granted unless such conditions have been met within the time specified in the preliminary approval. If the commissioner determines that a merger/consolidation constitutes an emergency, the commissioner may waive any specific merger plan or application requirements to ensure uninterrupted service to the members.

(2) The commissioner may deny an application for merger/consolidation if the commissioner finds any of the following:

(A) the financial condition of the Acquirer before the merger/consolidation is such that it will likely jeopardize the financial stability of the Acquiree or prejudice the financial interests of the members, beneficiaries or creditors of either credit union;

(B) the plan includes a change in the products or services available to members of the Acquiree that substantially harms the financial interests of the members, beneficiaries or creditors of the Acquiree;

(C) the merger/consolidation is likely to substantially lessen the ability of the Acquirer to meet the reasonable needs and convenience of members to be served;

(D) the credit unions do not furnish to the commissioner all information requested by the commissioner which is material to the application;

(E) the credit unions fail to obtain any approval required from a federal or state supervisory authority; or

(F) the merger/consolidation would be contrary to law.

(3) For applications to merge/consolidate in which the products and services of the Acquirer after merger/consolidation are proposed to be substantially the same as those of the Acquirer and Acquiree, the commissioner will presume that the merger/consolidation will not significantly change or affect the availability and adequacy of financial services in the local community.

(g) Procedures for Approval of Merger/Consolidation Plan by the Members of Each Credit Union.

(1) The credit unions have the option of allowing their members to vote on the plan in person at a meeting of the members, by mail ballot, or both. With prior approval of the commissioner, a credit union may accept member votes by an alternative method that is reasonably calculated to ensure each member has an opportunity to vote.

(2) Members shall be given advance notice of the meeting in accordance with the credit union's bylaws. The notice of the meeting shall:

(A) specify the purpose of the meeting and state the date, time, and place of the special meeting;

(B) state the reasons for the proposed merger/consolidation;

(C) contain a summary of the merger/consolidation plan, including:

(i) a statement on whether the Acquirer has a higher or lower net worth ratio than the Acquiree;

(ii) an indication of whether the members of the Acquiree will receive a share adjustment, dividend, or other distribution of reserves or undivided earnings and a description of the reasons for the decision;

(iii) a description of any changes regarding the change in the members' deposit insurance if the Acquiree is not federally insured;

(iv) a statement that any interested person may obtain more detailed information about the merger/consolidation from the credit union at its principal place of business, or by any method approved in advance by the commissioner; and

(v) a table, provided on a separate page enclosed with the meeting notice, ballot, and plan summary, describing each merger-related financial arrangement, including the covered person involved, their position, the nature and description of the arrangement, and the total amount of any compensation or benefits associated with the arrangement;

(D) provide the names and street addresses of Acquirer's branch offices after the merger/consolidation; and

(E) state that members may vote on the merger/consolidation proposal in person or mail ballot or electronically (if the credit union bylaws allow) no later than the date and time established for the meeting called to vote on the merger/consolidation.

(h) Completion of Merger/Consolidation.

(1) Upon approval of the merger/consolidation plan by the membership, if applicable, the Certificate of Merger/Consolidation shall be completed, signed and submitted to the commissioner for final authority to combine the records. Necessary amendments to the Acquirer's articles of incorporation or bylaws shall also be submitted at this time.

(2) Upon receipt of the commissioner's written authorization, the records of the credit unions shall be combined as of the effective date of the merger/consolidation. The board of the directors of the Acquirer shall certify the completion of the merger/consolidation to the commissioner within 30 days after the effective date of the merger/consolidation.

(3) Upon receipt by the commissioner of the completion of the merger/consolidation certification, any article of incorporation or bylaw amendments will be approved and the charter of the Acquiree will be canceled.

(i) Other requirements. A federally insured credit union subject to this section must comply with applicable provisions of 12 C.F.R. Part 708b. The commissioner may require documentation demonstrating compliance when considering a merger/consolidation application.

History

• Source Note: The provisions of this §91.1003 adopted to be effective March 11, 1998, 23 TexReg 4568; amended to be effective November 16, 2005, 30 TexReg 7434; amended to be effective November 11, 2007, 32 TexReg 7924; amended to be effective November 8, 2009, 34 TexReg 7628; amended to be effective November 23, 2017, 42 TexReg 6509; amended to be effective May 31, 2020, 45 TexReg 3437; amended to be effective August 27, 2026, 51 TexReg 5533.

7 Tex. Admin. Code § 91.1005 Conversion to a Texas Credit Union

(a) Authority to convert. A federal credit union or an out of state credit union is authorized to convert to a credit union incorporated under the laws of this state by Section 122.203 of the Act.

(b) Requirements for conversion. A credit union wishing to convert to a credit union incorporated under the laws of this state shall comply with the following requirements:

(1) Submit a complete application on a form and in a manner prescribed by the commissioner;

(2) Furnish evidence that the current federal or state regulatory agency having jurisdiction over the applicant has no preliminary objection to the conversion plan;

(3) Submit to a conversion examination by the department and pay the supplemental examination fee prescribed in §97.113 of this title (relating to Operating Fees). The commissioner may waive the examination or the fee, upon finding good cause;

(4) Furnish evidence confirming that the applicant has complied with all applicable requirements of and has completed the conversion in a manner satisfactory to the insuring organization and the current federal or state regulatory agency; and

(5) Furnish evidence that the applicant has established or will relocate its principal place of business in a specific location in the State of Texas.

(c) Approval. The commissioner shall approve the conversion once the conditions required by this section have been met and the commissioner finds that the applicant:

(1) is financially sound;

(2) has no material supervisory problems; and

(3) can reasonably be expected to conduct its operations in a safe and sound manner and in accordance with the laws of this state. The commissioner may approve the conversion conditioned upon specific requirements being met, but the certificate of incorporation shall not be issued unless such conditions have been met.

(d) Effective date. The conversion shall become effective immediately upon the issuance of the certificate of incorporation or on a stipulated date within 90 days of the conversion approval. On request and for good cause shown, the commissioner may grant a reasonable extension of the effective date.

History

• Source Note: The provisions of this §91.1005 adopted to be effective July 2, 2006, 31 TexReg 5076.

7 Tex. Admin. Code § 91.1006 Conversions to a Federal or Out-of-State Credit Union

(a) Authority to Convert. A credit union organized under the laws of this state is authorized to convert to a federal credit union or an out-of-state credit union by Sections 122.201 and 122.202 of the Act.

(b) Requirements for Conversion. A credit union wishing to convert to a federal credit union or an out-of-state credit union shall comply with the following requirements:

(1) Furnish evidence to the department that a conversion proposal has been approved by a two-thirds vote of the board of directors;

(2) Submit copies of all filings made with any state or federal regulatory agency and insuring organization with jurisdiction over any aspect of the conversion process;

(3) Furnish evidence confirming that the insuring organization and the acquiring state or federal regulatory agency have no preliminary objections to the plan;

(4) Submit a vote certification as required by §91.1008(c) of this chapter showing that the conversion proposal was approved by an affirmative vote of a majority of the eligible members of the credit union voting; and

(5) Furnish written evidence confirming that the credit union has met all of the conversion requirements of the insuring organization and the acquiring state or federal regulatory agency.

(c) Approval. The commissioner shall approve the conversion if all of the conditions required by this section have been met, unless the commissioner determines the conversion is being made to circumvent a pending supervisory action that is about to be or has been initiated by the commissioner because of a concern over the safety and soundness of the credit union.

(d) Effective Date. Once the commissioner has approved the conversion, it shall become effective upon the issuance of a charter or certificate of incorporation from the acquiring state or federal regulatory agency.

History

• Source Note: The provisions of this §91.1006 adopted to be effective July 2, 2006, 31 TexReg 5077.

7 Tex. Admin. Code § 91.1007 Conversion to a Mutual Savings Institution

(a) Authority to convert. A credit union organized under the laws of this state is authorized to convert to a mutual savings bank or association by §123.003 of the Act.

(b) Requirements for conversion. A credit union that is considering converting to a mutual savings bank or association must comply with the following requirements:

(1) Preliminary communication with membership and department. At least thirty days prior to a final vote by the board of directors to formally adopt a conversion proposal, the credit union shall send notice to the department and each member advising that the board is considering a possible conversion to a mutual savings bank or association. The notice shall, at a minimum, contain the following information:

(A) a prominent legend in bold-face type that advises members of a potential conversion;

(B) the electronic availability of information related to a potential conversion;

(C) a telephone number and e-mail address that members may use to request copies of the potential conversion information that is available by electronic means;

(D) the ability of members to submit written comments on the potential conversion; and

(E) a clear, concise, and impartial description of the potential conversion to be considered by the board.

(2) Information posted on Internet web site. The credit union shall post information related to a potential conversion on the credit union's principal Internet web site at least thirty days prior to a vote by the board of directors to adopt a proposal of conversion. The posted information shall, at a minimum, discuss:

(A) The business purposes that might be accomplished by a conversion;

(B) The differences between and similarities of a credit union and a mutual savings institution;

(C) An estimate of the anticipated conversion expenses;

(D) The methods by which a member may request a copy of the posted information;

(E) The method and timeline for members to submit written comments on the potential conversion; and

(F) The process that will be followed if the board formally adopts a conversion proposal.

(3) Written comments from members. The board shall provide members a reasonable opportunity to submit written comments relating to a potential conversion. The board may hold a special meeting to receive member input regarding the potential conversion. It is within the board's discretion to determine the type, number, duration, and location of any special meeting(s). Before taking a final vote on a conversion proposal, the board should consider all written comments and any other member input received at any special meeting.

(4) Adoption of a conversion proposal by the board. Subsequent to the written comment period, the credit union may adopt, by the affirmative vote of at least two-thirds of the members of its board of directors, a conversion proposal consistent with this section. The credit union shall notify the department of the board's approval of the proposal within 5 days of the approval. In addition, the following documents must be sent to the department as soon as reasonably practical:

(A) Copies of any filings made with any state or federal regulatory agency and insuring organization with jurisdiction over any aspect of the conversion process;

(B) A copy of the disclosure materials and the ballot to be sent to eligible members relative to voting on the conversion proposal;

(C) An estimated budget of the anticipated conversion expenses including legal, postage and mailing, advertising, printing, consulting fees, examination and operating fees, and any overtime or other employee compensation to be paid exclusively as a result of the conversion; and

(D) Any other information reasonably requested by the commissioner.

(5) Membership approval. The members of the credit union must approve the conversion proposal by an affirmative vote of a majority of those eligible members who vote on such proposal, unless the bylaws require a higher vote threshold. The credit union shall submit a vote certification as required by §91.1008(c) of this chapter showing that the conversion proposal was approved by the members of the credit union;

(6) Insuring organization requirements. The credit union must furnish written evidence of its compliance with any voting procedures and disclosure requirements imposed by its insuring organization; and

(7) Other regulatory oversight. The credit union must furnish written evidence that it has met all conversion requirements of the acquiring state or federal regulatory agency.

(c) Notice, disclosure materials, and ballot mailed to members. The credit union shall mail to each eligible member, as defined in §91.1008 of this Chapter, a notice advising the member of the adoption and filing of the conversion proposal. The notice must include a prominent statement that the conversion will be decided by a majority of eligible members who vote on the issue (unless the bylaws require a higher vote threshold), and that each eligible member is only entitled to vote once. Also, incorporated with the mailing of the notice, eligible members shall be provided with plain language disclosures of material facts and information to be used as a basis for reaching an informed decision to vote on the conversion. The disclosures and ballot shall be submitted to the commissioner for approval. The commissioner may require changes in the disclosures and ballot provided to eligible members to assure full and adequate disclosure prior to the documents being mailed to eligible members.

(d) Conflict of interest. A director, officer, committee member, agent, or senior management employee of the credit union, and immediate family members of such individuals shall not, directly or indirectly, receive a fee, commission, or other consideration, other than that person's usual salary or compensation, for aiding, promoting, or assisting in a conversion under this section.

(e) Continuity of existence. The corporate existence of a credit union converting under this rule shall continue in its successor. Each member shall be entitled to receive a share or deposit account or accounts in the converted institution equal in amount to the value of accounts held in the former credit union subject to any lien or right of offset held by the credit union.

(f) Approval. The commissioner shall approve the conversion if all of the conditions required by this section have been met, unless the commissioner determines the conversion is being made to circumvent a pending supervisory action that is about to be or has been initiated by the commissioner because of a concern over the safety and soundness of the credit union.

(g) Effective date. Once the commissioner has approved the conversion, it shall become effective upon the issuance of a charter or certificate of incorporation from the acquiring state or federal regulatory agency.

History

• Source Note: The provisions of this §91.1007 adopted to be effective July 2, 2006, 31 TexReg 5077.

7 Tex. Admin. Code § 91.1008 Conversion Voting Procedures and Restrictions; Filing Requirements

(a) Voting procedures. Eligible members may vote on a plan of conversion by written ballot either filed in person at a special meeting held on the date set for the vote or mailed by the member. The vote on a conversion proposal must be by secret ballot. Mail balloting must be conducted in accordance with §91.302 of this Chapter.

(b) Definitions.

(1) "Eligible Member" means a member of a credit union who is approved and fully qualified for membership in accordance with the credit union's bylaws and written policies as of the eligibility record date.

(2) "Eligibility Record Date" means the cut off date for determining eligible members, which shall be deemed to be the last day of the month immediately preceding the date the credit union's board of directors notifies members or the public that it is contemplating a conversion.

(c) Voting ballots. All ballots must include the following:

(1) The name of the credit union and the name of the proposed institution if the conversion is approved. This information may be incorporated into the body of the voting options;

(2) The date and time by which the ballot must be received if mailed; and

(3) The following statements, printed in a manner acceptable to the commissioner:

(A) The conversion will be decided by a majority of credit union members who vote on the issue (unless the bylaws require a higher vote threshold);

(B) Once a vote has been cast, it may not be changed; and

(C) A "yes" vote means the credit union will become a (insert conversion entity type) and a "no" vote means the credit union will remain a (insert state or federal) credit union.

(D) Vote certification. Within ten business days following a vote on a plan of conversion, the credit union shall file with the department a certified copy of a resolution of the board of directors stating that voting on the conversion has been completed in accordance with this section and setting out the following information:

(i) The total number of members eligible to vote;

(ii) The number of eligible members who voted (either at the special meeting or by mail); and

(iii) The total number of votes cast in favor and against the plan of conversion.

History

• Source Note: The provisions of this §91.1008 adopted to be effective July 2, 2006, 31 TexReg 5078.

7 Tex. Admin. Code § 91.1010 Voluntary Liquidation

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Voluntary liquidation means the dissolution of a credit union with the assets being sold or collected, liabilities paid, and shares/deposits distributed under the direction of the board of directors.

(2) Liquidation date means the date the membership votes to approve liquidation.

(3) Liquidating agent means the person or persons appointed by the board of directors to take possession of, manage, and liquidate the credit union.

(b) Initiating voluntary liquidation process.

(1) Unless the commissioner has issued a liquidation order, the board of directors may, by resolution, recommend the voluntary dissolution of the credit union and direct submission of the question to the members of the credit union.

(2) Within five days after the date the board adopts the resolution, the chairman of the board shall notify the commissioner, in writing, of the reasons for the proposed liquidation including a balance sheet and income statement as of the previous month-end.

(3) The board shall act promptly to obtain the membership's approval in accordance with subsection (f) of this section.

(4) The board's recommendation to dissolve and liquidate the credit union must be approved by the affirmative vote of a majority of members who submit ballots in person at the special membership meeting and by mail. If less than a majority vote to approve, the credit union may, subject to the commissioner's approval, resume normal business, resubmit the question of liquidation to the membership or request the appointment of a conservator under the Act and the rules adopted under it.

(5) After an affirmative vote by the members to dissolve and liquidate the credit union, the board of directors shall be responsible for conserving the assets, for expediting the liquidation, and for fair and equitable distribution of the assets to the members.

(6) Within 5 days after an affirmative vote to dissolve and liquidate the credit union the chairman shall notify the commissioner in writing of the intention to liquidate together with a list of the officers and directors.

(c) Notice of liquidation.

(1) If the vote to dissolve and liquidate the credit union is affirmative, the credit union shall:

(A) File a notice with the Department within five days after the liquidation date; and

(B) Mail a copy of the notice of liquidation to shareholders/depositors, other known creditors, and known claimants of the credit union within ten days after the liquidation date.

(2) A credit union shall publish public notice of liquidation, if so directed, and in the manner directed, by the Department.

(3) Creditors shall be provided at least 30 days after the liquidation date to submit their claims.

(d) Transaction of business during liquidation.

(1) Immediately after notice of the special meeting to consider voluntary liquidation is mailed to the membership, admission of new members shall be suspended. No new extensions of credit shall be funded during the period between the board of directors' adoption of the resolution recommending voluntary liquidation and the membership meeting called to consider voluntary liquidation, except for the issuance of loans fully secured by a pledge of shares and the funding of outstanding loan commitments approved before adoption of the board resolution. Collection of loans and interest, payments of necessary expenses, clearing of share drafts and credit card charges shall continue.

(2) If the membership votes to dissolve and liquidate the credit union, the credit union shall immediately discontinue payments on shares/deposits, withdrawal of shares/deposits (except for transfer of shares/deposits to loans and interest), transfer of shares/deposits to another share/deposit account, in the same credit union, granting of loans, and making of investments other than short-term investments shall be discontinued. The credit union shall continue to collect on loans with interest and shall continue to pay necessary expenses during the period of liquidation. The credit union shall direct its Members to discontinue the use of share drafts and credit cards, and shall inform Members that on and after the 15th calendar day after the liquidation date, items will no longer be cleared.

(3) Approval of the Department must be obtained prior to consummating any sale of assets which would not provide sufficient funds to pay shareholders/depositors dollar-for-dollar, principal plus any interest accrued or due to the shareholder/depositor, through the liquidation date.

(e) Liquidation Plan. The board of directors shall develop and approve a written plan for the liquidation of the assets and payment of shares/deposits. The liquidation plan shall provide for the liquidation of the credit union within one year of the liquidation date. At a minimum, a credit union's liquidation plan shall address the following areas:

(1) Qualifications and experience of the proposed liquidating agent and the compensation and expenses attributable to the service of such person or persons;

(2) Income and expense items must be projected to determine that sufficient funds will be available to finance the liquidation of the credit union;

(3) Schedule for payment of all debts and liabilities owed by the credit union;

(4) Partial distributions of shares/deposits should be considered as funds become available from the liquidation of assets;

(5) Distribution of the credit union's assets that remain after settlement of debts and liabilities to all persons entitled to them;

(6) Disposition or maintenance of any remaining or unclaimed funds, real or personal property, or other assets;

(7) Surety bond coverage of all persons who will handle or have access to funds of the credit union and the proposed discovery period after final distribution of assets; and

(8) Retention of the credit union's records after liquidation, and in a manner that complies with subsection (j) of this section.

(f) Approval of the liquidation proposal by membership.

(1) Not later than the 10th calendar day before the date of the special membership meeting to consider approval of the liquidation, the credit union shall notify, by first class mail, the Commissioner and each member who is eligible to vote on the proposal. The notice must adequately describe the purpose and subject matter of the vote and clearly inform members that they may vote at a special meeting held on the date set for the vote or by mailing in the ballot. The notice must include a clear and conspicuous disclosure of how the voluntary liquidation may affect the availability of funds on deposit and state the date, time, and place of the meeting. A ballot must be included in the same envelope as the notice.

(2) No director or senior management employee may receive any economic benefit in connection with the voluntary liquidation of the credit union other than compensation and other benefits paid to directors and senior management employees in the ordinary course of business.

(3) A credit union considering the question of liquidation must conduct its membership vote in a fair and legal manner. No inducements may be offered to encourage members to participate in the vote.

(4) A credit union should be careful to conduct its special membership meeting in a manner conducive to accommodating all members wishing to attend, including selecting a meeting location that can accommodate the anticipated number of attendees and is conveniently located. The meeting should also be held on a day and time suitable to most members' schedules.

(g) Distribution of assets.

(1) The liquidating agent shall use the credit union's assets to pay, in the following order:

(A) Secured creditors to the extent of the value of their collateral;

(B) Liquidation expenses, including a surety bond;

(C) Depositors;

(D) General creditors, including secured creditors to the extent that their claims exceed the value of their collateral; and

(E) Distributions to members in proportion to the shares/deposits held by each member.

(2) After all assets of the credit union have been converted to cash or found to be worthless, and all loans and debts owing to it have been collected or found to be uncollectible, and all obligations of the credit union have been paid/settled, except for shares/deposits due its members, the credit union shall close its books and compute the pro rata distribution to its members. The computation shall be based on the total amount in each share/deposit account as of the liquidation date or the date on which all share drafts have cleared, whichever is later.

(3) Payments must be made to members promptly after the pro rata distribution has been computed. The credit union may mail a check to the member's last known address, deliver the check personally to the member, or make the payment by wire or any other electronic means authorized by the member.

(4) Unclaimed share/deposit accounts, unpaid claims, and unpaid claims of members or creditors who failed to cash their final distribution checks shall be escheated in accordance with Texas laws.

(5) The Department shall be notified in writing within five days after the final distribution of assets to the members begins.

(h) Economic benefit. No director or senior management employee may receive any economic benefit in connection with the voluntary liquidation of the credit union other than compensation and other benefits paid to directors and senior management employees in the ordinary course of business.

(i) Continued supervision of voluntary liquidation.

(1) A voluntary liquidation of a credit union shall be conducted only with the continued supervision of the Department. The commissioner may conduct any examinations of the credit union the commissioner considers necessary or appropriate.

(2) The credit union shall submit a report to the Department within 10 business days after the start of liquidation showing the credit union's balance sheet as of the start of liquidation. The liquidating credit union shall submit a report of progress as requested by the Department.

(3) If the commissioner has reason to conclude the voluntary liquidation of a credit union is not being safely or expeditiously conducted, or is being conducted in violation of this section, the commissioner may take possession of the business and property of the credit union in the same manner, with the same effect, and subject to the same rights accorded the credit union as if the commissioner had issued a liquidation order. The commissioner may appoint a new liquidating agent and proceed to liquidate the affairs of the credit union as provided in the Finance Code, Title 3, Subtitle D, Subchapter E.

(j) Retention of records.

(1) The board of directors shall appoint a custodian for the credit union's records that are to be retained after the final distribution of assets.

(2) The custodian shall retain all records of the liquidating credit union that are necessary to establish that the credit union paid creditors, and distributed assets to the members fairly and equitably in accordance with the approved liquidation plan. The custodian shall retain the records for a period of five years following the date the Department cancels the credit union's charter.

(k) Certificate of dissolution and liquidation. Within 120 days after the credit union begins final distribution of assets to members, it shall file with the Department a duly executed Certificate of Dissolution and Liquidation.

(l) Inquiries after liquidation. It will be the responsibility of the custodian for the credit union's records to respond timely to inquiries after liquidation.

History

• Source Note: The provisions of this §91.1010 adopted to be effective March 29, 2018, 43 TexReg 1837.

Subchapter K CREDIT UNION DEVELOPMENT DISTRICTS

7 Tex. Admin. Code § 91.2000 Purpose and Scope

(a) This subchapter implements Tex. Fin. Code §279.001 et seq. regarding the establishment of credit union development districts.

(b) This subchapter does not affect or circumvent requirements under the Tax Increment Financing Act or the Property Redevelopment and Tax Abatement Act (Tex. Tax Code, Chapters 311 and 312, respectively), including requirements for designation of an area as a municipal or county reinvestment zone or for authorization to enter into a tax abatement agreement.

History

• Source Note: The provisions of this §91.2000 adopted to be effective November 8, 2015, 40 TexReg 7666; amended to be effective March 1, 2020, 45 TexReg 1217.

7 Tex. Admin. Code § 91.2001 Definitions

Unless the context clearly indicates otherwise, these words and terms, when used in this subchapter, shall have the following meanings:

(1) "Credit union" includes state and federal credit unions.

(2) "District" means a credit union development district approved under this subchapter.

(3) "Local government" means a municipality or county.

History

• Source Note: The provisions of this §91.2001 adopted to be effective November 8, 2015, 40 TexReg 7666.

7 Tex. Admin. Code § 91.2002 Application Requirements to Establish a District

(a) Basic application. A local government, in conjunction with a credit union, may submit an application to the Commission for the designation of a proposed credit union development district, as provided by §91.2003 of this subchapter (relating to Submission and Processing of Application). The application shall contain the following items to the extent available:

(1) the name of the local government, the county in which it is located and evidence of the approval of the application by its governing body;

(2) identification of the participating credit union and the location of the proposed credit union or branch by street address;

(3) a description of the geographic area comprising the proposed district, including a map indicating the borders of the proposed district;

(4) the location, number and proximity of sites where credit union services are available in the proposed credit union development district, including branches of other financial institutions and deposit-taking ATMs other than those located at branches;

(5) a compilation and description of consumer needs for credit union services in the proposed district, including population demographics included within the proposed district;

(6) a compilation and description of the economic viability and local credit needs of the community in the proposed district, including economic indicators pertinent to the proposed district;

(7) a compilation and description of the existing commercial development in the proposed district, including a description of the type and nature of commercial businesses located in the proposed district; and

(8) a compilation and description of the impact additional credit union services would have on potential economic development in the proposed district, including significant business developments within the past three years, corporate restructurings, plant closings, other business closings, and recent or proposed business openings or expansions.

(b) Optional information. An application for designation of a credit union development district may also include:

(1) a description of other local government and community initiatives proposed to be undertaken and coordinated with establishment of the proposed district;

(2) indications of community support or opposition for the application, as evidenced by letters from entities such as local chambers of commerce, local businesses, community-based organizations, non-profit organizations, government officials, or community residents; and

(3) such other information that the applicant believes will demonstrate that the proposed district meets the standards set forth in §91.2004 of this subchapter (relating to Criteria for Approval).

History

• Source Note: The provisions of this §91.2002 adopted to be effective November 8, 2015, 40 TexReg 7666.

7 Tex. Admin. Code § 91.2003 Submission and Processing of Application

(a) The application must be submitted to the Commission in care of the Department, 914 East Anderson Lane, Austin, TX 78752-1699. No filing fee is required.

(b) After the initial application is submitted, the Department shall issue a written notice informing the applicant either that the application is complete and accepted for filing or that the application is deficient and specific additional information is required. The applicant must supply any additional information requested by the Department not later than the 61st day after the date the applicant received written notice from the Department that the application is deficient. Upon a finding of good and sufficient cause, the Department shall grant an applicant additional time to complete the application. Once the deficient application is complete and accepted for filing, the Department shall issue a written notice informing the applicant that the application is complete and accepted for filing.

(c) After the issuance of written notice informing the applicant that the application is complete and accepted for filing, the Department shall evaluate the application to the extent necessary to make a written recommendation to the Commission under the criteria set forth in §91.2004 of this subchapter. The Department shall submit the completed application and the Department's recommendations to the Commission for decision at the next regularly scheduled meeting of the Commission, which must occur not later than the 120th date after the date the completed application is accepted for filing.

(d) If the Commission approves the application, the Department shall notify the interested parties as required by Tex. Fin. Code §279.105(b).

(e) All approved districts shall be posted on the Department's web site.

History

• Source Note: The provisions of this §91.2003 adopted to be effective November 8, 2015, 40 TexReg 7666.

7 Tex. Admin. Code § 91.2004 Criteria for Approval of a District by the Commission

In determining whether to approve an application for the designation of a credit union development district, the Commission must consider the criteria listed in Tex. Fin. Code §279.102(b).

History

• Source Note: The provisions of this §91.2004 adopted to be effective November 8, 2015, 40 TexReg 7666.

7 Tex. Admin. Code § 91.2005 Monitoring

(a) A local government that receives approval for a district under this subchapter shall notify the Department in writing not later than the 21st day after the date:

(1) the credit union establishes a branch in the district and the address of such a branch; and

(2) the credit union closes a branch in the district.

(b) On behalf of the Commission, the Department may request periodic status reports from the local government or the credit union in order to ensure that the needs of the community located in the district are being met in an appropriate manner.

History

• Source Note: The provisions of this §91.2005 adopted to be effective November 8, 2015, 40 TexReg 7666.

7 Tex. Admin. Code § 91.2006 Rulemaking and Amendment for this Subchapter

Tex. Fin. Code §279.102(b) requires the Credit Union Department to adopt rules in consultation with the Texas Economic Development and Tourism Office within the Office of the Governor. The Department will develop policies with this office within the Governor's office, outlining the procedures for consultation.

History

• Source Note: The provisions of this §91.2006 adopted to be effective November 8, 2015, 40 TexReg 7666.

Subchapter L SUBMISSION OF COMMENTS BY INTERESTED PARTIES

7 Tex. Admin. Code § 91.3001 Opportunity To Submit Comments on Certain Applications

(a) An interested party may submit comments to the commissioner on the following matters:

(1) an application for incorporation under the Texas Finance Code, §122.001;

(2) an amendment to a credit union's articles of incorporation under the Texas Finance Code, §122.011, which includes an amendment to expand the credit union's field of membership; or

(3) an application to merge or consolidate under the Texas Finance Code, §122.152.

(b) An interested party is a person or entity that has an interest in particular to the application other than as a member of the general public.

(c) Acceptance of comments under this section does not constitute a determination of standing to protest or otherwise participate in a contested case hearing on the application.

(d) Comments may be made in writing or provided in a meeting with the commissioner or deputy commissioner, as follows:

(1) written comments shall be submitted within 30 days after notice of the application is published in the Texas Register or the department's newsletter, whichever is later;

(2) a meeting to receive comments shall be held upon written request by an interested party or upon the commissioner's direction.

History

• Source Note: The provisions of this §91.3001 adopted to be effective May 10, 1998, 23 TexReg 4568.

7 Tex. Admin. Code § 91.3002 Conduct of Meetings To Receive Comments

(a) Meetings to receive comments under §91.3001 of this title (relating to Opportunity To Submit Comments on Certain Applications) will be conducted in the following manner:

(1) a written request for a meeting to receive comments must be received by the department within 30 days after publication of the notice of the application and shall contain the following:

(A) the identity of the requestor, including the name of a natural person who represents a business entity or other association, mailing address, daytime telephone number, and a facsimile number if any;

(B) the name of the application and type of application;

(C) a description of the requestor's interest in the application; and

(D) a list of at least three dates and times within 30 days after the date of publication of notice of application, which are available for the meeting.

(2) the meeting will be scheduled and may be rescheduled, if necessary, by the commissioner to occur after at least three business days' notice by telephone, facsimile, or mail;

(3) one meeting may be scheduled to receive comments from more than one interested party, at the discretion of the commissioner;

(4) a limit on the length and other conditions for the conduct of the meeting may be imposed by the commissioner, and the conditions will be stated in the notice of the meeting;

(5) the meeting may be conducted by telephone with the consent of the interested party; and

(6) the department is not required to make a record of the meeting.

(b) An interested party who fails to attend a meeting scheduled for the party's benefit may submit written comments within three days after the date scheduled for the meeting, but the commissioner is not required to schedule another meeting.

(c) The purpose of the meeting is only to receive comments, and no decision, preliminary or otherwise, will be made at the meeting.

History

• Source Note: The provisions of this §91.3002 adopted to be effective May 10, 1998, 23 TexReg 4568.

Subchapter M ELECTRONIC OPERATIONS

7 Tex. Admin. Code § 91.4001 Authority to Conduct Electronic Operations

(a) A credit union may use, or participate with others to use, electronic means or facilities to perform any function or provide any product or service as part of an authorized activity. Electronic means or facilities include, but are not limited to, automated teller machines, automated loan machines, mobile applications, personal computers, the Internet, telephones, and other similar electronic devices.

(b) To optimize the use of its resources, a credit union may market and sell, or participate with others to market and sell, electronic capacities and by-products to others, provided the credit union acquired or developed these capacities and by-products in good faith as part of providing financial services to its members.

(c) If a credit union uses electronic means and facilities authorized by this rule, the credit union's board of directors must require staff to:

(1) Identify, assess, and mitigate potential risks and establish prudent internal controls, and system backup procedures;

(2) Implement security measures designed to ensure secure operations. Such measures should take into consideration:

(A) the prevention of unauthorized access to credit union records and credit union members' records;

(B) the prevention of financial fraud through the use of electronic means or facilities; and

(C) compliance with applicable security device requirements for teller machines contained elsewhere in Chapter 91; and

(3) Employ an incident response plan, which has been subjected to reasonable testing, to minimize the impact of a data breach or other electronic incident while quickly restoring operations, credibility, and security.

(d) All credit unions engaging in such electronic activities must comply with all applicable state and federal laws and regulations as well as address all safety and soundness concerns.

(e) A credit union shall review, on at least an annual basis, its system backup procedures for all electronic activities.

(f) A credit union shall not be considered doing business in this State solely because it physically maintains technology, such as a server, in this State, or because the credit union's product or services are accessed through electronic means by members located in this State.

(g) A credit union that shares electronic space, including a co-branded web site, with a credit union affiliate, or another third-party must take reasonable steps to clearly and conspicuously distinguish between products and services offered by the credit union and those offered by the credit union's affiliate, or the third-party.

History

• Source Note: The provisions of this §91.4001 adopted to be effective May 13, 1999, 24 TexReg 3475; amended to be effective May 11, 2000, 25 TexReg 3953; amended to be effective December 8, 2002, 27 TexReg 11074; amended to be effective March 13, 2006, 31 TexReg 1648; amended to be effective March 29, 2018, 43 TexReg 1837.

7 Tex. Admin. Code § 91.4002 Transactional Web Site Notice Requirement; and Security Review

(a) A credit union must file a written notice with the commissioner at least 30 days before it establishes a transactional web site. The notice must:

(1) Include an address for and a description of the transactional features of the web site;

(2) Indicate the date the transactional web site will become operational; and

(3) List a contact person familiar with the deployment, operation, and security of the transactional web site.

(b) For the purposes of this chapter a transactional web site is an Internet site that enables users to access an account and conduct financial transactions such as transferring funds, processing bill payments, opening an account, applying for or obtaining a loan, or purchasing other authorized products or services.

(c) Credit unions that have a transactional web site must provide for a review of the adequacy of the web site's security measures annually. The scope of the review should cover the adequacy of physical and logical protection against denial of service attacks and other attack vectors designed to gain unauthorized access to the system. If the credit union outsources this technology platform, it can rely on testing or audits performed for the service provider to the extent it satisfies the scope requirements of this subsection.

History

• Source Note: The provisions of this §91.4002 adopted to be effective May 13, 1999, 24 TexReg 3475; amended to be effective December 8, 2002, 27 TexReg 11075; amended to be effective March 13, 2006, 31 TexReg 1648; amended to be effective March 29, 2018, 43 TexReg 1837.

Subchapter N EMERGENCY OR PERMANENT CLOSING OF OFFICE OR OPERATION

7 Tex. Admin. Code § 91.5001 Emergency Closing

(a) If the officer in charge of a credit union determines that an emergency that affects or may affect one or more of the credit union's offices or operations exists or is impending, the officer may determine:

(1) not to conduct the involved operations or open the offices on any normal business day of the credit union until the emergency has passed; or

(2) if the credit union is open, to close the offices or the involved operations for the duration of the emergency.

(b) Subject to subsection (c) of this section, a closed office or operation may remain closed until the officers determine that the emergency has ended and for any additional time reasonably required to reopen.

(c) A credit union that closes an office or operation under this section shall notify the commissioner of its action by any means available and as promptly as conditions permit. In addition, notice of such closure should be posted on the home page of the credit union's website and on its social media pages. An office or operation may not be closed for more than three consecutive days, excluding days on which the credit union is customarily closed, without the commissioner's written approval.

(d) Each credit union shall maintain on file with the department a report of emergency contact information pertaining to its officers, directors, and committee members in such form as the commissioner may prescribe.

(e) In this chapter, the following words and terms shall have the following meanings:

(1) Emergency--means a condition or occurrence that physically interferes with the conduct of normal business at the offices of a credit union or of a particular credit union operation or that poses an imminent or existing threat to the safety or security of persons, property, or both. The term includes a condition or occurrence arising from:

(A) fire, flood, earthquake, hurricane, tornado, or wind, rain, ice or snow storm;

(B) labor dispute or strike;

(C) disruption or failure of utilities, transportation, communication or information systems and any applicable backup systems;

(D) shortage of fuel, housing, food, transportation, or labor;

(E) robbery, burglary, or attempted robbery or burglary;

(F) epidemic or other catastrophe; or

(G) riot, civil commotion, enemy attack, or other actual or threatened act of lawlessness or violence.

(2) Officer in charge--means the president of the credit union, or a person designated by the president, who shall have the authority to take all necessary and appropriate actions to deal appropriately with the emergency. The president of a credit union shall always have an individual designated as an officer in charge during his/her absence or unavailability.

History

• Source Note: The provisions of this §91.5001 adopted to be effective August 9, 1999, 24 TexReg 6026; amended to be effective March 13, 2006, 31 TexReg 1649; amended to be effective March 29, 2018, 43 TexReg 1838.

7 Tex. Admin. Code § 91.5002 Effect of Closing

A day on which a credit union or one or more of its operations is closed during its normal business hours as provided by §91.5001 of this title (relating to Emergency Closings) shall be deemed a legal holiday for all purposes with respect to any credit union business affected by the closed credit union or credit union operation.

History

• Source Note: The provisions of this §91.5002 adopted to be effective August 9, 1999, 24 TexReg 6026; amended to be effective March 13, 2006, 31 TexReg 1649.

7 Tex. Admin. Code § 91.5005 Permanent Closing of an Office

A credit union may permanently close any of its established offices or service facilities. The credit union shall provide notice to its members and the department no later than 60 days prior to the proposed closing. The credit union shall also post a notice to members in a conspicuous manner on the premises of the effected office or service facility and the homepage of the credit union's website and any social media pages at least 30 days prior to the proposed closing.

History

• Source Note: The provisions of this §91.5005 adopted to be effective March 13, 2006, 31 TexReg 1649; amended to be effective March 29, 2018, 43 TexReg 1838.

Subchapter O TRUST POWERS

7 Tex. Admin. Code § 91.6001 Fiduciary Duties

A credit union must conduct trust operations in accordance with applicable law and must exercise fiduciary powers in a safe and sound manner. All fiduciary activities shall be under the direction of the credit union's board of directors. In carrying out its responsibilities, the board may assign, by action duly entered in the minutes, any function related to the exercise of fiduciary powers to any director, officer, employee, or committee thereof.

History

• Source Note: The provisions of this §91.6001 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3437.

7 Tex. Admin. Code § 91.6002 Fiduciary Capacities

A credit union is subject to this chapter if it acts in a fiduciary capacity. A credit union acts in a fiduciary capacity when it acts in any of the following capacities:

(1) Trustee.

(2) Custodian.

(3) Executor.

(4) Administrator.

(5) Guardian.

(6) Receiver.

History

• Source Note: The provisions of this §91.6002 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6003 Notice Requirements

Intent. A credit union is required to notify the commissioner in writing of its intent to exercise fiduciary powers, at least 31 days prior to the anticipated commencement date of such fiduciary activities. The notice must contain:

(1) A statement describing the fiduciary powers the credit union will exercise;

(2) An opinion of counsel that the proposed activities do not violate law, including citations to applicable law;

(3) A statement that the capital of the credit union is not less than the capital required by law of other financial institutions exercising comparable fiduciary powers;

(4) Sufficient biographical information on proposed trust management personnel to enable the Department to assess their qualifications; and

(5) The physical address of each location where the credit union will conduct fiduciary activities.

History

• Source Note: The provisions of this §91.6003 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3437.

7 Tex. Admin. Code § 91.6004 Exercise of Fiduciary Powers

(a) Supervisory Review. Unless otherwise notified by the department, a credit union may exercise fiduciary powers on the 30th day after the credit union receives written confirmation from the Department that the notice required under §91.6003 of this title (relating to Notice Requirements) is complete and accepted for filing. The Department will consider the following factors when reviewing such a notice:

(1) The credit union's financial condition.

(2) The adequacy of the credit union's net worth position.

(3) The credit union's overall performance.

(4) The fiduciary powers the credit union proposes to exercise.

(5) The availability and expertise of legal counsel.

(6) The experience and expertise of proposed trust management personnel.

(7) The needs of the members to be served.

(8) Any other facts or circumstances that the Department considers appropriate.

(b) Written Notice. Prior to expiration of the 30-day period referred to in subsection (a) of this section, the commissioner may give the credit union written notice of denial or consent, which consent may include conditions.

(c) Acceptance of Conditions. Commencement of the exercise of fiduciary powers constitutes a credit union's confirmation of acceptance of all conditions imposed by the commissioner under subsection (b) of this section and shall be considered an enforceable agreement against the credit union for all purposes.

History

• Source Note: The provisions of this §91.6004 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3438.

7 Tex. Admin. Code § 91.6005 Exemption from Notice

A credit union does not need to provide notice under §91.6003 (relating to notice requirements) to act as a trustee or custodian of any form of retirement, pension, profit sharing or deferred income accounts for its members, pension funds of self-employed individuals eligible for membership and pension funds of a company or organization whose employees are eligible for membership in the credit union if acting as such will only involve holding the funds on deposit and reporting information to the account holders and government agencies. All contributions to such fiduciary accounts, however, must be initially made to a share or deposit account in the credit union and the credit union may not directly or indirectly provide any investment advice for such fiduciary accounts.

History

• Source Note: The provisions of this §91.6005 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6006 Policies and Procedures

A credit union exercising trust powers shall adopt and follow appropriate written policies and procedures to maintain its fiduciary activities in compliance with applicable law. Among other relevant matters, the policies and procedures must address, where appropriate, the credit union's:

(1) Brokerage placement practices;

(2) Methods for ensuring that fiduciary officers and employees do not use material inside information in connection with any decision or recommendation to purchase or sell any security;

(3) Methods for preventing self-dealing and conflicts of interest;

(4) Selection and retention of legal counsel who is readily available to timely review trust instruments or other documents creating the credit union's fiduciary status and advise the credit union and its fiduciary officers and employees on all fiduciary related matters; and

(5) Investment of funds held as fiduciary, including short-term investments and the treatment of fiduciary funds awaiting investment or distribution.

History

• Source Note: The provisions of this §91.6006 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3438.

7 Tex. Admin. Code § 91.6007 Review of Fiduciary Accounts

(a) Pre-acceptance review. Before accepting a fiduciary account, a credit union shall review the prospective account and related instruments and documents to determine whether it can properly administer the account.

(b) Initial post-acceptance review. Upon the acceptance of a fiduciary account for which a credit union has investment discretion, the credit union shall conduct a prompt review of all assets of the account to evaluate whether they are appropriate for the account.

(c) Annual review. At least once during every calendar year, a credit union shall conduct a review of all assets of each fiduciary account for which the credit union has investment discretion to evaluate whether they are appropriate, individually and collectively, for the account.

History

• Source Note: The provisions of this §91.6007 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6008 Recordkeeping

A credit union shall adequately document the establishment and termination of each fiduciary account and shall maintain adequate records for all fiduciary accounts. All records pertaining to a fiduciary account shall be separate and distinct from other records of the credit union.

History

• Source Note: The provisions of this §91.6008 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6009 Audit

At least once during each calendar year, a credit union shall arrange for a suitable audit by a certified public accountant in accordance with generally accepted standards for attestation engagement. The audit must ascertain whether the credit union's internal control policies and procedures provide reasonable assurance of three things:

(1) The credit union is administering fiduciary activities in accordance with applicable law and the trust instrument or other documents creating the fiduciary responsibility;

(2) The credit union is properly safeguarding fiduciary assets; and

(3) The credit union is accurately recording transactions in appropriate accounts in a timely manner.

History

• Source Note: The provisions of this §91.6009 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6010 Custody of Fiduciary Assets

(a) A credit union shall place assets of fiduciary accounts in the joint custody or control of not fewer than two fiduciary officers or employees designated for that purpose by the board of directors.

(b) A credit union shall keep assets of fiduciary accounts separate from the assets of the credit union. Except as otherwise authorized by applicable law and as may be in the best interests of the beneficiaries of the fiduciary account, a credit union shall keep assets of each fiduciary account separate from all other accounts.

History

• Source Note: The provisions of this §91.6010 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3438.

7 Tex. Admin. Code § 91.6011 Trust Funds

All monies received by a credit union as fiduciary on trust business shall be deposited in a specially designated account or accounts, shall not be commingled with any funds of the credit union and shall remain on deposit until disbursed or invested in accordance with powers and duties of the credit union in its capacity as such fiduciary.

History

• Source Note: The provisions of this §91.6011 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6012 Compensation, Gifts, and Bequests

A credit union may not permit its directors, officers, or employees to retain any compensation for acting as co-fiduciary with the credit union in the administration of a fiduciary account, except with the specific approval of the board of directors. In addition, a credit union may not permit any fiduciary officer or employee to accept a bequest or gift of fiduciary assets, unless the bequest or gift is directed or made by a relative of the director, officer, or employee or is specifically approved by the board of directors.

History

• Source Note: The provisions of this §91.6012 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6013 Bond Coverage

A credit union is required to maintain a bond for protection and indemnity of members, in reasonable amounts against dishonesty, fraud, defalcation, forgery, theft, embezzlement, and other similar insurable losses with an insurance or surety company authorized to do business in this state. Coverage against such losses shall include all agents who do not otherwise provide protection and indemnity for the credit union, directors, officers, and employees of the credit union acting independently or in collusion or combination with any person or persons whether or not they draw salary or compensation.

History

• Source Note: The provisions of this §91.6013 adopted to be effective August 10, 2003, 28 TexReg 6270.

7 Tex. Admin. Code § 91.6014 Errors and Omissions Insurance

The credit union shall procure errors and omission insurance sufficient to mitigate the risks involved in fiduciary activities, but at no time shall errors and omissions insurance coverage be less than five hundred thousand dollars. A credit union shall conduct and document the annual analysis of the appropriateness of the current coverage.

History

• Source Note: The provisions of this §91.6014 adopted to be effective August 10, 2003, 28 TexReg 6270; amended to be effective May 31, 2020, 45 TexReg 3438.

7 Tex. Admin. Code § 91.6015 Litigation File

A credit union shall keep an adequate record of all pending litigation to which it is a party in connection with its exercise of fiduciary powers.

History

• Source Note: The provisions of this §91.6015 adopted to be effective August 10, 2003, 28 TexReg 6270.

Subchapter P OTHER FORMS OF EQUITY CAPITAL

7 Tex. Admin. Code § 91.7000 Certificates of Indebtedness

(a) General. No credit union may issue certificates of indebtedness pursuant to this section or amend the terms of such certificates unless it has obtained a written letter from the commissioner stating that the commissioner does not object ("non-objection letter"). All requirements of the provisions of this section must be met before a non-objection letter will be issued.

(b) Form of application; supporting information. Applications must be in the form prescribed by the commissioner and shall include all information and exhibits required by the application instructions.

(c) Requirements as to certificates. Certificates of Indebtedness issued pursuant to this section shall meet all of the following requirements:

(1) Form of certificate. Each certificate evidencing subordinated debt issued by a credit union pursuant to this section shall:

(A) Bear on its face, in bold-face type, the following legends:

(i) "This certificate is not a share account or deposit and it is not insured by the United States or any other insuring organization or fund"; and

(ii) "This certificate is not eligible for purchase by any credit union or a credit union service organization thereof without the prior written approval of the Credit Union Commissioner of the State of Texas."

(B) Clearly state that the certificate--

(i) Is subordinated to all other claims of the credit union's creditors;

(ii) Is totally unsecured; and

(iii) May not be used as collateral for any loan by the issuing credit union.

(C) Shall include within its terms the right of the issuing credit union to prepay the obligation, which shall, at a minimum, include the right to prepay any amount without premium or penalty any time during the fifteen months prior to the maturity date;

(D) Shall contain the following statement: "Notwithstanding anything to the contrary in this certificate (or in any related documents);

(i) if the NCUA or other insuring organization shall be appointed liquidating agent for the issuer of this certificate ("the issuer") and in its capacity as such shall cause the issuer to merge with or into another credit union, or in such capacity shall sell or otherwise convey part or all of the assets of the issuer to another credit union or shall arrange for the assumption of less than all of the liabilities of the issuer by one or more credit unions, the NCUA or other insuring organization shall have no obligation, either in its capacity as liquidating agent or in its corporate capacity, to contract for or to otherwise arrange for the assumption of the obligations represented by this certificate in whole or in part by any credit union or credit unions which results from any such merger or which has purchased or otherwise acquired from the NCUA or other insuring organization as liquidating agent for the issuer, any of the assets of the issuer, or which, pursuant to any arrangement with the NCUA or insuring organization, has assumed less than all of the liabilities of the issuer. To the extent that obligations represented by this certificate have not been assumed in full by a credit union with or into which the issuer may have been merged, as described in this paragraph (A), and/or by one or more credit unions which have succeeded to all or a portion of the assets of the issuer, or which have assumed a portion but not all of the liabilities of the issuer as a result of one or more transactions entered into by the NCUA or other insuring organization as liquidating agent for the issuer, then the holder of this certificate shall be entitled to payments on this obligation in accordance with the procedures and priorities set forth in any applicable law.

(ii) In the event that the obligation represented by this certificate is assumed in full by another credit union, which shall succeed by merger or otherwise to substantially all of the assets and the business of the issuer, or which shall by arrangement with the NCUA or insuring organization assume all or a portion of the liabilities of the issuer, and payment or provision for shall have been made in respect of all matured installments of interests upon the certificates together with all matured installments of principal on such certificates which shall have become due otherwise than by acceleration, than any default caused by the appointment of a liquidating agent for the issuer shall be deemed to have been cured, and any declaration consequent upon such default declaring the principal and interest on the certificate to be immediately due and payable shall be deemed to have been rescinded.

(iii) This certificate is not eligible to be purchased or held by any credit union or credit union service organization thereof. The issuer of this certificate may not recognize on its transfer books any transfer made to a credit union or any credit union service organization thereof and will not be obligated to make any payments of principal or interest on this certificate if the owner of this certificate is a credit union or any credit union service organization thereof."

(2) Limitations as to term and prepayment.

(A) No certificate of indebtedness issued by a credit union pursuant to this section shall have an original period to maturity of less than seven years. During the first six years that such a certificate is outstanding, the total of all required sinking fund payments, other required prepayments, and required reserve allocations with respect to the portion of such six years as have elapsed shall at no time exceed the original principal amount or original redemption price, thereof multiplied by a fraction, the numerator of which is the number of years that have elapsed since the issuance of the certificate and the denominator of which is the number of years covered by the original period to maturity.

(B) No voluntary prepayment of principal shall be made and no payment of principal shall be accelerated without the approval of the commissioner if the credit union's net worth ratio is below 6% or, if after giving effect to such payment, the credit union's net worth ratio would fall below 6%.

(d) Offering circular. The credit union shall submit the proposed offering circular to the Department. The offering circular must state the following in bold print: "These certificates have not been approved by the Texas Credit Union Department nor has the Texas Credit Union Department approved this offering circular."

(e) Supervisory objection. Generally, the commissioner will not issue a non-objection letter where:

(1) The proposed issue fails to transfer risk away from the National Credit Union Share Insurance Fund or other insuring organization and onto the certificate holders.

(2) Information submitted in connection with the application or otherwise available to the Department indicates that the credit union will not be able to service the proposed debt. Evaluation of the issuer's ability to service debt should be prospective, based upon the issuer's business plan.

(3) The ratio of subordinated debt included as equity capital to the credit union's net worth requirements exceeds one-third, after giving effect to the proposed issue.

(4) The proposed deployment of the proceeds of the proposed issue is contrary to the credit union's business plan, is unrealistic in its assumptions, or is inconsistent with the principles of safety and soundness.

(5) The credit union has failed to comply with the terms and conditions imposed upon previous subordinated debt issuances, or has failed to comply with any outstanding enforcement action, written agreement or any other significant supervisory requirement.

(f) Additional requirements. The commissioner may impose on the credit union such requirements or conditions with regard to certificates or the offering or issuance thereof as the commissioner may deem necessary or desirable for the protection of purchasers, the credit union, the National Credit Union Share Insurance Fund, or other insuring organization, as the case may be.

(g) Limitation on offering period. Following the date of the issuance of a non-objection letter, the credit union shall have an offering period of not more than one year in which to complete the sale of the certificates of indebtedness issued pursuant to this section. The commissioner may in his discretion extend such offering period if a written request showing good cause for such extension is filed with the Department not later than 30 days before the expiration of such offering period or any previous extension thereof.

(h) Policies and Procedures. Before any offers or sales of the certificates are made on the premises of the credit union or its credit union service organization, the credit union shall submit to the Department a set of polices and procedures for such sale of certificates that is satisfactory to the Department.

(i) Records. A credit union shall establish and maintain certificate of indebtedness documentation practices and records that demonstrate the credit union appropriately administers and monitors certificate of indebtedness-related activities. The credit union's records should adequately evidence ownership, balances, and all transactions involving each certificate. The credit union may maintain records on certificate of indebtedness activities in any format that is consistent with standard business practices.

(j) Disclosures.

(1) In connection with the purchase of a certificate of indebtedness by a person from the issuing credit union or its credit union service organization, the credit union and/or the credit union service organization must disclose to the person that:

(A) The certificate of indebtedness is not a share or deposit;

(B) The certificate of indebtedness is not insured by the National Credit Union Share Insurance Fund or any other insuring organization;

(C) There is investment risk associated with the certificate of indebtedness, including the possible loss of value; and

(D) The credit union may not condition an extension of credit on a person's purchase of a certificate of indebtedness.

(2) The disclosures required by paragraph (1) above must be provided orally and in writing before the completion of the sale of a certificate of indebtedness. If the sale of a certificate of indebtedness is conducted by telephone, the credit union may provide the written disclosure required by paragraph (1) by mail within three business days beginning the first business day after the sale, solicitation, or offer.

(3) A credit union may provide the written disclosures required by paragraph (1) through electronic media instead of on paper, if the person affirmatively consents to receiving the disclosures electronically and if the disclosures are provided in a format that the person may retain or obtain later, for example, by printing or storing electronically (such as by downloading).

(4) The disclosures provided shall be conspicuous and designed to call attention to the nature and significance of the information provided.

(k) Sales Activities. A credit union must, to the extent practicable:

(1) Keep the area where the credit union conducts transactions involving certificate of indebtedness physically segregated from areas where shares and deposits are routinely accepted from members;

(2) Identify the area where certificate of indebtedness activities occur; and

(3) Clearly delineate and distinguish those areas from the areas where the credit union's share- and deposit-taking activities occur.

(l) Referrals. Any person who accepts deposits from members in an area where such transactions are routinely conducted in a credit union may refer a member who seeks to purchase a certificate of indebtedness to a qualified person who sells that product only if the person making the referral receives no additional compensation for making the referral.

(m) Reports. Within 30 days after completion of the sale of the subordinated debt issued pursuant to this section, the credit union shall transmit a written report to the Department stating the number of purchases, the total dollar amount of certificates sold, and the amount of net proceeds received by the credit union. The credit union's report shall clearly state the amount of subordinated debt, net of all expenses that the credit union intends to have counted as equity capital. In addition, the credit union, shall submit to the Department, certification of compliance with all applicable laws and regulations in connection with the offering, issuance, and sale of the certificates.

(n) Equity capital. When a certificate of indebtedness has a remaining maturity of 5 years, the amount of the certificates that may be considered equity capital shall be reduced by a minimum of 20% of the original amount of the certificate per year. The equity capital shall be reduced by a constant monthly amortization to ensure the recognition of subordinated debt is fully amortized when the certificate matures or is prepaid.

(o) Prohibited practices.

(1) A credit union may not engage in any practice or use any advertisement at any office of, or on behalf of, a credit union that could mislead any person or otherwise cause a reasonable person to reach an erroneous belief with respect to:

(A) the fact that a certificate of indebtedness a credit union sells or offers for sale is not insured by the National Credit Union Share Insurance Fund or other insuring organization;

(B) the fact that there is an investment risk, including the potential that principal may be lost and that the certificate may decline in value; or

(C) the fact that the approval of an extension of credit to a person by the credit union or credit union service organization may not be conditioned on the purchase of a certificate of indebtedness from the credit union or credit union service organization.

(2) No credit union shall directly or indirectly:

(A) employ any device, scheme or artifice to defraud,

(B) make any untrue statement of a material fact or omit to state a material fact necessary in order to make statements made, in light of the circumstances under which they were made, not misleading, or

(C) engage in any act, practice, or course of business which operates as a fraud or deceit upon any person, in connection with the purchase or sale of any certificate of indebtedness.

History

• Source Note: The provisions of this §91.7000 adopted to be effective March 14, 2004, 29 TexReg 2638.

Subchapter Q ACCESS TO CONFIDENTIAL INFORMATION

7 Tex. Admin. Code § 91.8000 Discovery of Confidential Information

(a) Policy. The legislature has determined that certain information is confidential and, with limited exceptions, should not be disclosed. See Texas Finance Code, §126.002. Non-disclosure under this section protects the stability of credit unions by preventing disclosures that could adversely impact the institutions. Inappropriate disclosures can result in substantial harm to credit unions and to those persons and entities (including other financial institutions) that have relationships with them. For example, the department may criticize a credit union in an examination report for a financial weakness that does not currently threaten the solvency of the credit union. If improperly disclosed, the criticism can lead to adverse impacts such as the possibility of a "run," short-term liquidity problems, or volatility in costs of funds, which in turn can exacerbate the problem and cause the failure of the credit union. These failures lead to reduced access to credit and greater risk to depositors. Further, since specific loans may be criticized in an examination report, confidentiality of the information protects the financial privacy of borrowers. Finally, protecting confidential information from disclosure facilitates the free exchange of information between the credit union and the regulator, encourages candor, and promotes regulatory responsiveness and effectiveness. Information that does not fall within the meaning of confidential information as defined in this section may be confidential under other definitions and controlled by other laws, and is not subject to this section.

(b) Disclosure prohibited. Pursuant to Finance Code §126.002, the department has an absolute privilege against disclosure of its confidential information. Discovery of confidential information from a person subject to §126.002 must comply with subsection (c) of this section. Only a person to whom confidential information has been released pursuant to §126.002 or this rule may disclose that information to another, and only in accordance with that section and this rule.

(c) Discovery of confidential information. A credit union, governmental agency, credit union service organization, service provider, or insuring organization that receives a subpoena or other form of discovery for the release of information that is confidential under §126.002 of the Act shall promptly:

(1) notify the department of the request;

(2) provide the department with a copy of the discovery documentation and, if requested by the department, a copy of the requested information; and

(3) move for a protective order, or its equivalent under applicable rules of procedure. In addition, prior to the release of confidential information, such credit union, governmental agency, credit union service organization, service provider, or insuring organization must obtain a ruling on its motion in accordance with this section. Confidential information may be released only pursuant to a protective order, or its equivalent, in a form consistent with that set out in this section and only if a court with jurisdiction has found that:

(A) the party seeking the information has a substantial need for the information;

(B) the information is directly relevant to the legal dispute in issue; and

(C) the party seeking the information is unable without undue hardship to obtain its substantial equivalent by other means.

(d) Discretionary filings by department. On receipt of notice under subsection (c) of this section, the department may take action as may be appropriate to protect confidential information. The department has standing to intervene in a suit or administrative hearing for the purpose of filing a motion for protective order and in camera inspection in accordance with this section.

(e) Motion for protective order, or equivalent, and in camera inspection. The movant shall ask the court to enter an order in accordance with this section regarding the release of confidential information. If necessary to resolve a dispute regarding the confidential status or direct relevance of any information sought to be released, the party seeking the order shall move for an in camera inspection of the pertinent information. Until subject to a protective order, or its equivalent, confidential information may not be released, and, if necessary, the party seeking an order shall request the court officer to deny discovery of such confidential information.

(f) Protective order or equivalent. An order obtained pursuant to the terms of this section must:

(1) specifically bind each party to the litigation, including one who becomes a party to the suit after the order is entered, each attorney of record, and each person who becomes privy to the confidential information as a result of its disclosure under the terms of the order;

(2) describe in general terms the confidential information to be produced;

(3) state substantially the following in the body of the order:

(A) absent court order to the contrary, only the court reporter and attorneys of record in the cause may copy confidential information produced under the order in whole or part;

(B) the attorneys of record are custodians responsible for all originals and copies of confidential information produced under the order and must insure that disclosure is limited to those persons specified in the order;

(C) confidential information subject to the order and all information derived there from may be used only for the purposes of the trial, appeal, or other proceedings in the case in which it is produced;

(D) confidential information to be filed or included in a filing in the case must be filed with the clerk separately in a sealed envelope bearing suitable identification, and is available only to the court and to those persons authorized by the order to receive confidential information, and all originals and copies made of such documents and records must be kept under seal and disclosed only in accordance with the term of the protective order;

(E) confidential information produced under the order may be disclosed only to the following persons and only after counsel has explained the terms of the order to the person who will receive the information and provided that person with a copy of the order;

(i) to a party and to an officer, employee, or representative of a party, to a party's attorneys (including other members and associates of the respective law firms and contract attorneys in connection with work on the case) and, to the extent an attorney of record in good faith determines disclosure is necessary or appropriate for the conduct of the litigation, legal assistants, office clerks and secretaries working under the attorney's supervision;

(ii) to a witness or potential witness in the case;

(iii) to an outside expert retained for consultation or for testimony, provided the expert agrees to be bound by the terms of the order and the party employing the expert agrees to be responsible for the compliance by its expert with this confidentiality obligation; and

(iv) to the court or to an appellate officer or body with jurisdiction of an appeal in the case;

(F) at the request of the department or a party, only the court, the parties and their attorneys, and other persons the court reasonably determines should be present may attend the live testimony of a witness or discussions or oral arguments before the court that may include confidential information or relate to such confidential information. The parties shall request the court to instruct all persons present at such testimony, discussions, or arguments that release of confidential information is strictly forbidden;

(G) a transcript, including a deposition transcript, that may include confidential information subject to non-disclosure is subject to the order. The party requesting the testimony of a current or former department officer, employee, or agent shall, at its expense, furnish the department a copy of the transcript of the testimony once it has been transcribed.

(H) Upon ultimate conclusion of the case by final judgment and the expiration of time to appeal, or by settlement or otherwise, counsel for each party shall return all copies of every document subject to the order for which the counsel is custodian to the party that produced the confidential information; and

(I) Production of documents subject to the order does not waive a claim of privilege or right to withhold the documents from a person not subject to the order.

(4) Paragraph (3)(A), (B) and (E) - (H) of this subsection are subject to modification by the court for good cause before the conclusion of the proceeding, after giving the department notice and an opportunity to appear.

History

• Source Note: The provisions of this §91.8000 adopted to be effective March 14, 2004, 29 TexReg 2638; amended to be effective July 12, 2009, 34 TexReg 4513.

Chapter 93 ADMINISTRATIVE PROCEEDINGS

Subchapter A COMMON TERMS

7 Tex. Admin. Code § 93.101 Scope; Definitions; Severability

(a) This chapter provides for an efficient and uniform system of practice and procedure before the Department. This chapter governs the institution, conduct, and determination of adjudicative proceedings, required or permitted by law, whether instituted by the Department or by filing of an application, notice, or any other pleading. This chapter does not enlarge, diminish, modify, or otherwise alter the jurisdiction, powers, or authority of the Department, or the substantive rights or any person or agency. All contested case hearings will be conducted by the State Office of Administrative Hearings and will be governed by Title 1, Chapter 155 of the Texas Administrative Code and this chapter.

(b) The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) ADR--alternative dispute resolution.

(2) ALJ--administrative law judge employed by the State Office of Administrative Hearings.

(3) APA--The Administrative Procedure Act (Texas Government Code, Chapter 2001).

(4) Applicant--Any person seeking a certificate, charter, or approval of an application from the Department.

(5) Contested case or proceeding--a proceeding in which the legal rights, duties, or privileges of a party are to be determined by the commissioner or the Commission after an opportunity for adjudicative hearing. A contested case at the Department commences upon the filing of a proper and timely request for hearing.

(6) Party--A person admitted to participate in a contested case.

(7) Person--Any individual, credit union, or other legal entity, including a state agency or government subdivision.

(8) PFD--a proposal for decision issued by an ALJ.

(9) Respondent--A credit union or other person against whom a sanction is directed by the Department.

(10) Sanction--Any administrative penalty, disciplinary action, or enforcement action imposed by the Department.

(11) SOAH--the State Office of Administrative Hearings.

(12) TAC--Texas Administrative Code.

(c) The same rules of construction that apply to interpretations of Texas statutes and codes, the definitions in the APA Section 2001.003, and the definitions in subsection (b) of this section govern the interpretation of this chapter. If any section of this chapter is found to conflict with an applicable and controlling provision of other state or federal law, the section involved shall be void to the extent of the conflict without affecting the validity of any other provision of this chapter.

History

• Source Note: The provisions of this §93.101 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5810; amended to be effective August 5, 2018, 43 TexReg 4965.

Subchapter B APPEALS FROM COMMISSIONER DECISIONS, GENERALLY

7 Tex. Admin. Code § 93.201 Appeals to the Commission, Appointment of SOAH

The Department appoints SOAH to be its finder of fact in contested cases. The Department does not delegate to the ALJ and retains for itself the right to determine the sanctions and make the final decision in any contested case. Contested cases shall be conducted in accordance with the APA and SOAH's procedural rules (1 TAC Chapter 155) and shall be heard by an ALJ assigned by SOAH. When the Department submits a request to docket a case, SOAH acquires jurisdiction over a contested case and retains jurisdiction until SOAH issues a proposal for decision (PFD) or final amendments or corrections, if any, to the PFD, or upon SOAH's remand of the case to the Department. In case of conflict with the Commission's rules, SOAH's rules control while SOAH has jurisdiction.

History

• Source Note: The provisions of this §93.201 adopted to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.202 Computation of Time

Unless otherwise required by law, in computing any period of time set forth in this chapter, the date of the act, event, or default after which the designated period of time begins to run is not to be included. The last day of the period so computed is to be included, unless it is a Saturday, Sunday, or a state legal holiday, in which event the period runs until the end of the next day which is not a Saturday, Sunday, or a state legal holiday. Time limits shall be computed using calendar days rather than business days.

History

• Source Note: The provisions of this §93.202 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5811.

7 Tex. Admin. Code § 93.203 Ex Parte Communications

(a) Upon receipt of a request for hearing and continuing until the time a motion for rehearing is denied, the time for ruling on such a motion has expired, or the proceeding is otherwise final, the commissioner and members of the commission may not communicate directly or indirectly with any party or a representative of a party in a contested case in connection with any issue of fact or law in the contested case except upon notice and opportunity for each party to participate.

(b) The commissioner and members of the commission may communicate ex parte with employees of the department who did not participate in any hearing in the case in order to utilize special skills or knowledge of the department's staff in evaluating the record in the case. Prohibited ex parte communications shall not include any written communication if the communicator contemporaneously serves copies of the communication on all parties to the contested case.

History

• Source Note: The provisions of this §93.203 adopted to be effective August 10, 1999, 24 TexReg 6027.

7 Tex. Admin. Code § 93.204 Informal Disposition

At any time during the proceedings, informal disposition may be made of any contested case by stipulation of the parties, agreed settlement, consent order, or default. No stipulation or agreed settlement between the parties shall be enforced unless it shall have been reduced to writing and signed by parties and made part of the record, or unless it shall have been dictated into the record by them during the course of a hearing or incorporated in an order bearing their written consent.

History

• Source Note: The provisions of this §93.204 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5811; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.205 Notice of Hearing

(a) An action subject to this chapter is initiated by the service of such notices as are required to be served under the substantive law governing the particular proceeding. Unless other law authorizing a different notice period is applicable to the particular proceeding, all hearings in contested cases must be preceded by at least 10 day notice, as required by the APA §2001.051. Credit unions shall keep the Department informed as to their correct current mailing address and may be served with initial process by regular, certified, or registered mail to the address furnished the agency.

(b) If a credit union does not file a written answer or other written responsive pleading to the notice required by subsection (a) of this section on or before the 10th day after the date on which the credit union was served with the notice, or if the credit union fails to attend the hearing, the Commissioner may dispose of the case without hearing and grant the relief set forth in the notice.

(c) The Respondent or Applicant shall enter an appearance, with a copy to the Department, within 10 days of the date on which the notice of hearing was served on the person. For purposes of this section, entering an appearance means the filing of a written answer or other responsive pleading with SOAH.

(d) SOAH rules relating to Default Proceedings (1 TAC §155.501) and Dismissal Proceedings (1 TAC §155.501) apply when a Respondent or Applicant fails to appear on the day and time set for the contested case hearing. In that case, the Department may move either for dismissal of the case from SOAH's docket or for the issuance of a default PFD by the ALJ or remand to the Department for entry of default by the Commission or the Commissioner, as appropriate. If the ALJ issues an order dismissing the case from SOAH docket or issues a default PFD, or a remand for entry of default by the Commission, the factual allegations against the Respondent at SOAH are admitted and the Commissioner or the Commission, as appropriate, shall enter a default order against the Respondent. Any claims raised or applications for approval submitted by an Applicant will be deemed denied.

History

• Source Note: The provisions of this §93.205 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5811; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.207 Service of Documents on Parties

(a) Unless otherwise specified in this chapter, notice to a party or a party's representative in a contested case shall be by hand-delivery, by facsimile transmission, by email if all parties agree, or by regular, certified or registered mail, to the party's last known address. Service by mail shall be complete when the properly addressed document is deposited in a post office or official depository under the care and custody of the United States Postal Service.

(b) A certificate by a party, who files a pleading stating that it has been served on all other parties, is prima facie evidence of service.

History

• Source Note: The provisions of this §93.207 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5812.

7 Tex. Admin. Code § 93.208 Delegation of Authority

Unless otherwise provided by law, the commission or the commissioner may delegate to a representative any ministerial duly imposed on the commission or the commissioner, respectively. The provisions of any rule referring to the commission or the commissioner shall be construed to also apply to the duly authorized representative of the commission or the commissioner.

History

• Source Note: The provisions of this §93.208 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.209 Subpoenas

(a) Any party desiring the issuance of a subpoena to compel the appearance of a witness or the production of documents at any hearing shall file a written request with the commissioner setting forth the name and address of the witness, time and place of appearance, and any documents or tangible things sought to be produced. Each request shall contain a statement of the reasons why the subpoena should be issued.

(b) Upon a finding that a party has shown good cause for the issuance of the subpoena, the commissioner shall issue the subpoena as prescribed by Government Code §2001.089. The party requesting the subpoena shall be responsible for the payment of any fees or expenses as set out in Government Code §2001.103.

(c) Within ten days after service of the subpoena or, if the compliance date is less than ten days after service, before the compliance date stated in the subpoena, the person to whom the subpoena is directed shall serve upon the commissioner, the ALJ, and the attorney or party designated in the subpoena, any written objection to the subpoena, appearance or to the inspection or copying of any or all of the designated material. The party serving the subpoena shall have five days to file a written response to the objection. No oral argument shall be heard on the objection unless the commissioner or ALJ directs.

History

• Source Note: The provisions of this §93.209 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5812; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.210 Discovery; Protective Orders; Motions to Compel

Except as modified by SOAH, parties have the discovery rights set out in the Administrative Procedure Act. If a party or witness is asked to produce information that is exempt or privileged under the Texas Rules of Civil Procedure or the Texas Rules of Civil Evidence, the party, in addition to filing a written objection under §93.209(c) of this title (relating to Subpoenas), may make a motion with the ALJ for a protective order. The objecting party must request an in camera inspection as set out in 1 TAC §155.251(c)(7). The ALJ shall rule on all objections and motions under this section.

History

• Source Note: The provisions of this §93.210 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5813; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.211 Administrative Record

(a) The cost of a transcript of an administrative proceeding requested by a party is paid by the party requesting the transcript. If the ALJ sua sponte orders that an administrative hearing be recorded by a court reporter, the cost of a transcript of the administrative proceeding is split equally between the parties.

(b) In the event a final decision or final order is appealed to district court and the Department is required to transmit to the reviewing court a copy of the administrative record of the administrative proceeding, or any part thereof, the appealing party shall pay all of the costs of the preparation of any original or certified copy of the administrative record of the administrative proceeding, including the preparation of any transcript of the hearing that is required to be sent to the reviewing court. If more than one party appeals the decision, the cost of the preparation of the administrative record shall be divided equally among the appealing parties or as agreed by the parties.

History

• Source Note: The provisions of this §93.211 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5813; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.212 Proposal for Decision

(a) Following a contested case hearing, the ALJ shall review the evidence and testimony and prepare a PFD which shall include findings of fact and conclusions of law, and, if appropriate, may include recommendations for an appropriate decision or sanction.

(b) The ALJ shall serve copies of the PFD on all parties of record within 30 days after conclusion of the hearing. The parties may submit exceptions to the PFD and replies to the exceptions. Exceptions, replies to exceptions, and related briefs must be submitted to the ALJ and to the commission through the department and, unless otherwise indicated, must be filed within deadlines established by the ALJ. The ALJ may amend the PFD in response to the exceptions, replies, or briefs submitted. If the ALJ makes substantive revisions, the ALJ shall circulate the amended PFD to the parties for additional exceptions and briefs before submitting the PFD to the Department.

(c) The ALJ shall submit the PFD together with all materials listed in the APA §2001.060, to the Department. No additional briefs may be submitted after the case is under submission to the commission for decision unless requested by the commission. The APA §2001.058 provides the standards the commission must follow if its decision differs from the PFD.

(d) The commission shall make a decision regarding the PFD within 30 days of the date of receipt of the PFD.

History

• Source Note: The provisions of this §93.212 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1631; amended to be effective July 11, 2010, 35 TexReg 5813; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.213 Appearances and Representation

A party may be represented by an attorney or by an authorized representative, if that person observes proper decorum and the instructions of the ALJ. The ALJ may require any person appearing in a representative capacity to provide evidence of authority to appear as the party's representative.

History

• Source Note: The provisions of this §93.213 adopted to be effective February 24, 2003, 28 TexReg 1632; amended to be effective July 11, 2010, 35 TexReg 5813.

7 Tex. Admin. Code § 93.214 Recovery of Department Costs

The ALJ may allocate costs incurred by the department among the parties in accordance with applicable law. Notwithstanding any other provision of this chapter, the ALJ may impose costs that are solely or primarily attributable to a particular party against that party.

History

• Source Note: The provisions of this §93.214 adopted to be effective July 2, 2006, 31 TexReg 5079.

Subchapter C APPEALS OF PRELIMINARY DETERMINATIONS ON APPLICATIONS

7 Tex. Admin. Code § 93.301 Finality of Decision; Request for SOAH Hearing; Waiver of Appeal

(a) The commissioner shall issue a preliminary decision on all applications. Unless a party files a timely written appeal to the commission, the preliminary decision of the commissioner will become final and non-appealable when the time for appeal set out in Finance Code §122.007 or §122.011 expires. If a party submits a written waiver of its right to appeal, the preliminary commissioner's decision becomes final and non-appealable on receipt of the waiver. If a party files a timely appeal, the commissioner's preliminary decision is automatically withdrawn and the Department will refer the matter to SOAH. The commissioner may, at the commissioner's sole discretion, refer any matter to SOAH for hearing prior to and in lieu of entering a preliminary decision.

(b) Notwithstanding subsection (a) of this section, if an application is approved without modification, and no protest or comment was received during the notice period, the commissioner may determine that the preliminary decision of approval should become final immediately.

History

• Source Note: The provisions of this §93.301 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1632; amended to be effective July 2, 2006, 31 TexReg 5080; amended to be effective July 11, 2010, 35 TexReg 5814; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.302 Referral to ADR

The commissioner may order the parties to participate in non-binding ADR if the commissioner determines that any two of the following conditions are present:

(1) the parties have not engaged in meaningful negotiation;

(2) the controversy is reasonably susceptible to compromise or resolution; or

(3) ADR may produce cost savings.

History

• Source Note: The provisions of this §93.302 adopted to be effective August 10, 1999, 24 TexReg 6027.

7 Tex. Admin. Code § 93.303 Hearings on Applications

(a) If ADR is not used or if it fails to resolve the controversy, an applicant or other person aggrieved by the commissioner's preliminary determination may appeal to the commission. In such a case, the commissioner shall refer the matter to SOAH and will furnish to the ALJ all statutes, rules and policies upon which the preliminary decision, if any, was based. In preparing a PFD, the ALJ shall consider this information along with the testimony and documentary evidence presented at the hearing.

(b) Burden of Proof for Unprotested Applications. The applicant must prove each of the statutory and regulatory requirements for approval by a preponderance of the evidence.

(c) Burden of Proof for Protested Applications. The applicant must prove each of the statutory and regulatory requirements for approval by a preponderance of the evidence. In cases in which field of membership is at issue, the protestant must establish by a preponderance of the evidence that overlapping fields of membership will unreasonably harm the protestant. For the purposes of this section, to constitute "unreasonable harm" an overlap must threaten the protestant's welfare and stability or its financial viability to such an extent that it would adversely impact its safety and soundness as a credit union.

History

• Source Note: The provisions of this §93.303 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1633; amended to be effective July 11, 2010, 35 TexReg 5814; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.305 Appeals of All Other Applications for Which No Specific Procedure is Provided by this Title

If ADR is not used or fails to resolve the controversy, whether the application is protested or unprotested, the applicant has the burden to prove each of the applicable statutory and regulatory requirements for approval by a preponderance of the evidence.

History

• Source Note: The provisions of this §93.305 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1633; amended to be effective July 11, 2010, 35 TexReg 5815.

Subchapter D APPEALS OF CEASE AND DESIST ORDERS AND ORDERS OF REMOVAL

7 Tex. Admin. Code § 93.401 Appeals of Cease and Desist Orders and Orders of Removal

(a) Unless the board of directors or person affected by the order files a timely written appeal, the commissioner's cease and desist order or order of removal becomes final and non-appealable when the applicable statutory time for appeal expires.

(b) If a timely request for appeal is filed, the commissioner shall forward the matter to SOAH to set a hearing.

(c) The hearing on a cease and desist order or order of removal is closed to the public. The orders, correspondence, and records relating thereto, are confidential and cannot be revealed to the public. Parties with access to confidential information during the contested case must sign a confidentiality agreement as provided in §91.8000(f) of this title (relating to Discovery of Confidential Information).

(d) At the hearing, the commissioner must establish a prima facie case that the statutory or regulatory violations or the unsafe or unsound practices justify the cease and desist order or order of removal.

History

• Source Note: The provisions of this §93.401 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1634; amended to be effective July 11, 2010, 35 TexReg 5815; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.402 Stays

Where an order by its terms, by statute, or by these rules will become final before a hearing can be held, any aggrieved party who has filed a timely request for hearing under this chapter may file a written request with the commissioner to stay part or all of the order until the matter has been heard and a final decision issued. The commissioner may grant a stay where the respondent has adequately demonstrated a reasonable defense which might result in the respondent prevailing on the merits at the hearing, the respondent will be irreparably injured in the absence of the stay, the stay would not substantially or irreparably harm other interested persons, and the stay would not jeopardize the public interest or contravene public policy.

History

• Source Note: The provisions of this §93.402 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1634; amended to be effective July 11, 2010, 35 TexReg 5815.

Subchapter E APPEALS OF ORDERS OF CONSERVATION

7 Tex. Admin. Code § 93.501 Appeals of Orders of Conservation

(a) Unless the credit union's former board of directors files a timely written appeal, the commissioner's order of conservation becomes final and non-appealable when the statutory time for appeal expires.

(b) If a timely request for hearing is filed with the appeal, the commissioner shall forward the matter to SOAH to set a hearing.

(c) The credit union's former board of directors has the burden to prove by a preponderance of the evidence that the board should regain control of the credit union.

(d) The SOAH hearing on an order of conservation is closed to the public. All orders and correspondence relating thereto are confidential and may not be revealed to the public. Parties with access to confidential information during the contested case must sign a confidentiality agreement as provided in §91.8000(f) of this title (relating to Discovery of Confidential Information).

(e) Parties must file exceptions, if any, to the PFD within five days after the date of service of the PFD. Replies to exceptions shall be filed within three days of the date of service of the exceptions.

(f) The Commission shall meet to consider the PFD no later than 45 days after the Department receives the PFD from SOAH.

History

• Source Note: The provisions of this §93.501 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5816; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.502 Retention of Attorney

In the event a credit union retains an attorney or hires other persons to assist the credit union in contesting or satisfying the requirements of an order of conservation, the commissioner shall authorize the payment of reasonable fees and expenses for such persons as expenses of the conservatorship. In order for the commissioner to determine the reasonableness of the fees and expenses, the credit union must submit a billing statement showing the billable rate, the number of hours claimed, and a detailed description of services performed and related expenses incurred. The credit union may also submit copies of other bids received for the services, research substantiating the reasonableness of the fees charged, or any other evidence the credit union believes may support the reasonableness of the fees and expenses. Any fees or expenses the commissioner deems unreasonable shall not be authorized for payment.

History

• Source Note: The provisions of this §93.502 adopted to be effective March 14, 2004, 29 TexReg 2638.

Subchapter F REVIEW AND DECISION BY THE COMMISSION

7 Tex. Admin. Code § 93.602 Decision by the Commission

The Commission shall consider the questions raised in the appeal, as well as any additional matters pertinent to the appeal, whether or not included in the motion for appeal. Decisions by the Commission must be based on testimony and other evidence in the hearing record. The Commission may adopt or decline to adopt, with or without changes, all or part of the commissioner's decision or the ALJ's PFD and the underlying findings of fact and conclusions of law. The Commission may remand the proceeding for further consideration by the commissioner with or without reopening the hearing. The Commission may take any additional actions it considers to be just and reasonable, as permitted by law.

History

• Source Note: The provisions of this §93.602 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1635; amended to be effective July 11, 2010, 35 TexReg 5816.

7 Tex. Admin. Code § 93.603 Oral Arguments Before the Commission

Any party wishing to present oral arguments to the Commission must make a written request at least fifteen days before the scheduled Commission meeting. The request must state the length of time the party seeks. The Commission, may grant or deny the request. If the request is granted, the Commission will determine the amount of time allotted and the issues on which oral argument is allowed. The Commission may deny the request for oral argument but request that the parties be present at the meeting at which the case is to be considered to address any questions that Commission members may have.

History

• Source Note: The provisions of this §93.603 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1635; amended to be effective July 11, 2010, 35 TexReg 5816.

7 Tex. Admin. Code § 93.604 Motion for Rehearing

The procedures and deadlines of APA govern the filing of a motion for rehearing with the Commission.

History

• Source Note: The provisions of this §93.604 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective February 24, 2003, 28 TexReg 1635; amended to be effective July 11, 2010, 35 TexReg 5817; amended to be effective August 5, 2018, 43 TexReg 4965.

7 Tex. Admin. Code § 93.605 Final Decisions and Appeals

(a) The Commission's decision is final and non-appealable:

(1) if a motion for rehearing is not filed on time, upon the expiration of the period for filing a motion for rehearing; or

(2) if a motion for rehearing is filed on time, on the date the order overruling the motion for rehearing is rendered; or the motion is overruled by operation of law.

(b) A party to a contested case who has exhausted all administrative remedies and who is aggrieved by a final decision of the Commission in a contested case may seek judicial review of the decision.

History

• Source Note: The provisions of this §93.605 adopted to be effective August 10, 1999, 24 TexReg 6027; amended to be effective July 11, 2010, 35 TexReg 5817; amended to be effective August 5, 2018, 43 TexReg 4965.

Chapter 95 SHARE AND DEPOSITOR INSURANCE PROTECTION

Subchapter A INSURANCE REQUIREMENTS

7 Tex. Admin. Code § 95.100 Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) "Act" means the Texas Credit Union Act (Texas Finance Code, Subtitle D).

(2) "Deposit" means a balance held by a credit union and established by a credit union member, another credit union, a governmental unit, or an authorized nonmember in accordance with standards specified by the credit union, including balances designated as deposits, deposit certificates, checking accounts or accounts by other names. A "deposit" is a debt which earns interest and is owed by the credit union to the account holder.

(3) "Federally-insured" means insured by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF) under Title II of the Federal Credit Union Act (12 USC Section 1781 et. seq.), or its successor.

(4) "Insuring organization" means a cooperative share insurance fund or a guaranty corporation or credit union that provides aid and financial assistance to credit unions that are in the process of liquidation or are incurring financial difficulty in order that the share and deposit accounts in the credit unions will be protected or guaranteed against loss up to a specified level for each account.

(5) "Membership share" means a share of the credit union which shall be the balance held by a credit union and established by a member in accordance with standards specified by the credit union. Each member may own only one membership share. In the case of a joint account, the account may serve to represent the membership of each of the joint owners who have applied for and were accepted as members, as long as a full membership share for each joint owner seeking membership is maintained in the account.

(6) "Participating credit union" means a credit union that has applied for and been admitted to participate in an insuring organization's program and whose participation has not been terminated.

(7) "Shares" means a balance held by a credit union and established in accordance with standards specified by the credit union including, but not limited to shares, share accounts, share certificates, share draft accounts or other such accounts. "Shares" may include membership shares. In addition, "shares" earn dividends.

History

• Source Note: The provisions of this §95.100 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.101 Share and Depositor Insurance Protection

(a) Each credit union incorporated under the Act or otherwise authorized to do business in this state shall obtain share and deposit insurance for the protection of its members' accounts. Such share and deposit guarantee insurance may be obtained from the NCUA through the NCUSIF or from an insuring organization approved by the commissioner, with the advice and consent of the commission.

(b) Any credit union that fails to maintain in full force and effect share and deposit insurance protections as provided in this section shall cease accepting deposits and making loans immediately and shall terminate its corporate existence in this state under such terms and conditions as the commissioner deems appropriate.

History

• Source Note: The provisions of this §95.101 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.102 Qualifications for an Insuring Organization

(a) An insuring organization must, at a minimum, demonstrate the following prerequisites and must continue to meet these standards on an ongoing basis, in order to do business in this state:

(1) The insuring organization is authorized to provide share and deposit insurance protection in its state of domicile or in the State of Texas;

(2) The insuring organization is in good standing with the regulatory authorities in its state of domicile;

(3) The insuring organization receives regular examinations from its state of domicile;

(4) The insuring organization has capital which is adequate for its prospective business; and

(5) The insuring organization has loss reserves that are actuarially sound.

(b) In addition to the prerequisites delineated above, the department may scrutinize other data and information as the commissioner deems appropriate, including, but not limited to, demonstrated expertise in insuring credit union shares and deposits.

(c) The department shall have the right to examine the books and records of the insuring organization as part of the approval process. The insuring organization shall be assessed the supplemental examination fee as prescribed in §97.113 of this title (relating to Fees and Charges). The insuring organization shall pay the fee to the department within thirty days of the assessment.

(d) The department may, in approving an insuring organization, impose such written conditions as the commissioner deems reasonable, necessary, or advisable in the public interest.

(e) If an approved insuring organization subsequently fails to meet any of the prerequisite standards or written conditions imposed by the department, the commissioner, in the exercise of discretion, may provide a reasonable period of time for the insuring organization to take corrective actions to bring its operations back into compliance. During this period of corrective action, however, an insuring organization may not contract with any additional credit unions to provide share and deposit insurance protection.

History

• Source Note: The provisions of this §95.102 adopted to be effective March 7, 2007, 32 TexReg 1064; amended to be effective March 10, 2011, 36 TexReg 1657.

7 Tex. Admin. Code § 95.103 General Powers and Duties of an Insuring Organization

In carrying out its general purposes, an insuring organization may:

(1) guarantee to participating credit unions the payment of any deficiency in an individual member's share or deposit account(s) caused by credit union's insolvency or any other reason;

(2) issue share and deposit insurance contracts or otherwise effect credit union share guaranty, and enter into other contracts necessary or advisable in the conduct of its business;

(3) advance funds in accordance with agreed upon lending terms and conditions to aid participating credit unions to operate and to meet liquidity needs;

(4) upon the written order of the commissioner, and at such compensation as shall be agreed upon, the insuring organization may assume control of the property and business of any participating credit union and operate it at the direction of the commissioner until its financial stability has been reestablished to the satisfaction of the commissioner, or the credit union has been liquidated or merged into another credit union;

(5) assist in the merger, consolidation, or liquidation of participating credit unions;

(6) receive money or other property from participating credit unions;

(7) conduct investigation and audits of any applicant or participating credit union in order to determine the financial and operating condition of the applicant or participating credit union; and

(8) establish conditions for participation by credit unions, including the establishment of risk eligibility standards.

History

• Source Note: The provisions of this §95.103 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.104 Notices

(a) An insuring organization shall provide written notice to the department of receipt of any application for participation by a credit union. Within 30 days of receipt of the notice, the department will advise the applicant and the insuring organization if it will interpose an objection to the proposal based on safety and soundness concerns. Any such objection must be addressed to the satisfaction of the department before the applicant will be eligible to participate in the insuring organization's program. The insuring organization shall also be responsible for notifying the department of its underwriting decision on any application and advising the department when an applicant has become a participating credit union.

(b) At least 30-days prior to the effective date of any termination, an insuring organization shall notify the department in writing of any termination, voluntary or involuntary, of a participating credit union.

History

• Source Note: The provisions of this §95.104 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.105 Reporting

(a) Within one hundred days after the close of each fiscal year, an insuring organization shall file with the commissioner audited financial statements, prepared in accordance with generally accepted accounting principles, covering that fiscal year. The audited financial statements shall be accompanied by an opinion of an independent certified public accountant. In addition, at least once every three years, the audit shall include an actuarial study of the capital adequacy of the insuring organization.

(b) The provisions of this section are in addition to those prescribed in §91.209 of this title (relating to Call Reports and Other Information Requests).

History

• Source Note: The provisions of this §95.105 adopted to be effective March 7, 2007, 32 TexReg 1064; amended to be effective August 27, 2026, 51 TexReg 5533.

7 Tex. Admin. Code § 95.106 Amount of Insurance Protection

(a) The primary insured or guaranteed amount for share and deposit accounts of individual members of participating credit unions shall never be less than the corresponding share insurance coverage provided by the NCUSIF or its successor.

(b) With the approval of the commissioner and if authorized by the insuring organization, a participating credit union may, from time to time as determined by its board of directors, issue membership shares that are not guaranteed and are subordinate to all other claims, including creditors, shareholders and the insuring organization.

History

• Source Note: The provisions of this §95.106 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.107 Sharing Confidential Information

In order to permit the insuring organization to assess the financial condition and performance of a participating credit union, the department shall, with the consent of such participating credit union, provide to the insuring organization any and all reports of examination conducted by, and orders and determinations issued by, the commissioner regarding that institution.

History

• Source Note: The provisions of this §95.107 adopted to be effective March 7, 2007, 32 TexReg 1064.

7 Tex. Admin. Code § 95.108 Examinations

(a) The department may conduct examinations and investigations within or outside this state to determine whether an insuring organization has engaged, is engaging or is about to engage in any act, practice or transaction which constitutes an unsafe or unsound practice or a violation of any law or rule applicable to the insuring organization.

(b) In lieu of an examination under this section, the commissioner may accept the examination report of another regulator authorized to examine the insuring organization.

(c) If the Department conducts an examination or investigation in accordance with subsection (a) of this section, the insuring organization shall pay the costs as outlined for foreign credit union examinations in §97.113(d)(3) of this title.

(d) At the sole discretion of the Commissioner, the Department may engage professionals to perform and complete any aspect of an examination or investigation. The reasonable expenses and compensation of such professionals shall be paid by the insuring organization.

History

• Source Note: The provisions of this §95.108 adopted to be effective March 7, 2007, 32 TexReg 1064; amended to be effective August 27, 2026, 51 TexReg 5533.

7 Tex. Admin. Code § 95.110 Enforcement; Penalty; and Appeal

(a) The commissioner may issue a cease and desist order, generally in accordance with Finance Code §122.257(b), (c), (d) and (e), to an officer, employee, director, and/or the insuring organization itself, if the commissioner determines from examination or other credible evidence that the insuring organization has or is operating in an unsafe or unsound manner, or violated or is violating any applicable Texas law or rule of the commission, including causing a credit union to operate in an unsafe or unsound condition as defined by Finance Code §121.002(11)(C). If the insuring organization does not comply with the order, the commissioner may assess an administrative penalty as authorized by Finance Code §122.260, as well as institute procedures to revoke the authority to provide primary share insurance coverage in this state.

(b) An insuring organization may file a notice of appeal of a cease and desist order in accordance with §93.401 of this title (relating to Appeals of Cease and Desist Orders and Orders of Removal).

History

• Source Note: The provisions of this §95.110 adopted to be effective July 8, 2007, 32 TexReg 3982; amended to be effective August 27, 2026, 51 TexReg 5533.

Subchapter B LIQUIDATING AGENTS

7 Tex. Admin. Code § 95.200 Notice of Taking Possession; Appointment of Liquidating Agent; Subordination of Rights

(a) The department shall give prompt notice to the NCUA or other applicable insuring organization whenever the commissioner through conservatorship takes possession of the property and assets of a respective insured or participating credit union. The Department shall give further prompt notice of the Commissioner's intent to liquidate the property and assets of such insured or participating credit union.

(b) If the commissioner finds the liquidation of the credit union's assets is prudent under the guidelines established by Texas Finance Code §126.201, the insuring organization may be appointed liquidating agent for the credit union.

(c) When any member's share or deposit account is paid, the NCUA or, alternatively, the insuring organization shall be subrogated to all rights of the member, up to the amount paid by the NCUA or the insuring organization to such member.

History

• Source Note: The provisions of this §95.200 adopted to be effective November 11, 1999; amended to be effective March 7, 2007, 32 TexReg 1065; amended to be effective March 1, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 95.205 State Not Liable for Any Deficiency

Nothing in this chapter creates any liability upon this state for the payment of any funds to any credit union by reason of the acts or omissions of the NCUA or insuring organization, nor shall the state pay any deficiency of any credit union in the event the NCUA or insuring organization is unable to pay such deficiency.

History

• Source Note: The provisions of this §95.205 adopted to be effective March 7, 2007, 32 TexReg 1066.

Subchapter C GUARANTY CREDIT UNION

7 Tex. Admin. Code § 95.300 Share and Deposit Guaranty Credit Union

(a) The commissioner may authorize, with the advice and consent of the commission, the establishment of a share and deposit guaranty credit union. The charter shall be granted only on proof satisfactory to the commissioner that member credit union convenience and advantage will be promoted by the establishment of the guaranty credit union. In determining whether the convenience and advantage will be promoted, the commissioner shall consider:

(1) Whether the organizational and capital structure and amount of initial capitalization is adequate for the business;

(2) Whether the anticipated volume and nature of business indicates a reasonable probability of success and profitability based on the credit unions sought to be served;

(3) Whether the credit union's guarantee fund and reserves are actuarially reasonable and computed in accordance with accepted loss reserving standards and principles;

(4) Whether the long-term financial condition of the entity would prejudice the interest of participating credit unions;

(5) Whether the proposed officers, directors, and managers have sufficient fiduciary experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the guaranty credit union will operate in compliance with the law and that the long term success of entity is probable; and

(6) Whether the organizers are acting in good faith.

(b) Prior to commencing business in this state, a guaranty credit union is required to file a written application supported by such information and data as the commissioner may require to make the findings necessary to issue a certification of incorporation. The organizers bear the burden of proof to establish that the incorporation of the guaranty credit union will promote credit union member convenience and advantage. The failure of an applicant to furnish required information, data, professional opinions, and other material is considered an abandonment of the application.

(c) The commissioner may require, for submission to the department of public safety, the name and fingerprints of any organizer, director or officer of any guaranty credit union.

(d) The commissioner may, in approving a guaranty credit union, impose such conditions as the commissioner deems reasonable, necessary, or advisable in the public interest.

History

• Source Note: The provisions of this §95.300 adopted to be effective November 11, 1999, 24 TexReg 9830; amended to be effective March 7, 2007, 32 TexReg 1066.

7 Tex. Admin. Code § 95.301 Authority for a Guaranty Credit Union

If a guaranty credit union is authorized, the commissioner shall issue a certificate of incorporation which shall provide that said guaranty credit union shall operate as a central credit union including share and deposit guaranty insurance protection for members subject to supervision, regulation, and examination by the department.

History

• Source Note: The provisions of this §95.301 adopted to be effective November 11, 1999, 24 TexReg 9830; amended to be effective March 7, 2007, 32 TexReg 1066.

7 Tex. Admin. Code § 95.302 Powers

The guaranty credit union, pursuant to Texas Finance Code §15.410(b) and to the powers contained in Subtitle D, Title 3, Texas Finance Code, may:

(1) Purchase, hold, lease, receive, use, encumber, sell, exchange, transfer, lend, advance, convey, assign, give, grant, transmit, hypothecate, or dispose of property or funds of any description, nature, or kind or of any interest, rights, title, or privileges therein from or to any participating credit union or any corporation, association, or person, provided that any gift, grant, or transfer of a similar nature shall be made only with the approval of the commissioner;

(2) Declare and pay dividends on the membership investment fund;

(3) Make any type of investment authorized by law for a credit union chartered in this state;

(4) Act under the order or appointment of any court of record, without giving bond, as guardian, receiver, trustee, executor, administrator, custodian, or as depository for any money paid into the court for participating credit unions;

(5) Accept funds or money for deposit by fiduciaries, trustees, or receivers if managing or holding funds on behalf of a participating credit union;

(6) Accept funds or money for deposit by financial institutions, trust companies, or insurance companies, if membership or primary ownership of the institutions, associations, or companies is confined or restricted to or for the benefit of participating credit unions or organizations of participating credit unions, or if the institutions, associations, or companies are designed to serve or otherwise assist operations of participating credit unions;

(7) Act as custodian of individual retirement accounts or of pension funds of participating credit unions, or as trustee under pension and profit sharing plans of participating credit unions;

(8) Make deposits, purchase shares, and invest in legally chartered credit unions, trust companies, or other financial institutions;

(9) Impress a lien or exercise its right of setoff on the deposits, dividends, and interest of any participating credit union to the extent of any loans or other obligations due by the participating credit union;

(10) Make or issue, with the approval of the commissioner, a guarantee or other form of written assurance to the appropriate person, association, corporation, or other entity which is reasonably necessary to facilitate the sale, conveyance, assignment, transfer, or other disposition of all or any part of the property or assets of a participating credit union, and otherwise assist in the merger, consolidation, conservation, suspension, or liquidation of a participating credit union upon the request and under the instruction of the commissioner;

(11) Advance funds, with or without interest, in accordance with agreed terms and conditions, to aid participating credit unions to continue to operate and to maintain solvency or to maintain account balances with any financial institution in connection with the assumption of receivables from a participating credit union, or to meet liquidity requirements;

(12) Purchase from a participating credit union any equitable or other interest in its assets at book value or at some other value mutually agreed upon by such credit union and the board of directors of the guaranty credit union, notwithstanding that either of such values may exceed the market value of the assets so purchased, and upon such terms and conditions as the board of directors of the guaranty credit union may determine, provided, however, that all such terms, conditions, agreements and values are approved in writing by the commissioner;

(13) Exercise any setoff or lien rights that a participating credit union may have when the guaranty credit union is acting as conservator or liquidating agent for such credit union;

(14) Exercise rights of subrogation to the extent of all rights the depositors or shareholders may have against a participating credit union to the extent of any payments made by the guaranty credit union to the depositors or shareholders of such credit union, including the right to receive the same dividends, as would have been payable to the depositor or shareholder;

(15) Raise any defense to the payment of a claim or an insured account which a participating credit union could have raised, and when made, the actual payment of an insured account to any person by the guaranty credit union shall discharge the guaranty credit union to the same extent that payment to such person by the participating credit union would have discharged it from liability for the insured account;

(16) Acquire a promissory note or other asset upon which a nonmember is liable, provided such acquisition is made, in the discretion of the guaranty credit union, to protect an inferior lien held by the guaranty credit union, a participating credit union, member of the guaranty credit union or a member of a participating credit union member of the guaranty credit union. Such acquisitions shall not be subject to the restrictions of §91.701 et. seq. of this title (relating to Lending Powers);

(17) Enter into contracts of insurance or reinsurance, insuring in whole or in part its contractual guarantees to participating credit unions and any other insurance or bonding company contracts necessary or advisable in the conduct of its business, provided a guaranty credit union shall not assume any risks from another insurer; and

(18) Exercise the powers granted corporations organized under the laws of this state and such other additional incidental powers not inconsistent with these sections and Subtitle D, Title 3, Texas Finance Code, as may be necessary to enable the guaranty credit union to promote and carry out effectively its purposes.

History

• Source Note: The provisions of this §95.302 adopted to be effective November 11, 1999, 24 TexReg 9830; amended to be effective March 7, 2007, 32 TexReg 1066; amended to be effective August 27, 2026, 51 TexReg 5534.

7 Tex. Admin. Code § 95.303 Subordination of Right, Title, or Interest

No agreement which tends to diminish or defeat the right, title or interest of the guaranty credit union in any asset acquired by it, either as security for a loan or by purchase, shall be valid against the guaranty credit union unless such agreement shall be in writing; shall have been executed by the credit union and the person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the credit union; shall have been approved by the board of directors of the credit union with such approval reflected in the minutes of said board; and shall have been, continuously, from the time of its execution, an official record of the credit union.

History

• Source Note: The provisions of this §95.303 adopted to be effective November 11, 1999, 24 TexReg 9830.

7 Tex. Admin. Code § 95.304 Capital Contributions; Membership Investment Shares; Termination

(a) A guaranty credit union shall establish and maintain a guarantee fund. The fund shall be maintained at a normal operating level as defined by the board of directors of the guaranty credit union and approved by the commissioner, however, the normal operating level shall at all times not be less than one percent of the aggregate share capital of participating credit unions. The fund of the guaranty credit union shall be comprised of the following:

(1) The membership investment shares of each participating credit union;

(2) Retained and undivided earnings; and

(3) Any reserves required by the commissioner.

(b) Each participating credit union shall contribute to and maintain with a guaranty credit union a membership investment share, in an amount equal to at least one percent of its insured shares and deposits. Each participating credit union's account shall be adjusted at least annually to reflect changes in the participating credit union's aggregate insured shares and deposits in accordance with procedures adopted by the guaranty corporation's board of directors.

(c) Membership investment shares of participating credit unions shall be established as pledged assets with appropriate explanatory footnotes on the books and records and in the financial statements of the participating credit unions. The guaranty credit union may utilize all of the assets of the guaranty credit union and accordingly reduce the membership investment shares of all participating credit unions, as required, at the discretion of its board of directors, and utilize such assets in accordance with the powers of the guaranty credit union as set out in these rules.

History

• Source Note: The provisions of this §95.304 adopted to be effective November 11, 1999, 24 TexReg 9830; amended to be effective March 7, 2007, 32 TexReg 1066.

7 Tex. Admin. Code § 95.305 Audited Financial Statements; Accounting Procedures; Reports

(a) A guaranty credit union shall file with the commissioner annually audited financial statements, prepared in accordance with generally accepted accounting principles covering the fiscal year, within one hundred days after the close of such fiscal year. The audited financial statements shall be accompanied by an opinion of an independent certified public accountant.

(b) If the opinion of the certified public accountant is other than unqualified pursuant to generally accepted auditing standards, the commissioner shall require the guaranty credit union to take such action as is considered appropriate to permit the removal of such qualification from the opinion.

(c) At a minimum, once every three years the annual audit of the guaranty credit union shall include an actuarial study of the capital adequacy of the credit union.

(d) All of the provisions of this section are in addition to those prescribed in §91.209 of this title (relating to Call Reports and Other Information Requests).

History

• Source Note: The provisions of this §95.305 adopted to be effective November 11, 1999, 24 TexReg 9830; amended to be effective March 7, 2007, 32 TexReg 1066; amended to be effective August 27, 2026, 51 TexReg 5534.

7 Tex. Admin. Code § 95.310 Fees and Charges

(a) A guaranty credit union shall pay the fees prescribed in §97.113 of this title (relating to Fees and Charges) in the same manner as any other credit union chartered under the Act.

(b) At the sole discretion of the commissioner, the department may engage professionals to perform and complete any aspect of an examination or investigation. The reasonable expenses and compensation of such professionals shall be paid by the guaranty credit union.

History

• Source Note: The provisions of this §95.310 adopted to be effective March 7, 2007, 32 TexReg 1067; amended to be effective August 27, 2026, 51 TexReg 5534.

Subchapter D DISCLOSURE FOR NON-FEDERALLY INSURED CREDIT UNIONS

7 Tex. Admin. Code § 95.400 Requirements of Participating Credit Unions

(a) Every participating credit union shall give appropriate notice of the insurance status of its accounts printed in a manner acceptable to the commissioner. This notice shall be posted at all public entrances at each office and service facility (excluding shared branching facilities) and continuously displayed at each station or window (excluding automatic teller machines and point of sale terminals) where funds or deposits are normally received. At a minimum, the notice shall clearly and conspicuously disclose the following:

(1) That members' accounts are insured by an insuring organization;

(2) The name of the insuring organization;

(3) The extent of the insuring organization's share and deposit insurance protection; and

(4) That accounts are not insured or guaranteed by any government or government-sponsored agency.

(b) At the time an account is established, a participating credit union shall provide written notice to its members that the share or deposit account will be cooperatively insured or guaranteed by an insuring organization. The notice shall include a conspicuous statement that discloses that member accounts are not insured or guaranteed by any government or government-sponsored agency.

(c) The noticed required by paragraph (a) of this section shall also be displayed on a participating credit union's web site home page and any other page where it accepts deposits or opens accounts. The dimensions and font size of the notice required by this paragraph must be of a reasonable size and clearly legible.

(d) Every participating credit union shall also include, in any literature, advertising, or other marketing materials related to joining the credit union, or soliciting funds for a share or deposit account, a conspicuous statement that discloses that member accounts are not insured or guaranteed by any government or government-sponsored agency.

History

• Source Note: The provisions of this §95.400 adopted to be effective March 7, 2007, 32 TexReg 1067.

Chapter 97 COMMISSION POLICIES AND ADMINISTRATIVE RULES

Subchapter A GENERAL PROVISIONS

7 Tex. Admin. Code § 97.101 Meetings

The time and place of regular and special meetings of the Commission and its committees shall be determined by the applicable chair and posted in accordance with the Open Meetings Act (Government Code, Chapter 551). The minutes of each meeting shall be in writing, shall be posted on the Department's website, and shall be available to any person to examine during the Department's regular office hours.

History

• Source Note: The provisions of this §97.101 adopted to be effective March 8, 1984, 9 TexReg 1211; amended to be effective July 8, 1994, 19 TexReg 4946; amended to be effective December 9, 2001, 26 TexReg 9777; amended to be effective July 12, 2009, 34 TexReg 4513.

7 Tex. Admin. Code § 97.102 Delegation of Duties

The Commissioner is authorized to complete all filings necessary to facilitate the rule making powers of the Commission. The Commissioner may draft and sign final adoption orders and other such instruments where delegation is not restricted by statute or rule. Notwithstanding other provisions of this rule, this authority is conveyed only to promote administrative efficiency and to expedite properly approved decisions of the Commission.

History

• Source Note: The provisions of this §97.102 adopted to be effective May 4, 1995, 20 TexReg 3015; amended to be effective July 12, 2009, 34 TexReg 4513.

7 Tex. Admin. Code § 97.103 Recusal or Disqualification of Commission Members

(a) A commission member may not vote on or otherwise participate in the deliberation or decision of a matter pending before the commission:

(1) in which the commission member has a personal or private interest; or

(2) which directly affects the credit union of which the commission member is an officer, director, or member.

(b) The term "personal or private interest" shall be given the meaning as prescribed in Texas Government Code, §572.058, and includes a direct personal or financial interest in a credit union or other matter which is the subject of commission action.

(c) A commission member who is disqualified under subsection (a) of this section shall publicly disclose the fact to the commission in a meeting called and held in compliance with the Open Meetings Act, Texas Government Code, Chapter 551. The disclosure shall be entered in the minutes of the meeting.

(d) A commission member who is recused or disqualified will be counted in determining a quorum.

History

• Source Note: The provisions of this §97.103 adopted to be effective February 17, 1998, 23 TexReg 1303.

7 Tex. Admin. Code § 97.105 Frequency of Examination

The department shall perform an examination of each credit union authorized to do business under the Act at least once during each 12-month period. Annual examination intervals may be extended by the Department to a maximum 18 months, subject to safety and soundness considerations. Intervals between examinations shall not exceed 18 months, unless a longer interval is authorized in writing by the commission. In lieu of conducting an examination required by this rule, the commissioner in the exercise of discretion may accept examinations or reports from other credit union supervisory agencies or insuring organizations.

History

• Source Note: The provisions of this §97.105 adopted to be effective March 8, 1984, 9 TexReg 1211; amended to be effective December 9, 2001, 26 TexReg 9777; amended to be effective August 3, 2017, 42 TexReg 3744.

7 Tex. Admin. Code § 97.107 Related Entities

(a) Definition. For the purposes of this section, a related entity is defined as:

(1) a credit union service organization in which a credit union has a material interest by contracting with, lending to or investing in the organization;

(2) a subsidiary or affiliate of a credit union service organization that is wholly owned or controlled by a credit union;

(3) an organization engaged primarily in the business of managing a credit union; and

(4) third-party contractors providing electronic data processing, electronic fund transfers, or other member services to or on behalf of a credit union.

(b) General Supervision. A credit union should perform a thorough analytical assessment to identify, measure, monitor, and establish controls to manage the risks associated with related entities and avoid excessive risk-taking that may threaten the safety and soundness of a credit union. The department may review the risks associated with any related entity and its activities together with other credit union risks using its supervision-by-risk framework. The department shall assess the effectiveness of a credit union's oversight program of related entities, including its strategic planning, third-party selection process, and ongoing monitoring.

(c) Examination. A credit union's use of related entities to achieve its strategic goals does not diminish the responsibility of the department to ensure that the activity is conducted in a safe and sound manner and in compliance with applicable law. Although in most situations, these activities should be conducted in the same manner that would be expected if the credit union were conducting the activities directly, the department shall consider the following factors in determining whether to examine related entities:

(1) the high risk or unusual nature of the activities conducted by the related entity for the credit union;

(2) the significance of the activities conducted by the related entity for the credit union to the credit union's operations and income; and

(3) the extent to which the credit union has sufficient systems, controls, and personnel to adequately monitor, measure, and control risks arising from activities conducted by the related entity. The department may examine a related entity, as the commissioner deems necessary to ensure that a credit union is not assuming excessive risk.

(d) Examination Fee. The related entity shall pay a supplemental examination fee as prescribed in §97.113(e) of this title (relating to Supplemental examination fees). A credit union may elect to pay the fee on behalf of the related entity. The supplemental examination fee for a related entity may be waived or reduced if the commissioner determines it is appropriate.

History

• Source Note: The provisions of this §97.107 adopted to be effective March 14, 2004, 29 TexReg 2639; amended to be effective July 12, 2009, 34 TexReg 4513.

Subchapter B FEES

7 Tex. Admin. Code § 97.113 Fees and Charges

(a) Operating Fee.

(1) Each credit union authorized to do business under the Act shall remit to the department an annual operating fee. The fee shall be paid in semi-annual installments, billed effective September 1 and March 1 of each year. Either installment may be adjusted as provided by paragraph (6) of this subsection.

(2) Credit unions that exit the Texas credit union system on or before August 31 or February 28 of a given year, will not be subject to the semi-annual assessment for the period beginning September 1 or March 1, respectively. Only those credit unions leaving the state credit union system prior to the close of business on those dates avoid paying the semi-annual assessment for the period beginning September 1 or March 1, as applicable.

(3) Calculation of operating fees. The schedule provided in this section shall serve as the basis for calculating operating fees. The base date shall be June 30 of the year in which operating fees are calculated. The asset base may be reduced by the amount of reverse-repurchase balances extant on the June 30 base date.

Attached Graphic

(4) The commissioner is authorized to increase the fee schedule once each year as needed to match revenue with appropriations. An increase greater than 5% shall require prior approval of the commission. The commissioner shall notify the commission of any such adjustment at the first meeting of the commission following the determination of the fee schedule.

(5) Waiver of operating fees. The commissioner is authorized to waive the operating fee for an individual credit union when good cause exists. The commissioner shall document the reason(s) for each waiver of operating fees and report such waiver to the commission at its next meeting.

(6) Adjustment of an installment. The commissioner in the exercise of discretion may, after review and consideration of anticipated and actual revenues and projected revenues adjust the amount of either installment due from credit unions.

(7) Late Fee. Installments received after September 30 or March 30 of each year will be subject to a monthly 10% late fee (calculated on the balance due) unless waived by the commissioner for good cause.

(8) Credit union conversion. A credit union organized under the laws of the United States or of another State that converts to a credit union organized under the laws of this State shall remit to the department an annual operating fee within 30 days after the issuance of a charter by the commissioner. The schedule provided in paragraph (3) of this subsection shall serve as the basis for calculating the operating fee. All provisions set forth in paragraph (3) of this subsection shall apply to converting credit unions with the following exceptions:

(A) Should the effective date of the conversion fall on or after October 31, the base date shall be the calendar quarter end immediately preceding the issuance date of a charter by the commissioner.

(B) The amount of the operating fee calculated under this section will be prorated based upon the number of full months remaining until September 1. For example, should the effective date of the conversion be January 31, the converting credit union will remit seven-twelfths of the amount of the operating fee calculated using December 31 base date.

(C) Any fee received more than 30 days after the issuance of a charter will be subject to a monthly 10% late fee unless waived by the commissioner for good cause.

(9) Mergers/Consolidations. In the event a credit union in existence as of June 30 merges or consolidates with another credit union and the merger/consolidation is completed on or before August 31, the surviving credit union's asset base, for purposes of calculating the operating fee prescribed in paragraph (3) of this subsection, will be increased by the amount of the merging credit union's total assets as of the June 30 base date.

(b) Supplemental examination fees.

(1) If the commissioner or deputy commissioner schedules a special examination in addition to the regular examination, the credit union is subject to a supplemental charge to cover the cost of time and expenses incurred in the examination.

(2) The credit union shall pay a supplemental fee of $100 for each hour of time expended on the examination. The commissioner may waive the supplemental fee or reduce the fee, individually or collectively, as he deems appropriate. Such waiver or reduction shall be in writing and signed by the commissioner. The department shall fully explain the time and charges for each special examination to the president or designated official in charge of operations of a credit union.

(c) Special assessment. The commission may approve a special assessment to cover material expenditures, such as major facility repairs and improvements and other extraordinary expenses.

(d) Foreign credit unions.

(1) Branches. Credit unions operating branch offices in Texas as authorized by §91.210 of this title (relating to Foreign Credit Unions) shall pay an annual operating fee of $1,000 per branch office.

(2) Field of membership expansion. A foreign credit union applying to expand its field of membership in Texas shall pay a fee of $1,000. This fee shall be paid at the time of filing to cover the cost of processing the application. In addition, the applicant shall pay any cost incurred by the department in connection with any hearing conducted.

(3) Foreign credit union examination fees.

(A) If the commissioner schedules an examination of a foreign credit union, the credit union is subject to supplemental charges to cover the cost of time and expenses incurred in the examination.

(B) The foreign credit union shall pay a fee of $100 for each hour of time expended by each examiner on the examination. The commissioner may waive the examination fee or reduce the fee as he deems appropriate.

(C) The foreign credit union shall also reimburse the department for actual travel expenses incurred in connection with the examination, including mileage, public transportation, food, and lodging in addition to the fee set forth in paragraph (2) of this subsection. The commissioner may waive this charge at his discretion.

(e) Contract Services. The commissioner may charge, or otherwise cause to be paid by, a credit union, a foreign credit union or related entities the actual cost incurred by the department for legal fees, adjudication fees and an examination or a review of all or part of the operations or applications of a credit union, a foreign credit union or related entity, that is performed under a contract entered into between the department and third parties. This includes fees paid to the Texas Attorney General's Office and State Office of Administrative Hearings.

History

• Source Note: The provisions of this §97.113 adopted to be effective August 2, 1991, 16 TexReg 4002; amended to be effective August 26, 1993, 18 TexReg 5395; amended to be effective July 8, 1994, 19 TexReg 4946; amended to be effective May 12, 1997, 22 TexReg 3891; amended to be effective May 10, 1998, 23 TexReg 4569; amended to be effective May 13, 1999, 24 TexReg 3476; amended to be effective November 13, 2000, 25 TexReg 11279; amended to be effective December 9, 2001, 26 TexReg 9777; amended to be effective July 12, 2009, 34 TexReg 4514; amended to be effective August 10, 2025, 50 TexReg 5063.

7 Tex. Admin. Code § 97.114 Charges for Public Records

(a) Reproduction Charges. Copies of documents not excepted from disclosure by the Texas Public Information Act (Government Code, Chapter 552) may be obtained upon written request to the department at rates established by the Office of the Attorney General in 1 TAC §§70.1 - 70.12 (relating to Cost of Copies of Public Information) or other applicable law.

(b) Request for Information. The following guidelines apply to requests for records under the Public Information Act (Government Code, Chapter 552).

(1) Request must be in writing and reasonably identify the records requested.

(2) Records access will be by appointment only.

(3) Records access is available only during the regular business hours of the department.

(4) Generally, unless confidential information is involved, review may be by physical access or by duplication, at the requestor's option. Any person, however, whose request would be unduly disruptive to the ongoing business of the office may be denied physical access and will be provided only the option of receiving copies by duplication.

(5) When the safety of any public record is at issue, physical access may be denied, and the records will be provided by duplication as previously described.

(6) Confidential files will not be made available for inspection or for duplication unless required by a court order or Attorney General decision.

(c) Waiver of Fees or Charges. The commissioner may waive or reduce an established charge when, in his or her discretion, a waiver or reduction of the fee is in the public interest because furnishing the information primarily benefits the general public. The fee may also be waived if the cost of processing the collection of a charge will exceed the amount of the charge.

History

• Source Note: The provisions of this §97.114 adopted to be effective September 1, 1994, 19 TexReg 6557; amended to be effective December 9, 2001, 26 TexReg 9778; amended to be effective July 12, 2009, 34 TexReg 4515.

7 Tex. Admin. Code § 97.115 Reimbursement of Legal Expenses

(a) The commissioner may seek reimbursement of expenses from an individual credit union for legal fees incurred solely and necessarily because the credit union acted in an unreasonable or egregious manner or acted outside the course and scope of what is permitted by statute or regulation. To ensure that the rights and interest of all parties are protected, this section shall not apply to any adjudicative proceedings in which the legal rights, duties, or privileges of the credit union are being determined by the Department after an opportunity for hearing. This section also does not apply to court proceedings where the individual credit union's legal rights, duties, or privileges are being determined as against the Department.

(b) The credit union has thirty days from the date it receives the assessment to pay in full or to appeal in writing to the Commission.

(c) If a credit union files a written notice of appeal, the Commission shall hear the appeal at its next regularly scheduled meeting. In making its decision, the Commission shall consider whether the credit union acted reasonably under the circumstances or acted within its legal rights.

(d) When possible, the Department will notify a credit union before the Department requests legal assistance which may be charged to a credit union under this section.

History

• Source Note: The provisions of this §97.115 adopted to be effective November 7, 2010, 35 TexReg 9722.

7 Tex. Admin. Code § 97.116 Recovery of Costs for Extraordinary Services Not Related to an Examination

(a) The commissioner may seek reimbursement from an individual credit union for non examination-related expenses incurred solely and necessarily because the credit union acted in an unreasonable or egregious manner, or acted outside the course and scope of what is permitted by statute or regulation. Expenses can include personnel costs, transportation costs, meals, lodging, and other incidental expenses. If the commissioner determines that recovery of costs is appropriate, the Department shall provide advance notice to the credit union of its intention to recover the expenses.

(b) In seeking reimbursement, the commissioner shall consider the amount of the costs involved, the nature of the credit union's conduct, the service provided, the financial impact on the credit union, and the impact of the activity on other Department services. The commissioner may reduce the charges and bill the credit union less than the full amount of the costs.

(c) The credit union has thirty days from the date it receives the assessment to pay in full or to appeal in writing to the Commission.

(d) If a credit union files a written notice of appeal, the Commission shall hear the appeal at its next regularly scheduled meeting. In making its decision, the Commission shall consider whether the credit union acted reasonably under the circumstances or acted within its legal rights.

History

• Source Note: The provisions of this §97.116 adopted to be effective November 7, 2010, 35 TexReg 9723.

Subchapter C DEPARTMENT OPERATIONS

7 Tex. Admin. Code § 97.200 Employee Training Program

(a) Components of program. The employee training program for the department consists of one or more of the following components:

(1) Agency-sponsored training to include in-house training sessions and on-the-job training;

(2) Formal training program conducted through the National Credit Union Administration as administrator of the National Credit Union Share Insurance Fund.

(3) Seminars and conferences; and

(4) Formal course of study at an accredited institution of higher education.

(b) In order for the cost of training and the time related to that training to be reimbursed by the department, the employee must demonstrate that the course has direct applicability to the employee's job with the department. Attendance at an approved training session described in subsection (a)(1)-(3) will be considered part of the employee's normal work duties and will not require the employee to use accrued leave to attend.

(c) Requests to attend an external training program, seminar or conference pursuant to this section must be approved by the commissioner. Approval of a request is contingent upon availability of funds. If limited funds are available, and more than one employee wishes to participate, a decision regarding who will attend will be based upon the extent of their previous use of funds, the training's merit and its value to the department's operations.

(d) Continuing education courses. Continuing education courses required by licensing or certifying bodies for employees to maintain a professional license or designation will only be reimbursed if such courses relate directly to the employee's job duties with the department and there are funds available.

(e) Tuition reimbursement. The Commissioner must authorize in writing the reimbursement of tuition in accordance with this subsection.

(1) The department may reimburse full-time employees for part or all of tuition and required fees for formal courses of study described in subsection (a)(4) provided the eligibility criteria set forth below are met.

(A) An employee must have completed 24 consecutive months of full-time employment with the department prior to requesting approval to receive tuition reimbursement. However, the 24-month requirement may be waived if the commissioner finds that the employee needs a particular course to fulfill his or her work duties.

(B) An employee must be performing consistently above that normally expected or required and must have achieved an overall performance rating of at least 3.50 on the employee's most recent performance evaluation.

(C) An employee must not have been subject to formal disciplinary action for at least twelve months prior to requesting approval. As used in this section, "disciplinary action" includes a formal written reprimand, suspension without pay, or salary reduction for disciplinary reasons.

(D) The course work must be related to a current or prospective duty assignment within the department.

(E) An employee, before the course begins, must agree in writing to the repayment requirement stated in this subsection.

(F) At the time of the request for approval to receive tuition reimbursement, comparable training must not be scheduled to be offered in-house or through the National Credit Union Administration during the period of time covered by the tuition reimbursement.

(G) The employee's participation must not adversely affect workload or performance.

(H) The employee must complete the course within the semester for which tuition reimbursement was requested.

(I) The employee must receive a passing grade in the course. A passing grade is a grade which will entitle the employee to receive credit for the course from the educational institution offering the course.

(2) Reimbursable costs. Criteria addressing the extent to which cost of tuition may be reimbursed are as follows:

(A) The maximum amount an employee may be reimbursed for an approved tuition reimbursement request is $250 per semester, not to exceed $500 per fiscal year. The maximum amount of reimbursement may be increased up to $400 per semester for good cause shown upon approval by the commissioner.

(B) Reimbursable costs include tuition, related fees, and required textbooks and workbooks. Employees will not be reimbursed for auditing a course.

(C) Costs described in subparagraph (B) of this paragraph will be paid to the employee at the completion of the course upon the employee submitting proof that the course was completed and a passing grade was received.

(3) Repayment. Should an employee separate from department service within 12 months of completion of the course, the employee must reimburse the department for all reimbursable costs expended by the department for that course in accordance with section 656.103 of the Texas Government Code (relating to Restrictions on Certain Training Costs). The commission may adopt an order waiving this requirement upon finding that such action is in the best interest of the department or is warranted because of an extreme personal hardship suffered by the employee.

(4) Prohibition on use of state resources. Employees may not use department equipment, such as computers, calculators or typewriters to complete course work.

History

• Source Note: The provisions of this §97.200 adopted to be effective February 16, 2000, 25 TexReg 1099; amended to be effective July 31, 2016, 41 TexReg 5415.

7 Tex. Admin. Code § 97.205 Use of Historically Underutilized Businesses

Pursuant to Chapter 2161 of the Government Code, the Department hereby incorporates by reference the rules of the Comptroller of Public Accounts, 34 TAC §§20.11 - 20.28 (relating to Historically Underutilized Business Program), or any successor rules, regarding historically underutilized businesses. The Department shall comply, to the extent applicable, with the requirements of these rules when purchasing goods and services that are paid for with State appropriated money.

History

• Source Note: The provisions of this §97.205 adopted to be effective November 13, 2000, 25 TexReg 11279; amended to be effective July 12, 2009, 34 TexReg 4515.

7 Tex. Admin. Code § 97.206 Posting of Certain Contracts: Enhanced Contracts and Performance Monitoring

(a) Pursuant to §2261.253 of the Texas Government Code, the Department will implement the following procedures for contracts for the purchase of goods or services from private vendors:

(1) The Department will list information pertaining to its contract with private vendors on its website. The information will include:

(A) The name of the vendor with whom the contract is made;

(B) A description of the competitive bidding process for the contract, or, if the contract did not involve competitive bidding, a citation and explanation of the legal authority supporting exemption from the competitive bidding process;

(C) A link to a copy of the request for proposal for the contract, if applicable until the contract expires or is completed; and

(D) A link to a copy of the contract with the vendor until the contract expires or is completed.

(2) Enhanced contract or performance monitoring procedure until the contract expires or is completed.

(A) For each contract whose value is greater than $25,000, the Commissioner and the Department Procurement Director will evaluate whether enhanced contract or performance monitoring is appropriate. Criteria that may be considered include:

(i) Total cost of the contract.

(ii) Risk of loss to the Department under the contract.

(iii) Department resources available for enhanced contract or performance monitoring.

(B) After evaluation of the contract, the Commissioner will immediately report to the Commission Members:

(i) The basis for determination as to whether enhanced contract or performance monitoring is appropriate;

(ii) Include any serious issues or risks identified with the contract, if applicable; and

(iii) If enhanced contract or performance monitoring is appropriate, the Department's plan for carrying out the enhanced contract or performance monitoring.

(C) Commission members may agree to convene a special commission meeting for the purposes of discussion or deciding upon matters related to enhanced contract or performance monitoring of Department contracts. This meeting would be conducted in conformity with the Texas Open Meetings Act.

(b) This rule applies only to contracts for which the request for bids or proposals is made public on or after September 1, 2015; or, if the contract is exempt from competitive bidding, where the contract is entered into on or after September 1, 2015. This rule does not apply to memorandums of understanding, interagency contracts, interlocal agreements or contracts that do not involve a cost to the Department.

History

• Source Note: The provisions of this §97.206 adopted to be effective November 8, 2015, 40 TexReg 7667.

7 Tex. Admin. Code § 97.207 Contracts for Professional or Personal Service

(a) In connection with the authority granted to the commissioner to negotiate, contract or enter into an agreement for professional or personal services under §15.414, Texas Finance Code, the Department hereby incorporates by reference the procurement rules of the Comptroller of Public Accounts, 34 TAC Chapter 20 (relating to Texas Procurement and Support Services), or any successor rules, regarding soliciting and awarding contracts. The Department shall comply, to the extent applicable, with the requirements of these rules when contracting for professional or personal services that are paid for with State appropriated money or paid by credit unions pursuant to §97.113(l) of this title (relating to Fees and Charges).

(b) Any professional or personal service contracts between the Department and entities that receive funds from the State of Texas shall contain the following language regarding the authority of the State Auditor's Office to conduct an audit or investigation in connection with those funds: "Contractor understands that acceptance of funds under this contract acts as acceptance of the authority of the State Auditor's Office, or any successor agency, to conduct an audit or investigation in connection with those funds. Contractor further agrees to cooperate fully with the State Auditor's office or its successor in the conduct of the audit or investigation, including providing all records requested. Contractor will ensure that this clause concerning the authority to audit funds received indirectly by subcontractors through Contractor and the requirements to cooperate is included in any subcontract it awards."

(c) Any professional or personal service contracts between the Department and entities that receive funds from the State of Texas shall contain the following language regarding dispute resolution: "The parties shall attempt to resolve any dispute arising under this contract by using the Department's dispute resolution process." The Department hereby incorporates by reference as its dispute resolution process the rules found in 1 TAC Chapter 68 (relating to Negotiation and Mediation of Certain Contract Disputes), or any successor rules.

History

• Source Note: The provisions of this §97.207 adopted to be effective March 14, 2004, 29 TexReg 2639; amended to be effective July 12, 2009, 34 TexReg 4516; amended to be effective July 14, 2013, 38 TexReg 4318.

7 Tex. Admin. Code § 97.208 Vendor Protests

(a) The purpose of this rule is to set forth the Department's procedures for resolving vendor protests relating to purchases as required by Texas Government Code Sections 2155.076 and 2260.052(c), and the adoption of rules of the Texas Comptroller of Public Accounts pursuant to Texas Government Code Section 2156.005(d).

(b) The following words, when used in this section, shall have the following meaning unless the context clearly indicates otherwise.

(1) Commissioner--The Commissioner of the Credit Union Department, State of Texas.

(2) Department--The Credit Union Department, State of Texas.

(3) Deputy Commissioner--The Deputy Commissioner of the Credit Union Department, State of Texas.

(4) General Counsel--The General Counsel of the Credit Union Department, State of Texas.

(5) Interested Parties--All vendors who have submitted bids or proposals for the provision of goods or services to the Credit Union Department, State of Texas.

(c) A vendor who submitted a written response to a solicitation may file a protest with the Department for the following:

(1) the solicitation documents or actions associated with the publication of solicitation documents;

(2) the evaluation or method of evaluation for a solicitation; or

(3) the award of a contract.

(d) This section does not apply to:

(1) the award of grants or subcontracts; or

(2) interagency or interlocal agreements executed in accordance with applicable law.

(e) The Department will not consider protests filed pursuant to this section as contested cases under the Administrative Procedure Act, Texas Government Code, Chapter 2001.

(f) To be considered timely, the protest must be in writing, sworn to, and received by the Department:

(1) no later than the date that responses to a solicitation are due, if the protest concerns the solicitation;

(2) no later than the date a contract resulting from the solicitation is awarded, if the protest concerns the evaluation or method of evaluation for the solicitation; or

(3) no later than 10 days after the notice of award of a contract is posted, if the protest concerns the award.

(g) The protesting vendor must file a protest with the Department by electronic mail submission to CUDDeputyCommissionerProtests@cud.texas.gov for review by the Deputy Commissioner.

(h) In addition to being in writing, sworn to, and timely, to be considered by the Department, a protest must contain:

(1) a specific statute or regulation the protesting vendor alleges the solicitation, contract award, or tentative award violated;

(2) a specific description of each action by the Department that the protesting vendor alleges is a violation of the statutory or regulatory provision;

(3) a precise statement of relevant facts including:

(A) sufficient documentation to establish that the protest has been timely filed;

(B) a description of the adverse impact to the Department and the state; and

(C) a description of the resulting adverse impact to the protesting vendor;

(4) a statement of any issues of law or fact that the protesting vendor contends must be resolved;

(5) a statement of the argument and authorities that the protesting vendor offers in support of the protest;

(6) an explanation of the subsequent action the protesting vendor is requesting; and

(7) sworn statement that copies of the protest have been provided to the Department and all other identifiable interested parties by either hard-copy or electronic means.

(i) The Deputy Commissioner may settle and resolve the dispute over the solicitation or the award of the contract at any time before the matter is submitted on appeal to the Commissioner.

(j) Upon receipt of a protest, the Deputy Commissioner may:

(1) solicit written responses to the protest from other interested parties;

(2) attempt to resolve the protest by mutual agreement; or

(3) dismiss the protest if:

(A) it is not timely; or

(B) it does not meet the requirements of this section.

(k) The Deputy Commissioner may confer with the General Counsel at any time during the review of the protest.

(l) If the protest is not resolved by mutual agreement, the Deputy Commissioner will issue a written determination that resolves the protest.

(1) If the Deputy Commissioner determines that no violation of statutory or regulatory provisions has occurred, then the Deputy Commissioner shall inform the protesting vendor, the Department, and other interested parties by letter that details the reasons for the determination.

(2) If the Deputy Commissioner determines that a violation of any statutory or regulatory provisions has occurred in a situation in which a contract has not been awarded, then the Deputy Commissioner shall inform the protesting vendor, the Department, and other interested parties of the determination by letter that details the reasons for the determination and the appropriate remedy.

(3) If the Deputy Commissioner determines that a violation of any statutory or regulatory provisions has occurred in a situation in which a contract has been awarded, then the Deputy Commissioner shall inform the protesting vendor, the Department, and other interested parties of that determination by letter that details the reasons for the determination. This letter may describe appropriate remedial action including, but not limited to, concluding the contract is void; terminating the contract; and readvertising the solicitation.

(4) The Deputy Commissioner's written determination is the final administrative action by the Department on a protest filed under this subchapter unless the protesting vendor files an appeal of determination under subsection (m) of this section.

(m) The protesting vendor may appeal the Deputy Commissioner's determination on a protest to the Commissioner. An appeal of the Deputy Commissioner's determination must be in writing, sent by electronic mail submission to CUDCommissionerProtests@cud.texas.gov, and received not later than 10 days after the date on which written notification of the Deputy Commissioner's determination was sent to the protesting vendor. The scope of the appeal will be limited to the review of the Deputy Commissioner's determination. With the appeal, the protesting vendor must submit a sworn statement that copies of the appeal have been provided to the Department and all other identifiable interested parties by either hard-copy or electronic means.

(1) An appeal that is not timely filed shall not be considered unless good cause for delay is shown or the Commissioner determines that an appeal raises issues that are significant to the Department's procurement practices or procedures in general.

(2) The Commissioner may confer with the General Counsel at any time during the review of the appeal.

(3) The Commissioner may consider any documents that Department personnel or interested parties have submitted.

(4) The Commissioner will review the appeal of the Deputy Commissioner's determination and render a final decision on the appeal.

(5) A written decision issued by the Commissioner shall be the final administrative action of the Department.

(n) In the event of a properly filed protest under this section, and a contract award has not been made, the Department will not proceed further with the solicitation or award of the contract unless the Commissioner, after consultation with the Deputy Commissioner and General Counsel, makes a written determination that the contract must be awarded without delay, to protect the best interests of the Department.

(o) The Department shall maintain all documentation on the purchasing process that is the subject of a protest or appeal in accordance with the Department's document retention schedule.

(p) Pursuant to Texas Government Code Section 2156.005(d), the Department adopts by reference the rules of the Texas Comptroller of Public Accounts, Statewide Procurement and Support Services in 34 TAC §20.207 and §20.208 (relating to Competitive Sealed Bidding and Competitive Sealed Proposals).

(q) Pursuant to Texas Government Code Section 2260.052(c), the Department adopts by reference the rules of the Office of the Attorney General of Texas in 1 TAC Part 3, Chapter 68 (relating to Negotiation and Mediation of Certain Contract Disputes).

History

• Source Note: The provisions of this §97.208 adopted to be effective October 9, 2022, 47 TexReg 6431.

Subchapter D GIFTS AND BEQUESTS

7 Tex. Admin. Code § 97.300 Gifts of Money or Property

(a) The department may accept money or property by gift, bequest, devise, or otherwise ("Donation"), only from an organization described in Section 501(c)(3), Internal Revenue Code of 1986, for the purposes of funding or performing any authorized activity ("Donor").

(b) All Donations must be accepted in an open meeting by a majority of the commission members present and reported in the minutes of the meeting setting forth the name of the Donor and the purpose of the Donation. Before accepting a Donation, the commission may require the Donor to provide information that the commission deems reasonable and necessary to ensure itself that the Donation is not being conveyed to directly or indirectly influence an official act of the department or the commission.

(c) The department may not solicit money or property from any person or organization to settle an administrative action or to keep the department from taking formal enforcement action.

History

• Source Note: The provisions of this §97.300 adopted to be effective March 14, 2004, 29 TexReg 2640; amended to be effective July 12, 2009, 34 TexReg 4516.

Subchapter E ADVISORY COMMITTEES

7 Tex. Admin. Code § 97.401 General Requirements

(a) Definition. For purposes of this rule, the term "advisory committee" means a committee, council, board, task force, or other entity with multiple members established to provide advice and counsel to the commission.

(b) Creation. The commission may establish advisory committees to advise the commission on issues within the jurisdiction of the department.

(c) Function. Unless otherwise provided by law, an advisory committee's responsibility is limited to those matters about which advice or counsel is sought. An advisory committee will have no authority to make rules or establish department policy.

(d) Expiration of advisory committee. Unless expressly provided in this subchapter or other law, an advisory committee will expire on the fourth anniversary of the date of its creation. The date of creation shall be the effective date of the rule establishing the advisory committee.

(e) Membership and Quorum. The chairman may appoint a maximum of 24 individuals to serve on an advisory committee. A majority of those individuals shall constitute a quorum. Unless otherwise provided by specific statute, the appointments shall be balanced to ensure representation of credit unions regulated by the department and consumers of services provided by those credit unions. Each advisory committee shall include at least one department employee as an ex officio member. This employee shall not be considered a committee member for purposes of establishing the maximum number of members or for purposes of determining a quorum.

(f) Term of members. Unless expressly provided in this subchapter or other law, each member of an agency advisory committee will serve a term of four years. The terms may be staggered. Members' terms will expire at the end of four years or upon the termination of the advisory committee, whichever is earlier. Members may be reappointed. Members serve at the will of the chairman and may be removed at any time by the chairman.

(g) Presiding officer. The presiding officer of each advisory committee shall be selected by the members of the advisory committee from its membership. The chairman may make a recommendation to the advisory committee regarding the presiding officer.

(h) Meetings. Meetings shall be subject to the requirements of Chapter 551 of the Government Code. Each committee shall meet at least annually, but may meet as often as necessary. The department ex officio member of each advisory committee shall work with the presiding officer to schedule advisory committee meetings and provide adequate notice to department staff and to other members.

(i) Reports. On or before October 1 of each year, each advisory committee shall submit a report to the commission. Upon receipt of the report, the commission shall evaluate the advisory committee's work, usefulness, and costs related to the committee's existence, including the cost of department staff time spent in support of the committee's activities. Each report shall include the following:

(1) a summary or minutes of meetings conducted during the previous fiscal year (September 1 - August 31);

(2) a summary of recommendations from the advisory committee; and

(3) other information determined by the advisory committee or the chairman to be appropriate and useful.

(j) Expenses. Members of each advisory committee will serve without compensation or reimbursement for travel or other out-of-pocket expenses.

(k) Rules. For each advisory committee appointed, the commission shall adopt rules that address the purpose of the advisory committee and membership qualifications, including experience requirements, geographic representation, and training requirements. Such rules may also address the terms of service, operating procedures, and other standards to ensure the effectiveness of an advisory committee appointed under this subchapter.

History

• Source Note: The provisions of this §97.401 adopted to be effective March 14, 2010, 35 TexReg 1980.

Subchapter F RULEMAKING

7 Tex. Admin. Code § 97.500 Petitions to Initiate Rulemaking Proceedings

(a) Petitions to initiate rulemaking proceeding pursuant to Government Code, §2001.021, must be submitted to the Department in writing. A petition must include:

(1) a brief explanation of the proposed rule;

(2) the full text of the proposed rule, and, if the petition is to amend an existing rule, the text of the rule that clearly identifies any words to be added or deleted from the existing text by underlining new language and striking through language to be deleted; and

(3) a concise explanation of the legal authority to adopt the proposed rule, including a specific reference to the particular statute or other authority that authorizes it.

(b) When the Department receives a rulemaking petition, the Department shall review it for compliance with the requirements of subsection (a) of this section. If the petition is determined to comply, the Department shall notify the applicant that the petition has been accepted for filing and will be processed in accordance with Government Code, §2001.021(c). If it is determined the petition does not comply with subsection (a), the Department shall notify the applicant in writing of all deficiencies found and give the petitioner an opportunity to cure them by filing an amended petition. If no amended petition curing the deficiencies is filed with the Department by 5:00 p.m. on the 15th calendar day following the date that the Department mailed a notice of deficiencies to the petitioner, the petition shall be deemed denied for the reasons stated in the deficiency notice without the necessity of further action.

(c) If the petition is accepted for filing, within 60 days of the date that a petition is accepted for filing, the Department must either deny the petition for reasons stated in writing or initiate a rulemaking proceeding.

History

• Source Note: The provisions of this §97.500 adopted to be effective August 3, 2017, 42 TexReg 3744.

7 Tex. Admin. Code § 97.501 Hearing on Proposed Rules

(a) The Department shall grant an opportunity for a public hearing before adoption of any substantive rule as required by Government Code, §2001.029(b), or other applicable statute.

(b) The hearing may be held by the commissioner or by any other person designated by the commissioner. In the exercise of discretion, the commissioner may impose reasonable time limits on presentation of evidence and argument, determine the order of the presentations, and conduct the hearing in a manner suitable to the particular proceeding. Public hearings on proposed rules are neither contested cases nor full legal adversary proceedings. Ex parte prohibitions do not apply.

History

• Source Note: The provisions of this §97.501 adopted to be effective August 3, 2017, 42 TexReg 3744.

Part 7 STATE SECURITIES BOARD

Chapter 101 GENERAL ADMINISTRATION

7 Tex. Admin. Code § 101.1 Authority

(a) Introduction. Pursuant to the authority granted by the Texas Securities Act and the Administrative Procedure Act, Texas Government Code, Chapter 2001, the State Securities Board prescribes the following sections regarding the administration and implementation of the Texas Securities Act, and the procedure and practice before the Texas Securities Commissioner.

(b) Objective. The intent of the board is to supplant unwritten policies and guidelines with written rules, and to revise existing sections to better reflect the realities of current financial, commercial, and regulatory principles and practices.

(c) Responsibilities of the Board. The Board is the governing body of the Agency. The Board formulates policy objectives, oversees implementation of these objectives, and is responsible for the proposal, adoption, amendment and repeal of Board rules. The Board appoints the Securities Commissioner, who serves at the pleasure of the Board, to implement the policies of the Board, administer the provisions of the Texas Securities Act, and to manage the day-to-day operations of the Agency.

(d) Responsibilities of the Securities Commissioner. The Securities Commissioner implements the policies of the Board, administers the provisions of the Texas Securities Act, and manages the day-to-day operations of the Agency. It is the duty of the Securities Commissioner to see that the provisions of the Texas Securities Act are at all times obeyed and to take such measures and to make such investigations as will prevent or detect the violation of any provision thereof. The Commissioner appoints other persons as necessary to carry out the powers and duties of the Commissioner under the Texas Securities Act and other laws granting jurisdiction or applicable to the Board or the Commissioner. The Commissioner may delegate to the other persons appointed such powers and duties of the Commissioner as the Commissioner considers necessary.

(e) Delegated authority. The Board hereby delegates to the Commissioner the authority to waive requirements contained in the Board's rules, as the Commissioner may, from time to time, deem appropriate.

(f) Severability. If any provision of these sections be held invalid, such invalidity shall not affect other provisions that can be given effect without the invalid provision, and to this end the provisions of these sections are declared to be severable.

History

• Source Note: The provisions of this §101.1 adopted to be effective January 1, 1976; amended to be effective March 14, 1999, 24 TexReg 1768; amended to be effective June 12, 2002, 27 TexReg 4933; amended to be effective August 10, 2003, 28 TexReg 5991.

7 Tex. Admin. Code § 101.2 Classification of Regulatory Standards

(a) Rules. Rules are regulatory standards adopted and promulgated as herein required and shall be considered the highest level of policy applied by the Board.

(b) Written administrative guidelines. Written administrative guidelines are of the same level of policy as rules and will be adopted in the same manner and have the same effect as rules.

(c) Forms. Forms are regulatory standards adopted for the purpose of implementing the Texas Securities Act by prescribing initial basic requirements for completing various applications and reports filed with the Commissioner. The forms required by the Commissioner are set forth in Chapter 133 of this title (relating to Forms) and have the same force and effect as rules.

(d) Preliminary administrative suggestions. The commissioner may also adopt preliminary administrative suggestions which will represent those standards which are newly developed, only recently reduced to writing, in the process of being modified, or otherwise considered by the commissioner to be not yet suitable for general application and promulgation and publication as rules or written administrative guidelines. Such preliminary administrative suggestions may be implemented at any time without publication or other notice and may be immediately applied by the commissioner in the public interest or for the protection of investors.

(e) Opinions. Statements made and opinions expressed orally or in writing by personnel of the State Securities Board in response to inquiries or otherwise, and not specifically identified and promulgated as rules, shall not be considered regulatory standards of the Board and shall not be considered binding upon the Commissioner in connection with specific adjudications undertaken by the Commissioner thereafter. The Commissioner may refuse to answer any question based upon a hypothetical fact situation.

(f) Interpretations by General Counsel.

(1) The Board's General Counsel may respond to inquiries concerning interpretations of the Texas Securities Act or these sections, provided sufficient relevant facts are given and the situation is not hypothetical. The General Counsel may refuse to respond to any inquiry. Responses to inquiries may take the following forms:

(A) an opinion that no exemption appears available in the specific fact situation;

(B) an opinion that the availability of specific exemption(s) is questionable or doubtful in the specific fact situation;

(C) an opinion that, under the facts as stated by the inquiring party, a specific exemption appears to be available; this opinion must be followed by a caveat that:

(i) the agency does not grant nor confer the exemption in question;

(ii) the exemption's availability depends entirely upon the full compliance with the language of the exemption;

(iii) the Texas Securities Act, §4006.153, places the burden of proof on the party claiming the exemption; and

(iv) opinions expressed are not binding upon civil litigants in future proceedings;

(D) an explanation of relevant provisions of the Texas Securities Act or Board rules;

(E) a statement that no interpretation will be expressed with regard to a given fact situation; or

(F) a statement that the staff of the State Securities Board will recommend no action to require registration in the specific fact situation.

(2) A nonrefundable fee in the amount set forth in the Texas Securities Act, §4006.058, must accompany each inquiry.

History

• Source Note: The provisions of this §101.2 adopted to be effective January 1, 1976; amended to be effective October 30, 1985, 10 TexReg 4080; amended to be effective March 14, 1999, 24 TexReg 1768; amended to be effective July 6, 2023, 48 TexReg 3497.

7 Tex. Admin. Code § 101.3 Application

(a) Generally. All rules shall be applied collectively, to the extent relevant, in connection with specific adjudications made by the Commissioner in the course of his or her regulatory functions. The Commissioner will make his or her determination on the basis of specific characteristics and circumstances of the individual adjudications under consideration and in light of the basic statutory purposes for regulation in the particular area. The Commissioner may, in his or her discretion, waive any requirement of any rule in situations where, in his or her opinion, such requirement is not necessary in the public interest or for the protection of investors. The captions of the various rules are for convenience only. Should there be a conflict between the caption of a rule and the text of the rule, the text will be controlling. Material denoted by a cross reference caption is not a rule or part of a rule.

(b) Investor protection standard. Within the confines of statutory authority, conflicts between the industry and the best interest of the investing public will be resolved in favor of the investing public. Likewise, conflicts between existing securities holders and the best interest of the prospective investor will be resolved in favor of the prospective investor.

(c) Precedent. Because rules cannot adequately anticipate all potential application requirements, the failure to satisfy all regulatory standards of the Board will not necessarily foreclose the possibility of a favorable disposition of the matter pending before the Commissioner, and, similarly, the satisfaction of all such regulatory standards will not necessarily preclude an unfavorable disposition if the specific characteristics and circumstances so warrant. For this reason, the nature of the disposition of any particular matter pending before the Commissioner is not necessarily of meaningful precedential value, and the Commissioner shall not be bound by the precedent of any previous adjudication in the subsequent disposition of any pending matter.

History

• Source Note: The provisions of this §101.3 adopted to be effective January 1, 1976; amended to be effective May 17, 1976, 1 TexReg 1179; amended to be effective November 7, 1999, 24 TexReg 9607.

7 Tex. Admin. Code § 101.4 Open Records Requests

Requests for agency records will be handled pursuant to the open records provisions of the Public Information Act, Texas Government Code, Title 5, Chapter 552. The requesting party shall indicate in writing the specific nature of the documents requested for examination or duplication.

History

• Source Note: The provisions of this §101.4 adopted to be effective January 1, 1976; amended to be effective February 19, 1992, 17 TexReg 1087; amended to be effective March 17, 1994, 19 TexReg 1542; amended to be effective June 9, 2015, 40 TexReg 3563.

7 Tex. Admin. Code § 101.5 Charges for Copies of Public Records

(a) The cost to any person requesting copies of any public record of the State Securities Board pursuant to the open records provisions of the Texas Government Code, Title 5, Chapter 552, will be the applicable charge established by the Office of the Attorney General in Title 1, Part 3, Chapter 70, of the Texas Administrative Code, which is reflected in Form 133.2.

(b) For certified copies the charge shall be $1.00 per page plus a $15.00 certification fee.

History

• Source Note: The provisions of this §101.5 adopted to be effective February 19, 1992, 17 TexReg 1087; amended to be effective December 20, 1993, 18 TexReg 9093; amended to be effective September 14, 1994, 19 TexReg 6841; amended to be effective April 21, 1995, 20 TexReg 2619; amended to be effective March 14, 1999, 24 TexReg 1768; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective April 19, 2007, 32 TexReg 2135; amended to be effective June 21, 2011, 36 TexReg 3713.

7 Tex. Admin. Code § 101.6 Historically Underutilized Business Program

The State Securities Board adopts by reference the rules of the Comptroller of Public Accounts relating to the Historically Underutilized Business Program, contained in Title 34, Part 1, Chapter 20, Subchapter D, of the Texas Administrative Code.

History

• Source Note: The provisions of this §101.6 adopted to be effective August 12, 2001, 26 TexReg 5786; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective June 21, 2011, 36 TexReg 3713; amended to be effective August 25, 2019, 44 TexReg 4309.

7 Tex. Admin. Code § 101.7 References to the Texas Securities Act in Board Rules

(a) Transition. The Securities Act, Tex. Rev. Civ. Stat. Ann. art. 581-1 through 581-45, effective through December 31, 2021, will be replaced by the nonsubstantive codification of that Act, effective January 1, 2022. The codification is located in Title 12 of the Texas Government Code, Chapters 4001 through 4008. Because of the extensive reorganization of the Securities Act, a reader may find it helpful to compare the source law (Civil Statutes) with the revised law (Government Code) and refer to a disposition table that is available on the Agency's website.

(b) References and citations to the Act (Civil Statutes). A Board Rule that references or cites the Texas Securities Act, as set out in the Civil Statutes, is also a reference or citation to the equivalent provision in the codified Securities Act.

(c) Preservation of existing requirements, obligations, or duties. When an existing Board Rule is changed to update a reference or citation from the Civil Statutes to the codified Securities Act, that change does not invalidate or remove the requirement, obligation, or duty in the Board Rule arising prior to the effective date of the reference or citation change. A requirement, obligation, or duty accruing under a Board Rule is governed by the Board Rule as it existed on the date the action, inaction, or omission occurs.

History

• Source Note: The provisions of this §101.7 adopted to be effective November 21, 2021, 46 TexReg 7779.

7 Tex. Admin. Code § 101.8 Employee Leave Pools

(a) Family leave pool. A family leave pool is established to provide eligible employees more flexibility in bonding and caring for children during a child's first year following birth, adoption, or foster placement, and caring for a seriously ill family member or the employee, including pandemic-related illnesses or complications caused by a pandemic.

(1) The Securities Commissioner is designated as the pool administrator.

(2) The pool administrator will establish operating procedures consistent with the requirements of this subsection and relevant law governing operation of the pool.

(3) Donations to the pool are strictly voluntary.

(b) Sick leave pool. A sick leave pool is established to provide for the alleviation of the hardship caused to an employee and the employee's family if a catastrophic illness or injury forces the employee to exhaust all leave time earned by that employee and to lose compensation from the state.

(1) The Securities Commissioner is designated as the pool administrator.

(2) The pool administrator will establish operating procedures consistent with the requirements of this subsection and relevant law governing operation of the pool.

(3) Donations to the pool are strictly voluntary.

History

• Source Note: The provisions of this §101.8 adopted to be effective November 21, 2021, 46 TexReg 7780.

7 Tex. Admin. Code § 101.9 Vendor Protest Procedures

(a) Purpose. The purpose of this section is to establish procedures for resolving vendor protests relating to purchasing issues. Except as otherwise provided in this section, the State Securities Board adopts by reference the rules of the Comptroller of Public Accounts relating to Protests and Appeals, contained in Title 34, Part 1, Chapter 20, Subchapter F, Division 3 of the Texas Administrative Code (the "CPA Protest Rules").

(b) Bid Protests by Vendors Related to a Solicitation or Contract Award. A protest vendor may file a protest with the Director of Staff Services.

(c) Filing requirements.

(1) To be considered, a protest must be submitted in writing, signed by an authorized representative of the protesting vendor, and delivered to the Director of Staff Services in the time period specified §20.535 of the CPA Protest Rules.

(2) In addition to the filing requirements of §20.535 of the CPA Protest Rules, the protest must contain a statement that copies of the protest have been delivered to all other identifiable interested parties. The protesting vendor is required to and is responsible for mailing or delivering copies of the protest to all other identifiable interested parties. Upon request, the Director of Staff Services will provide the protesting vendor with a list of interested parties as reflected by the records of the Agency.

(d) Appeal.

(1) If a protest is based on a solicitation or contract award, the protesting party may appeal the determination of the Director of Staff Services to the Deputy Securities Commissioner.

(2) The Deputy Securities Commissioner may refer the matter to the Securities Commissioner for consideration or may issue a written decision that resolves the protest.

(3) An appeal that is not filed timely shall not be considered unless good cause for delay is shown or the Deputy Securities Commissioner determines that an appeal raises issues that are significant to the Agency's procurement practices or procedures in general.

(4) A written decision issued by the Deputy Securities Commissioner or the Securities Commissioner shall be the final administrative action of the Agency regarding the protest and appeal.

(e) Consultation. In performing their duties under this section, the Director of Staff Services, the Deputy Securities Commissioner, and the Securities Commissioner may consult with the Comptroller of Public Accounts, as well as Agency employees, including the General Counsel, concerning the dispute.

(f) Standards for Maintaining Documentation. All documentation on the purchasing process that is the subject of a protest or appeal shall be maintained in accordance with the Agency's records retention schedule.

History

• Source Note: The provisions of this §101.9 adopted to be effective October 30, 2022, 47 TexReg 6981.

Chapter 102 COMPLAINT PROCESS

7 Tex. Admin. Code § 102.1 Policy

(a) It is the Board's policy for the Agency to:

(1) review, prioritize and investigate all complaints received in a timely manner;

(2) ensure conduct found to be in violation of the Act or a Board rule is brought to a fair, just, and equitable resolution; and

(3) protect confidential, investigatory, and inspection information while maximizing Agency transparency.

(b) The Commissioner shall maintain a system to promptly and efficiently act on complaints received by the Agency. The system shall:

(1) periodically, but at least every six months, notify the complaint parties of the status of the complaint until final disposition unless the notice would jeopardize a law enforcement investigation;

(2) ensure all periodic notifications of complaint status to complaint parties are made in conformance with the confidentiality provisions of the Act and Board rules; and

(3) make information available on the Agency's website (www.ssb.texas.gov) that describes the Agency's complaint process, including the procedures for complaint investigation and resolution.

(c) Complaint information to be maintained shall include:

(1) information about parties to the complaint;

(2) the subject matter of the complaint;

(3) a summary of the results of the review or investigation of the complaint; and

(4) the disposition of the complaint.

(d) The Commissioner may provide information on the Agency's website (www.ssb.texas.gov) about:

(1) administrative actions taken by the Agency; and

(2) civil and criminal actions in which the Agency was involved whether through investigation, participation, or provision of assistance.

History

• Source Note: The provisions of this §102.1 adopted to be effective February 27, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 102.2 Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Complaint--a written communication submitted to the Agency by a person that alleges misconduct by an individual or entity believed to be engaged in an activity that is regulated by the Agency.

(2) Complainant--person filing a complaint with the Securities Commissioner.

(3) Jurisdictional authority--conduct regulated by the Agency as provided for in the Act and Board rules.

History

• Source Note: The provisions of this §102.2 adopted to be effective February 27, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 102.3 Filing Complaints

(a) A complaint against an individual or entity subject to the Agency's jurisdictional authority may be filed by a member of the public or by an individual or entity regulated by the Agency.

(b) A complaint form promulgated by the Agency is available on the Agency website (www.ssb.texas.gov). An electronic or print version of the complaint form may also be obtained by contacting any office of the Agency and requesting one.

(c) A complaint must be made in writing to the Securities Commissioner.

(1) A complaint using the Agency's complaint form must be submitted in person, by mail or facsimile to an Agency office, or electronically to the email address for complaints identified on the Agency's website (www.ssb.texas.gov).

(2) A complaint made by letter or other written format must be submitted electronically through the email address for complaints identified on the Agency's website (www.ssb.texas.gov).

(d) The complaint shall include the following information:

(1) the name and contact information of the complainant, unless the complainant wishes to remain anonymous;

(2) identifies the individual or entity against whom the complaint is filed; and

(3) sufficient facts to enable the Agency to determine the nature of the complaint and the specific facts and circumstances giving rise to the filing of the complaint.

History

• Source Note: The provisions of this §102.3 adopted to be effective February 27, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 102.4 Processing of Complaints

(a) Agency staff shall promptly review complaints to determine if the Agency has jurisdictional authority to investigate the complaint. Agency staff may contact the complainant or other persons for additional information.

(b) When the complaint relates to an individual or entity registered with the Securities Commissioner, the Inspections and Compliance Division, with assistance from the Enforcement Division as appropriate, will review the allegations in the complaint.

(c) When the complaint relates to an individual or entity that is not registered with the Securities Commissioner, the Enforcement Division, with assistance from the Inspections and Compliance Division as appropriate, will review the allegations in the complaint.

(d) Upon determination that the complaint contains the information required by §102.3(d) of this chapter (relating to Filing Complaints), the complaint will be entered in the complaint tracking system of the Agency division leading the review and investigation.

(e) The complainant will be notified of the Agency's receipt of the complaint and be given the name and contact information for an Agency staff member assigned the complaint.

History

• Source Note: The provisions of this §102.4 adopted to be effective February 27, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 102.5 Prioritization of Complaint Investigations

The following factors will be considered by Agency staff in prioritizing complaints for further investigation:

(1) the ongoing nature of the underlying alleged conduct;

(2) the amount and degree of financial harm presented by the alleged conduct;

(3) extent to which the alleged conduct relates to senior or vulnerable victims;

(4) the risk associated with the type of investment product underlying the alleged conduct;

(5) the seriousness, nature, circumstances, extent and persistence of the alleged conduct;

(6) the history of previous misconduct by the individual or entity alleged to be responsible for the underlying alleged conduct;

(7) the availability of Agency resources to pursue investigation of the alleged conduct;

(8) the extent another governmental agency or regulatory body is better positioned to investigate the alleged conduct; and

(9) such other matters as the facts and circumstances may require.

History

• Source Note: The provisions of this §102.5 adopted to be effective February 27, 2020, 45 TexReg 1218.

7 Tex. Admin. Code § 102.6 Complaint Resolution

(a) During the investigation of a complaint, Agency staff will make a determination on what further action by the Agency is appropriate under the particular facts and circumstances.

(b) The Division reviewing the complaint shall maintain a record of the summary of the complaint, the subject matter of the complaint, a summary of the results of the review or investigation of the complaint, and the disposition of the complaint.

(c) Agency staff shall consider, on a case-by-case basis, aggravating and mitigating factors, such as the extent and pervasiveness of financial harm, prior violative conduct, cooperation, and past Agency sanctions redressing similar conduct, when determining an appropriate resolution to a complaint.

(d) Formal Agency action taken after investigation of a complaint could include an administrative sanction or penalty, civil action, or criminal prosecution. Formal administrative sanctions available to the Agency include an order to cease and desist; denial of a registration application; suspension, revocation, or probation of a registration; administrative fine; and refund to a client or purchaser of amounts paid for a service or transaction regulated by the Agency.

(e) After review and investigation of the complaint, the resolution could be one or more of the following:

(1) no further action, closed;

(2) informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulations;

(3) informal, non-public, action to bring the individual or entity into compliance with the Act and Board rules through the imposition of an undertaking and/or placing restrictions on future securities-related activities;

(4) formal, public action by agreement or consent order, which may include administrative sanctions;

(5) formal, public action to initiate an administrative contested case at the State Office of Administrative Hearings (SOAH) which, after notice and opportunity for hearing, could include an order imposing administrative sanctions;

(6) formal, ex parte public action (emergency cease and desist order) to prevent immediate and irreparable public harm;

(7) referral to the Attorney General for a civil action seeking injunction, restitution, and other civil penalties, and/or the imposition of a receivership; or

(8) further development through a law enforcement investigation prior to referral to an appropriate prosecutorial office for criminal prosecution.

(f) The Agency's most current penalty matrix, describing the range of possible sanctions for misconduct by registered persons and the administrative penalties and sanctions that can be levied against a registrant, is posted on the Agency's website (www.ssb.texas.gov).

(g) For contested matters before SOAH, Agency staff shall notify any respondent known by Agency staff to be self-represented of any guide for self-represented litigants disseminated by SOAH.

History

• Source Note: The provisions of this §102.6 adopted to be effective February 27, 2020, 45 TexReg 1218.

Chapter 103 RULEMAKING PROCEDURE

7 Tex. Admin. Code § 103.1 How Initiated

Proceedings for the promulgation, adoption, repeal, or revision of rules shall be initiated by the securities commissioner.

History

• Source Note: The provisions of this §103.1 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 103.2 Notice

General notice of the adoption, amendment, or repeal of any rule shall be given as required by law and shall be sent by U.S. mail, or by email if the requestor has provided an email address, to all persons who have made timely written requests for advanced notice of rulemaking proceedings. However, failure to send such notice will not invalidate any actions taken or rules adopted.

History

• Source Note: The provisions of this §103.2 adopted to be effective January 1, 1976; amended to be effective June 9, 2015, 40 TexReg 3563.

7 Tex. Admin. Code § 103.3 Opportunity To Be Heard

Reasonable opportunity will be afforded all interested persons to submit data, views, or arguments, orally or in writing. The commissioner may use informal conferences and consultations as a means of obtaining the viewpoints and advice of interested persons.

History

• Source Note: The provisions of this §103.3 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 103.4 Compliance

No rule hereafter adopted will be valid unless adopted in substantial compliance with the rulemaking provisions of the Texas Government Code, Title 10, Chapter 2001.

History

• Source Note: The provisions of this §103.4 adopted to be effective January 1, 1976; amended to be effective June 9, 2015, 40 TexReg 3563.

7 Tex. Admin. Code § 103.5 Petitions

Pursuant to Texas Government Code, §2001.021, any interested person may petition the Commissioner requesting the adoption of a rule, and within 60 days the Commissioner will initiate rulemaking proceedings, or deny the petition in writing, stating his or her reasons therefor. The petition must set forth the following:

(1) The text of the proposed rule and a brief explanation thereof.

(2) A statement of the statutory or other authority under which the rule is proposed.

(3) A statement of the particular statute or statutes and sections thereof to which the proposed rule relates.

(4) A concise statement of the principal reasons for adoption of the rule; and the date submitted and by whom.

(5) If available to the petitioner(s), the following analyses related to the adoption of the rule:

(A) an analysis supporting the draft government growth impact statement required by Texas Government Code, §2001.0221;

(B) an analysis supporting the economic impact statement required by Texas Government Code, §2006.002;

(C) an analysis supporting the regulatory flexibility analysis required by Texas Government Code, §2006.002;

(D) an analysis supporting the takings impact assessment required by Texas Government Code, §2007.043;

(E) an analysis supporting the local employment impact statement required by Texas Government Code, §2001.024(a)(6);

(F) an analysis supporting the cost-benefit analysis required by Texas Government Code, §2001.024(a)(5);

(G) an analysis supporting the fiscal note required by Texas Government Code, §2001.024(a)(4); and

(H) if Texas Government Code, §2001.0045(b) would apply to the adopted rule:

(i) identify the proposed repeal or amendment that is being suggested to offset costs of the adopted rule; and

(ii) explain the reasoning behind the estimate of the costs that would be offset by the proposed repeal or amendment.

History

• Source Note: The provisions of this §103.5 adopted to be effective January 1, 1976; amended to be effective March 14, 1999, 24 TexReg 1768; amended to be effective August 25, 2019, 44 TexReg 4309.

7 Tex. Admin. Code § 103.6 Negotiated Rulemaking

(a) Policy. It is the Board's policy to encourage the use of negotiated rulemaking in appropriate situations. When the Securities Commissioner finds that a rule to be proposed is likely to be complex, controversial, or affect disparate groups, the Commissioner may propose to engage in negotiated rulemaking in accordance with the Government Code, Chapter 2008.

(b) Appointment and duties of convener.

(1) The Deputy Securities Commissioner or the Deputy's designee shall serve as the negotiated rulemaking convener.

(2) The convener shall assist in identifying persons who are likely to be affected by a proposed rule, including those who oppose issuance of a rule. The convener shall discuss the items listed in Government Code, §2008.052(c), with those persons or their representatives.

(3) The convener shall then recommend to the Commissioner whether negotiated rulemaking is a feasible method to develop the proposed rule and shall report on the relevant considerations, including those listed in §2008.052(d).

(c) Notice of intent to engage in negotiated rulemaking. After considering the convener's recommendation and report, the Commissioner may direct the Agency Staff to engage in negotiated rulemaking in accordance with the provisions of Government Code, Chapter 2008, and authorize the Agency Staff to perform the duties and requirements set forth in Chapter 2008, including providing any required notices, establishing a negotiated rulemaking committee, and appointing the members of the committee, and appointing a facilitator.

(d) Duties of the negotiated rulemaking committee and facilitator.

(1) The facilitator shall preside over meetings of the negotiated rulemaking committee and assist the committee in establishing procedures for conducting negotiations and in attempting to arrive at a consensus on the proposed rule.

(2) At the conclusion of negotiations, the negotiated rulemaking committee shall send a written report to the Commissioner as provided in Government Code, §2008.056(d).

(e) Notice and comment rulemaking. After considering the negotiated rulemaking committee's report, if the Commissioner intends to proceed with the rulemaking process, the Commissioner shall present the proposed rule to the Board for consideration in accordance with Government Code, Chapter 2001, Subchapter B.

(f) Rulemaking coordinator. The Board's Deputy Commissioner, or designee, shall act as the designated negotiated rulemaking coordinator to coordinate the implementation of the policy set out in subsection (a) of this section, serve as a resource for any staff training or education needed to implement negotiated rulemaking procedures, and collect data to evaluate the effectiveness of the implementation of negotiated rulemaking procedures.

History

• Source Note: The provisions of this §103.6 adopted to be effective November 12, 2019, 44 TexReg 6857; amended to be effective July 6, 2023, 48 TexReg 3497.

Chapter 104 PROCEDURE FOR REVIEW OF APPLICATIONS

7 Tex. Admin. Code § 104.1 Scope

These rules of procedure are generally applicable to the review of applications and the agency's decision whether to grant, deny, or allow withdrawal of applications.

History

• Source Note: The provisions of this §104.1 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective August 10, 2003, 28 TexReg 5991.

7 Tex. Admin. Code § 104.2 Purpose

Sections 104.2 - 104.6 of this title (relating to Purpose, Definition of Days, Registration of Securities--Review of Applications, Registration of Dealers and Investment Advisers--Review of Applications, and Exceeding the Time Periods, respectively) are intended to implement the provisions of Texas Government Code, Chapter 2005. They are not intended to supersede any substantive requirement of the Texas Securities Act or Board rules. If a provision under one of these sections would cause such a conflict, the provision will not be given effect under the particular circumstances giving rise to the conflict.

History

• Source Note: The provisions of this §104.2 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective March 14, 1999, 24 TexReg 1769; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective July 6, 2023, 48 TexReg 3497.

7 Tex. Admin. Code § 104.3 Definition of Days

For purposes of §§104.2 - 104.6 of this title (relating to Purpose, Definition of Days, Registration of Securities--Review of Applications, Registration of Dealers and Investment Advisers--Review of Applications, and Exceeding the Time Periods, respectively) "days" means each calendar day without any exclusions.

History

• Source Note: The provisions of this §104.3 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective July 6, 2023, 48 TexReg 3497.

7 Tex. Admin. Code § 104.4 Registration of Securities--Review of Applications

(a) Within seven days of receipt by the Agency of an application to register securities, if the application does not contain all required information, the Registration Division will send a written deficiency letter to the applicant setting forth a list of items or exhibits that have not been filed and that, pursuant to requirements of the Texas Securities Act or Board rules, must be filed with the Agency.

(b) Within 45 days of receipt by the Agency of all requested items and exhibits necessary in order to analyze the offering, the Registration Division shall review the application and shall send a written initial comment letter setting forth deviations from the substantive requirements of the Act or Board rules relating to the registration of securities. This process may be repeated if the applicant suggests that alternatives be considered, or the applicant's response does not resolve substantive issues.

(c) Written communications between the Registration Division and the applicant may be transmitted by facsimile, email, U.S. mail, or other more timely means of communication.

(d) An application is complete and accepted for filing upon receipt by the Agency of the following:

(1) all items and exhibits required to be filed with the Agency as set forth in paragraphs (a) - (c) of this section; and

(2) complete responses to all comments raised by the division staff pursuant to subsections (b) and (c) of this section.

(e) Within 21 days of receipt by the Agency of a complete application, the division staff shall review the applicant's responses to initial and subsequent comments, if any, and make a recommendation to either grant, deny, or allow withdrawal of the application.

(f) Within 14 days of the division staff's recommendation the application shall be reviewed by the Director (or Assistant Director) of the Registration Division and the Deputy Commissioner and/or Securities Commissioner. Additional comments, if any, raised at these stages of review must be communicated to the applicant immediately.

(g) The final decision to grant, deny, or allow withdrawal of the application must be made and communicated to the applicant within 14 days of the latter of:

(1) the division staff's recommendation, or

(2) the receipt by the Agency of complete responses to any additional comments raised pursuant to subsection (f) of this section.

History

• Source Note: The provisions of this §104.4 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective March 14, 1999, 24 TexReg 1769; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective October 6, 2015, 40 TexReg 6888.

7 Tex. Admin. Code § 104.5 Registration of Dealers and Investment Advisers--Review of Applications

(a) Within 14 days of receipt by the Agency of an application and a fee that is sufficient for registration as a dealer or investment adviser, the Registration Division shall send a written deficiency letter to the applicant setting forth a list of items or exhibits that either have not been filed or that contain errors or omissions. If the applicant is filing through the Central Registration Depository (CRD) or the Investment Adviser Registration Depository (IARD), deficiency corrections of a procedural, non-disciplinary nature will be handled by the CRD or IARD.

(1) If an insufficient fee is submitted with the application, the fee will be returned to the applicant along with immediate notification as to the correct amount owed.

(2) The application will be held in abeyance until the correct fee is received by the Agency.

(b) Within 14 days of receipt by the Agency of all requested items and exhibits, the division staff shall review the file and, if necessary, shall send a written comment letter setting forth any deviations from the substantive requirements of the Texas Securities Act or Board rules relating to the registration of dealers or investment advisers. This process may be repeated to raise subsequent comments.

(c) An application is complete and accepted for filing upon receipt by the agency of the following:

(1) all items required to be filed with the Agency as set forth in the deficiency letter referred to in subsection (a) of this section; and

(2) complete responses to all comments raised by the division during review of the application.

(d) Within 14 days of receipt by the Agency of a complete application, the division staff shall review the application and the applicant's responses to initial comments and make a recommendation to grant, deny, or allow withdrawal of the application.

(e) Within 14 days of the division staff's recommendation, any remaining issues shall be addressed by the Director (or an Assistant Director) of the Registration Division and the Deputy Commissioner. Additional comments, if any, raised at this stage of review must be communicated to the applicant immediately.

(f) The final decision to grant, deny, or allow withdrawal of the application must be made and communicated to the applicant within 14 days of the latter of:

(1) the division's recommendation, or

(2) receipt by the Agency of complete responses to any remaining comments.

(g) Written communications between the Registration Division and the applicant may be transmitted by facsimile, email, U.S. mail, or other more timely means of communication.

History

• Source Note: The provisions of this §104.5 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective March 14, 1999, 24 TexReg 1769; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective October 6, 2015, 40 TexReg 6888; amended to be effective August 25, 2019, 44 TexReg 4309.

7 Tex. Admin. Code § 104.6 Exceeding the Time Periods

(a) The Agency may exceed the time periods set forth in §104.4 or §104.5 of this title (relating to Registration of Securities--Review of Applications and Registration of Dealers and Investment Advisers--Review of Applications, respectively) if:

(1) the number of permits and registration authorizations exceeds by 15% or more the number processed in the same calendar quarter of the preceding year;

(2) the Securities and Exchange Commission, CRD, IARD, or another public or private entity, including the applicant itself, causes the delay;

(3) the applicant requests delay; or

(4) other conditions exist that give the Agency good cause for exceeding the established time periods.

(b) If it appears to the applicant that for reasons other than those set forth in subsection (a)(2) of this section, the Agency exceeded the time periods, the applicant may appeal by filing a complaint in writing with the Deputy Commissioner who shall provide the staff with a copy of the complaint immediately.

(c) If the Agency's staff believes that the time periods were not exceeded for the reasons alleged in the complaint, the staff may file with the deputy commissioner a written response to the complaint within five days of receipt by the Agency of the complaint.

(d) The deputy commissioner shall render a decision and communicate it to the applicant within 10 days of receipt of the applicant's complaint, whether or not a response is filed by the staff.

(e) If the complaint is decided in favor of the applicant, the applicant shall receive full reimbursement of all filing fees paid by the applicant.

(f) If the complaint is decided in favor of the staff, the applicant may appeal the decision by requesting a hearing before the Commissioner pursuant to the Texas Securities Act, §4007.107(a).

History

• Source Note: The provisions of this §104.6 adopted to be effective May 17, 1988, 13 TexReg 2160; amended to be effective March 14, 1999, 24 TexReg 1769; amended to be effective August 10, 2003, 28 TexReg 5991; amended to be effective June 21, 2011, 36 TexReg 3713; amended to be effective July 6, 2023, 48 TexReg 3497.

7 Tex. Admin. Code § 104.7 Preliminary Evaluation of License Eligibility

(a) Request for criminal history evaluation letter.

(1) A person may request the Agency issue a criminal history evaluation letter regarding the person's eligibility for a license issued by the Agency if the person:

(A) is enrolled or planning to enroll in an educational program that prepares a person for an initial license or is planning to take an examination for an initial license; and

(B) has reason to believe that the person is ineligible for the license due to a conviction or deferred adjudication for a felony or misdemeanor offense.

(2) The request must state the basis for the person's potential ineligibility, provide the information set out in subsection (b) of this section, include all pertinent court documentation including certified copies of all court indictments and/or judgments, and orders, and an explanation of the circumstances and events of the criminal action that led to the conviction or sentence.

(3) The fee for a preliminary evaluation of license eligibility shall be $100.

(4) To be considered complete, the request must include the appropriate fee and state the circumstances establishing the requestor's eligibility under paragraph (1) of this subsection.

(5) The Agency may require additional documentation including fingerprint cards before issuing a criminal history evaluation letter.

(6) If a requestor does not provide all required and requested documentation within one year of submitting the original request, the requestor must submit a new request along with the appropriate fee.

(b) Factors considered. After determining a conviction directly relates to a license issued by the Agency, the Agency considers the following evidence in determining whether the person is eligible for a license issued by the Agency. Accordingly, the requestor should provide information on the following:

(1) The extent and nature of the person's past criminal activity.

(2) The age of the requestor at the time of the commission of the crime.

(3) The amount of time that has elapsed since the requestor's last criminal activity.

(4) The conduct and work activity of the requestor prior to and following the criminal activity.

(5) Evidence of the requestor's rehabilitation or rehabilitative effort while incarcerated or following release.

(6) Evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision.

(7) Other evidence of the requestor's present fitness, including letters of recommendation, may also be provided and considered, including letters from prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the requestor; the sheriff and chief of police in the community where the requestor resides; and any other persons in contact with the requestor.

(8) It shall be the responsibility of the requestor to the extent possible to secure and provide to the Agency the letters of recommendation described by paragraph (7) of this subsection.

(c) Investigation of request. The Agency has the same authority to investigate a request submitted under this section as it has to investigate a person applying for a license.

(d) Determination of eligibility; letter.

(1) If the Agency determines that a ground for ineligibility does not exist, the Agency shall notify the requestor in writing of the Agency's determination on each ground of potential ineligibility.

(2) If the Agency determines that the requestor is ineligible for a license, the Agency shall issue a letter which complies with the requirements of Texas Occupations Code, §53.026(b) and §53.104(b), setting out each basis for potential ineligibility and the Agency's determination as to eligibility.

(3) In the absence of new evidence known to but not disclosed by the requestor or not reasonably available to the Agency at the time the letter is issued, the Agency's ruling on the request determines the requestor's eligibility with respect to the grounds for potential ineligibility set out in the letter.

(4) The notice under paragraph (1) of this subsection or the letter under paragraph (2) of this subsection shall be issued by the Agency within 90 days of the requestor satisfying all of the Agency's requests for information to complete the criminal history evaluation letter request.

History

• Source Note: The provisions of this §104.7 adopted to be effective March 28, 2010, 35 TexReg 2548; amended to be effective November 12, 2019, 44 TexReg 6857.

Chapter 105 RULES OF PRACTICE IN CONTESTED CASES

7 Tex. Admin. Code § 105.1 Scope

This chapter is applicable to contested cases under the Texas Securities Act.

History

• Source Note: The provisions of this §105.1 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.2 Definitions

(a) The following words and terms, when used in this chapter, shall have the same meaning as set forth in the Administrative Procedure Act, Government Code, Chapter 2001 (the "APA"), unless the context clearly indicates otherwise:

(1) Contested case;

(2) License;

(3) Licensing;

(4) Party;

(5) Person; and

(6) State agency.

(b) The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Act or Securities Act or Texas Securities Act--The Securities Act, Texas Revised Civil Statutes, Article 581-1 et seq., as amended.

(2) APA--The Administrative Procedure Act, Texas Government Code, Title 10, Chapter 2001, as amended.

(3) Commissioner or Securities Commissioner--The State Securities Commissioner for the State of Texas.

(4) SOAH--The State Office of Administrative Hearings.

(5) SOAH Rules of Procedure--The procedural rules of the State Office of Administrative Hearings, described in 1 TAC Chapter 155, as amended.

(6) Staff--Personnel of the Securities Board, excluding the members of the Board, the Securities Commissioner, the Deputy Commissioner, and the Commissioner's Representative or any designee thereof responsible for assisting or advising members of the Board, the Securities Commissioner or the Deputy Commissioner.

History

• Source Note: The provisions of this §105.2 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.3 Computation of Time

The method for computing any period of time prescribed or allowed by this chapter shall be in accordance with the SOAH Rules of Procedure.

History

• Source Note: The provisions of this §105.3 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.4 Opportunity for Hearing

(a) An applicant taking exception to the failure or refusal of the Securities Commissioner to register the applicant as a dealer, agent, investment adviser, or investment adviser representative under the Act, §14, §15, or §18, or to the failure or refusal of the Commissioner to register securities of the applicant or to issue a permit to the applicant under the Act, §7 or §10, may request a hearing pursuant to the Act, §24, by filing a written request with the Commissioner.

(b) Except when an emergency order has been issued pursuant to the Act, §23-2, each party in a contested case is entitled to an opportunity for hearing after reasonable notice of not less than 10 days and to respond and present evidence and argument on each issue involved in the case.

(c) Such hearings shall be open to the public in accordance with the Open Meetings Act, Texas Government Code, Chapter 551, except as may be required by this chapter.

(d) In a contested case filed at SOAH, SOAH Rules of Procedure, the APA, and the Board rules shall apply.

(e) Procedure in a contested case is governed by the law in effect on the date of the filing of the Notice of Hearing.

History

• Source Note: The provisions of this §105.4 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.5 Contents of Notice of Hearing

(a) The contents of a notice of hearing shall comport with the requirements of the APA, the SOAH Rules of Procedure, and Board rules.

(1) If the notice of hearing provides for at least 30 days notice to a party prior to the hearing in a contested case, such a notice of hearing shall include the following disclosure language set forth in capital letters and 12-point boldface type: "IF YOU DO NOT FILE A WRITTEN ANSWER OR OTHER WRITTEN RESPONSIVE PLEADING TO THIS NOTICE OF HEARING ON OR BEFORE THE 20TH DAY AFTER THE DATE ON WHICH THIS NOTICE WAS MAILED TO YOU OR PERSONALLY SERVED ON YOU, THE FACTUAL ALLEGATIONS IN THIS NOTICE COULD BE DEEMED ADMITTED, AND THE SECURITIES COMMISSIONER MAY DISPOSE OF THIS CASE WITHOUT A HEARING AND MAY GRANT THE RELIEF SOUGHT IN THIS NOTICE. THE RESPONSE MUST BE FILED IN AUSTIN, TEXAS WITH THE SECURITIES COMMISSIONER AND THE STATE OFFICE OF ADMINISTRATIVE HEARINGS, AND ALSO SERVED ON THE STAFF OF THE STATE SECURITIES BOARD. IF YOU FAIL TO ATTEND THE HEARING, EVEN IF A WRITTEN ANSWER OR OTHER RESPONSIVE PLEADING HAS BEEN FILED AND SERVED, THE FACTUAL ALLEGATIONS IN THIS NOTICE COULD BE DEEMED ADMITTED, AND THE SECURITIES COMMISSIONER MAY DISPOSE OF THIS CASE WITHOUT A HEARING AND MAY GRANT THE RELIEF SOUGHT IN THIS NOTICE."

(2) In all other circumstances, the notice of hearing shall include the following disclosure language set forth in capital letters and 12-point boldface type: "IF YOU FAIL TO ATTEND THE HEARING, THE FACTUAL ALLEGATIONS IN THIS NOTICE COULD BE DEEMED ADMITTED, AND THE SECURITIES COMMISSIONER MAY DISPOSE OF THIS CASE WITHOUT A HEARING AND MAY GRANT THE RELIEF SOUGHT IN THIS NOTICE."

(b) The notice of hearing shall also include:

(1) the mailing address where the response may be filed with the Securities Commissioner, including the identity and contact information of the Commissioner's Representative;

(2) the mailing address where the response may be filed with SOAH; and

(3) the mailing address where the response may be served on the Staff.

(c) A notice of hearing may be signed by the Director of the Enforcement Division, the Director of the Inspections and Compliance Division, or the Director of the Registration Division.

History

• Source Note: The provisions of this §105.5 adopted to be effective April 3, 2012, 37 TexReg 2165; amended to be effective April 7, 2013, 38 TexReg 2097.

7 Tex. Admin. Code § 105.6 Service

(a) Service of notice of hearing. A notice of hearing shall be served by personal delivery or by registered or certified mail, return receipt requested, to the person's last known address.

(b) Service of orders.

(1) All emergency orders issued pursuant to the Act, §23-2, shall be sent in the manner prescribed therein.

(2) All other orders shall be served in the manner prescribed by the APA.

(c) Service of all other documents. Unless otherwise required by the Act, the APA, SOAH Rules of Procedure, or Board rules, all documents, other than a notice of hearing or an order, may be served on each party or the party's representative by:

(1) hand-delivery;

(2) regular, certified, or registered mail;

(3) electronic mail, upon agreement of the parties; or

(4) facsimile transmission.

History

• Source Note: The provisions of this §105.6 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.7 Written Response to Notice of Hearing

(a) If the notice of hearing was mailed to or personally served on a party at least 30 days prior to the hearing in a contested case, the respondent shall file with both the Securities Commissioner and SOAH, and also serve the Staff with, a written answer or other responsive pleading to the matters asserted in the notice of hearing no later than the 20th day after the date the notice was mailed to or personally served on the respondent.

(b) In all other circumstances, no answer need be filed, and all allegations will be deemed to be denied by the party if the party attends the hearing. At the time of such hearing the Administrative Law Judge shall, on motion of the Staff or on its own motion, inquire of a party which, if any, of the matters pled in the notice are contested by the party.

(c) A general denial of matters pled by the Staff shall be sufficient to put the same in issue. When the respondent has pled a general denial, and the Staff afterward amends its pleadings, the general denial shall be presumed to extend to all matters subsequently alleged by the Staff.

History

• Source Note: The provisions of this §105.7 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.8 Copies to Securities Commissioner's Representative

Upon the filing of a notice of hearing, the parties shall file with the Securities Commissioner, by delivering same to the Commissioner's Representative, a copy of all documents, other than business records and transcripts, filed with SOAH contemporaneously with such filing. SOAH shall likewise provide the Commissioner's Representative with copies of all documents issued by the Administrative Law Judge.

History

• Source Note: The provisions of this §105.8 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.9 Informal Disposition

An informal disposition of a contested case may be made by the Securities Commissioner by stipulation of the parties, agreed settlement, consent order, or default, without further proceedings by SOAH.

History

• Source Note: The provisions of this §105.9 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.10 Default

(a) The Securities Commissioner may make an informal disposition of the contested case by default by issuing an order in which the relief requested in the notice of hearing is granted and the matters set forth in the notice are deemed admitted as true upon proof to the Commissioner that the notice was mailed to or personally served on a respondent in accordance with §105.6 of this title (relating to Service) and that such respondent has failed to:

(1) file a written response as provided in §105.7 of this title (relating to Written Response to Notice of Hearing); or

(2) appear in person or through an authorized representative on the day and at the time set for the hearing of the case, whether or not a written response has been filed.

(b) Upon the motion of a respondent, the Commissioner may, for good cause shown, set aside a default order and reschedule a hearing with SOAH.

(1) A motion by a respondent to set aside a default order shall be filed with the Commissioner not later than the 20th day after the date on which the respondent or the respondent's attorney of record is notified of the default order in the manner prescribed by the APA.

(2) A reply by the Staff to the motion by a respondent to set aside a default order must be filed with the Commissioner not later than the 30th day after the date on which the respondent or the respondent's attorney of record is notified of the default order in the manner prescribed by the APA.

(3) The Commissioner shall act on a motion for rehearing not later than the 45th day after the date on which the respondent or the respondent's attorney of record is notified of the default order in the manner prescribed by the APA or the motion for rehearing is overruled by operation of law.

History

• Source Note: The provisions of this §105.10 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.11 Burden of Proof

The Staff will assume the burden of proving a prima facie case by a preponderance of the evidence based upon reasonable inferences drawn from the evidence presented, except that the burden of proof of an exemption shall be upon the party claiming the same.

History

• Source Note: The provisions of this §105.11 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.12 Subpoenas and Depositions

(a) In general. Except when in conflict with the provisions of the Act, including §28, and Board rules, such as §127.1 of this title (relating to Enforcement), subpoenas and depositions shall be administered in the manner prescribed by the APA and the SOAH Rules of Procedure.

(b) Pre-contested case. When the Staff anticipates the commencement of a contested case and determines that it is necessary to perpetuate testimony to prevent a failure or delay of justice due to the risk of unavailability of the testimony after the action is commenced, such as with the acute illness of a potential witness or receipt of information that the potential witness intends to leave the subpoena jurisdiction of the Commissioner, the Staff may file a request with the Commissioner for a commission to take a deposition as set forth in the APA, §2001.094.

(1) The request shall show:

(A) the Staff anticipates the commencement of a contested case;

(B) the subject matter of the anticipated action and the jurisdiction therein;

(C) the names and addresses, if known, of the persons expected to be interested adversely to the Staff; and

(D) the names and addresses of the persons to be examined, the substance of the testimony which the Staff expects to elicit from each, and the reasons why the testimony is necessary to prevent a failure or delay of justice.

(2) Upon filing a request with the Commissioner, a notice and copy of the request shall be served upon the witness, or witnesses, and upon each person named in the request as an expected adverse party. Each person served with a copy of the request shall have the right to respond to the request within 10 days of service of notice by filing a response with the Staff and the Commissioner.

(3) In any case where justice or necessity so requires, the Commissioner may permit the taking of such depositions upon shorter notice than required by paragraph (2) of this subsection, or may extend such time in order to permit service on any adverse party.

(4) If satisfied that the perpetuation of testimony may prevent a failure or delay of justice, the Commissioner may issue a commission authorizing the taking of such deposition. At such deposition the parties identified by the Staff as adverse persons or other parties identified shall have the right to attend and pose questions to the deponent.

History

• Source Note: The provisions of this §105.12 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.13 Assessment of Hearing Costs

The State Securities Board may pay the costs charged by a court reporting service in transcribing a hearing in a contested case or the Securities Commissioner may assess the cost to one or more parties.

History

• Source Note: The provisions of this §105.13 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.14 Proposal for Decision

(a) At the conclusion of a hearing in a contested case, the Administrative Law Judge assigned to hear the case at SOAH will issue orders:

(1) setting appropriate deadlines for the filing of the parties' Proposed Findings of Fact and Conclusions of Law in the case, if any, and the responses thereto, if any; and

(2) setting appropriate deadlines for the filing of exceptions, if any, to the Administrative Law Judge's Proposal for Decision, and replies thereto, if any.

(b) In the event exceptions to the Administrative Law Judge's Proposal for Decision are not filed, SOAH loses jurisdiction over the case upon the expiration of the deadline for the filing of such exceptions.

(c) In the event exceptions to the Administrative Law Judge's Proposal for Decision are filed, SOAH loses jurisdiction over the case upon the issuance of the Administrative Law Judge's ruling on the said exceptions.

History

• Source Note: The provisions of this §105.14 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.15 Orders Issued by Securities Commissioner

(a) When SOAH loses jurisdiction over the case as prescribed in §105.14 of this title (relating to Proposal for Decision), the complete transcript and record of the case, and the Proposal for Decision shall be sent directly to the Securities Commissioner.

(b) The Commissioner may change a finding of fact or conclusion of law made by the Administrative Law Judge, or may vacate or modify an order issued by the Administrative Law Judge only on grounds set forth in the APA. The Commissioner shall state in writing the reason or basis for such a change.

History

• Source Note: The provisions of this §105.15 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.16 Decisions; When Final

(a) A decision is final:

(1) if a motion for rehearing is not filed on time, on the expiration of the period for filing a motion for rehearing;

(2) if a motion for rehearing is filed on time, on the date:

(A) the order overruling the motion for rehearing is rendered; or

(B) the motion is overruled by operation of law;

(3) if the Commissioner finds that an imminent peril to the public health, safety, or welfare requires immediate effect of a decision or order, on the date the decision or order is rendered; or

(4) if the decision or order is rendered pursuant to the Act, §23-2.E, on the date it is rendered.

(b) If a decision or order is final under subsection (a)(3) of this section, the Commissioner must recite in the decision or order the finding made under subsection (a)(3) of this section and the fact that the decision or order is final and effective on the date rendered.

(c) A person who is aggrieved by a final decision of the Commissioner in a contested case may seek judicial review of the decision. Judicial review of such a decision is under the substantial evidence rule.

History

• Source Note: The provisions of this §105.16 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.17 Motion for Rehearing

(a) In general. A timely motion for rehearing is a prerequisite to an appeal in a contested case except that a motion for rehearing of a decision or order that is final under the Act, §23-2.E, is not a prerequisite for appeal. Rather, a decision or order affirming or modifying an emergency order under the Act, §23-2.E, is immediately final and appealable.

(b) A party's motion for rehearing must be filed with the Securities Commissioner not later than the 20th day after the date on which the party or the party's attorney of record is notified of the Commissioner's decision or order on the Administrative Law Judge's Proposal for Decision in the manner prescribed by the APA. A motion for rehearing must set forth the particular finding(s) of fact, conclusion(s) of law, ruling(s), or other action(s) which the complaining party asserts were in error, such as violation of a constitutional or statutory provision(s), lack of authority, unlawful procedure(s), lack of substantive evidence, abuse of discretion or other error(s) of law, or other good cause specifically described in the motion. In the absence of specific grounds in the motion, the Commissioner shall presume that the motion should be overruled.

(c) A reply to a motion for rehearing must be filed not later than the 30th day after the date on which the party or the party's attorney of record is notified of the Commissioner's decision or order on the Administrative Law Judge's Proposal for Decision in the manner prescribed by the APA.

(d) The Commissioner shall act on a motion for rehearing not later than the 45th day after the date on which the party or the party's attorney of record is notified of the Commissioner's decision or order on the Administrative Law Judge's Proposal for Decision in the manner prescribed by the APA or the motion for rehearing is overruled by operation of law.

(e) The Commissioner may by written order extend the time for filing a motion for rehearing, for filing a reply thereto, or for taking action in relation thereto under this section, except that an extension may not extend the period for action beyond the 90th day after the date on which the party or the party's attorney of record is notified of the Commissioner's decision or order on the Administrative Law Judge's Proposal for Decision in the manner prescribed by the APA.

(f) In the event of an extension, a motion for rehearing is overruled by operation of law on the date fixed by the order or, in the absence of a fixed date, 90 days after the date on which the party or the party's attorney of record is notified of the Commissioner's decision or order on the Administrative Law Judge's Proposal for Decision in the manner prescribed by the APA.

History

• Source Note: The provisions of this §105.17 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.18 Board Action on Motion for Rehearing

(a) The Board may determine to act in place of the Securities Commissioner in ruling on a Motion for Rehearing filed by a party in a contested case. The decision to take such action is within the sound discretion of the Board and is not mandated by any request or motion.

(b) Upon receipt of a timely filed Motion for Rehearing in a contested case, the Commissioner shall provide a copy of the Motion to each member of the Board. Thereafter, the Commissioner shall provide to each member of the Board any response filed by a party to the proceeding in support of, or opposition to, the Motion for Rehearing.

(c) If requested by a member of the Board, a meeting of the Board shall be held for the purpose of determining whether the Board should act in place of the Commissioner in ruling on the Motion for Rehearing and, if so, whether the order of the Commissioner should be vacated or modified or a new hearing should be held. The meeting and all deliberations by the Board on the Motion for Rehearing shall be conducted in accordance with the Texas Open Meetings Act.

(d) The Board may change a finding of fact or conclusion of law, or vacate or modify an order only as permitted by the APA.

History

• Source Note: The provisions of this §105.18 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.19 Record

(a) The record in a contested case includes the following:

(1) all pleadings, motions, and intermediate rulings;

(2) evidence received or considered;

(3) a statement of matters officially noticed;

(4) questions and offers of proof, objections, and rulings on them;

(5) proposed findings and exceptions;

(6) any decision, opinion, or report by the Administrative Law Judge at the hearing; and

(7) all briefs, memoranda, or data submitted to or considered by the Administrative Law Judge or by members of the agency who are involved in making the decision.

(b) In the event a final decision or order is appealed and the agency is required to transmit to the reviewing court a copy of the record of the administrative proceeding, or any part thereof, the appealing party shall pay all of the costs of the preparation of any original or certified copy of the record of the administrative proceeding that is required to be transmitted to the reviewing court. The charges imposed by this subsection will be the same as those charged by the agency for requests for photographic reproductions and certified copies of public records made pursuant to the provisions of the Public Information Act, Texas Government Code, Chapter 552. These charges are considered to be a court cost and may be assessed, all or in part, by the reviewing court in accordance with the Texas Rules of Civil Procedure.

History

• Source Note: The provisions of this §105.19 adopted to be effective April 3, 2012, 37 TexReg 2165.

7 Tex. Admin. Code § 105.20 Ex Parte Communications

(a) Upon the issuance of a Notice of Hearing in a contested case and continuing until the Securities Commissioner's decision or order becomes final as described in §105.16 of this title (relating to Decisions; When Final), the Commissioner (or other person assigned to render a decision in a contested case) and members of the Board may not communicate directly or indirectly with any party or a representative of a party in a contested case in connection with any issue of fact or law in the proceeding except on notice and opportunity for all parties to participate. Prohibited ex parte communications shall not include any written communication if the communicator contemporaneously serves copies of the communication on all parties to the proceeding.

(b) The Commissioner (or other person assigned to render a decision in a contested case) and members of the Board, individually, may communicate ex parte with employees of the Agency who have not participated in a hearing in the case in order to utilize special skills or knowledge of the Agency's employees in evaluating the evidence in the case.

History

• Source Note: The provisions of this §105.20 adopted to be effective April 3, 2012, 37 TexReg 2165.

Chapter 106 GUIDELINES FOR THE ASSESSMENT OF ADMINISTRATIVE FINES

7 Tex. Admin. Code § 106.1 Guidelines for the Assessment of Administrative Fines

For the purpose of determining the amount of an administrative fine assessed against a person or company under The Securities Act, §4007.106, the Securities Commissioner shall consider the following factors:

(1) the seriousness, nature, circumstances, extent, and persistence of the conduct constituting the violation;

(2) the harm to other persons resulting either directly or indirectly from the violation;

(3) cooperation by the person or company in any inquiry conducted by the State Securities Board concerning the violation, efforts to prevent future occurrences of the violation, and efforts to mitigate the harm caused by the violation, including any restitution made to other persons injured by the acts of the person or company;

(4) the history of previous violations by the person or company;

(5) the need to deter the person, company or others from committing such violations in the future; and

(6) such other matters as justice may require.

History

• Source Note: The provisions of this §106.1 adopted to be effective September 22, 1995, 20 TexReg 7187; amended to be effective April 7, 2024, 49 TexReg 2061.

Chapter 107 TERMINOLOGY

7 Tex. Admin. Code § 107.1 General

All of the terms used in these rules have the same meaning as defined in Texas Government Code, Chapter 4001, Subchapter B of the Texas Securities Act. In addition, the Board may from time to time define and interpret certain terms, whether or not used in the Act, insofar as the definition and interpretation are not inconsistent with the purpose fairly intended by the policy and provisions of the Act.

History

• Source Note: The provisions of this §107.1 adopted to be effective January 1, 1976; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 107.2 Definitions

The following words and terms, when used in Part 7 of this title (relating to the State Securities Board), shall have the following meanings, unless the context clearly indicates otherwise.

(1) Act or Securities Act or Texas Securities Act--The Texas Securities Act, located in Title 12 of the Texas Government Code, Chapters 4001 through 4008, as amended.

(2) Affiliate--An "affiliate" of, or person "affiliated" with a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

(3) APA or Administrative Procedure Act--The Administrative Procedure Act, Texas Government Code, Title 10, Chapter 2001, as amended.

(4) Applicant--A person who submits an application for registration of securities, documents in connection with the offer and sale of federal covered securities, or for registration as a dealer, agent, investment adviser, or investment adviser representative, or who files an application for an order of the Securities Commissioner.

(5) Board or Securities Board--The State Securities Board of the State of Texas.

(6) Certified--In conjunction with the term "financial statement(s)," means financial statement(s) prepared in accordance with generally accepted accounting principles and examined in accordance with generally accepted auditing standards by independent certified public accountants or independent public accountants for the purposes of expressing an opinion thereon. Such opinion shall be one acceptable to the Securities Commissioner.

(7) CFR--The Code of Federal Regulations, as amended.

(8) Commissioner or Securities Commissioner--The State Securities Commissioner for the State of Texas.

(9) Control--The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or company, whether through the ownership of voting securities, by contract, or otherwise.

(10) Credit union--For definition see the Texas Credit Union Act (Texas Finance Code, Chapter 121, as amended), which regulates such credit unions.

(11) Detailed balance sheet--A balance sheet.

(12) Qualified institutional buyer--An entity described in Rule 144A, as promulgated by the SEC under the Securities Act of 1933 (17 CFR §230.144A, as amended).

(13) Domestic corporation--A corporation incorporated under the laws of the State of Texas.

(14) Federal covered investment adviser--An investment adviser who is registered under the Investment Advisers Act of 1940 (15 U.S.C. §80b-1 et seq. ), as amended. A federal covered investment adviser is not required to be registered pursuant to the Texas Securities Act.

(15) Federal covered securities--Any security or securities described as a "covered security" or as "covered securities" in the Securities Act of 1933, §18(b), or rules or regulations promulgated thereunder.

(16) Financial statement(s)--Balance sheet and related statements of income, changes in stockholders' equity, and cash flows, all (consolidated, if applicable) prepared in accordance with generally accepted accounting principles. The information contained in the previously described statements may vary according to presentation and titles as they relate to specific entities, such as individuals, partnerships, and nonprofit organizations.

(17) Investment Advisers Act of 1940--The federal statute of that name, as amended, 15 United States Code §80b-1, et seq.

(18) Investment Company Act of 1940--The federal statute of that name, as amended, 15 United States Code §80a-1, et seq.

(19) License--The whole or part of any registration as a dealer, investment adviser, agent, or investment adviser representative, or similar form of permission required by the Texas Securities Act to sell securities or render investment advice.

(20) Licensing--The process respecting the granting, denial, renewal, revocation, suspension, withdrawal, or amendment of a license.

(21) Managing agent or manager--One who is authorized to act generally for an organization within a particular locality.

(22) FINRA--The Financial Industry Regulatory Authority, created through the consolidation of NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange.

(23) Officer--A president, vice president, secretary, treasurer, or principal financial officer, comptroller, or principal accounting officer, or any other person occupying a similar status or performing similar functions with respect to any organization or entity, whether incorporated or unincorporated.

(24) Operating statement--An income statement.

(25) Parent--A person controlling another person directly or indirectly.

(26) Profit and loss statement--An income statement.

(27) Proposed plan of business--As used in the Texas Securities Act, those aspects and only those aspects of the business set-up (other than that done or proposed in respect to the pricing and selling of its securities) which would materially affect the business relationship between the prospective investor and those in control of the business as such relationship would exist after the sale to the public of the securities sought to be registered.

(28) Regulatory standards--All standards coming within the meaning of "rule" as defined herein.

(29) Rendering services as an investment adviser--Any act by which investment advisory services are provided for compensation.

(30) Rule--Any statement by the Board or the Securities Commissioner of general applicability that implements, interprets, or prescribes law or policy, or describes the procedure or practice requirements of the Board or Securities Commissioner.

(31) Savings and loan association--For definition see the Texas Savings and Loan Act (Texas Finance Code, Chapter 61, as amended), which regulates such savings and loan associations.

(32) SEC--The United States Securities and Exchange Commission.

(33) Securities Act of 1933--The federal statute of that name, as amended, 15 United States Code §77a, et seq.

(34) Securities Exchange Act of 1934 or Federal Securities Exchange Act of 1934--The federal statute of that name, as amended, 15 United States Code §78a, et seq.

(35) Staff--Personnel of the Securities Board, excluding the members of the Board, the Securities Commissioner, and the Deputy Commissioner.

(36) State, territory, or insular possession of the United States--As used in the Texas Securities Act, includes a commonwealth.

(37) NASAA--The North American Securities Administrators Association, Inc.

(38) Telephone or telegram--For purposes of the Texas Securities Act, §4003.103, includes any means of electronic transmission such as, but not limited to, telephone, telegraph, wireless, email, graphic scanning, modem, or facsimile; provided, however, that the office of the State Securities Board has the necessary equipment to accept such a transmission.

(39) Within this state or in this state--

(A) A person is a "dealer" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.056, if either the person or the person's agent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be a dealer in more than one state at the same time.

(B) Likewise, a person is an "agent" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.052, whether by direct act or through subagents except as otherwise provided, if either the agent or the agent's subagent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be an agent in more than one state at the same time.

(C) Offers and sales can be made by personal contact, mail, telegram, telephone, wireless, electronic communication, or any other form of oral or written communication.

(40) Accredited investors--Persons who are either individual accredited investors or institutional accredited investors as those terms are defined in this section.

(41) Individual accredited investor--A natural person described in Rule 501(a), promulgated by the SEC under the Securities Act of 1933 (17 CFR §230.501, as amended).

(42) Institutional accredited investor--An entity (not a natural person) described in Rule 501(a), promulgated by the SEC under the Securities Act of 1933 (17 CFR §230.501, as amended).

(43) Form D--

(A) For paper filings--Form D, Notice of Exempt Offering of Securities, (referenced in 17 CFR §239.500).

(B) For electronic filings made through the EFD System--The information, relating to a filing designated to be made in Texas, that is submitted through the EFD System in connection with a Form D filing made with the SEC. It includes all information made available to the Securities Commissioner through the EFD System in connection with the Texas filing.

(44) EFD System--The Electronic Filing Depository system provided by NASAA that is used for making an electronic filing with the Securities Commissioner of Form D and such other filings as permitted by Board rule.

History

• Source Note: The provisions of this §107.2 adopted to be effective January 1, 1976; amended to be effective September 14, 1977, 2 TexReg 3338; amended to be effective September 6, 1979, 4 TexReg 3014; amended to be effective March 19, 1984, 9 TexReg 1436; amended to be effective June 1, 1984, 9 TexReg 2774; amended to be effective August 29, 1985, 10 TexReg 2999; amended to be effective October 30, 1985, 10 TexReg 4081; amended to be effective February 15, 1989, 14 TexReg 692; amended to be effective November 29, 1989, 14 TexReg 6075; amended to be effective March 17, 1994, 19 TexReg 1543; amended to be effective April 8, 1997, 22 TexReg 3216; amended to be effective August 21, 1997, 22 TexReg 7485; amended to be effective August 24, 1998, 23 TexReg 8667; amended to be effective August 12, 2001, 26 TexReg 5786; amended to be effective November 26, 2001, 26 TexReg 9578; amended to be effective June 12, 2002, 27 TexReg 4934; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective June 21, 2011, 36 TexReg 3714; amended to be effective December 21, 2011, 36 TexReg 8505; amended to be effective June 13, 2012, 37 TexReg 4185; amended to be effective February 16, 2015, 40 TexReg 700; amended to be effective March 21, 2021, 46 TexReg 1733; amended to be effective April 7, 2024, 49 TexReg 2062.

Chapter 109 TRANSACTIONS EXEMPT FROM REGISTRATION

7 Tex. Admin. Code § 109.1 Transactions Involving Existing Security Holders

(a) Section 4005.007 of the Act includes any offer and any transaction pursuant to any offer by the issuer of its "securities" to any one or more of its "existing security holders" even though such offer or transaction does not relate to all existing holders of such securities or to all existing holders of a class or series thereof.

(b) "Existing security holder" within the context of §4005.007 does not include the following:

(1) the holder of an option, whether transferable or nontransferable, issued by an entity other than the issuer of the security underlying the option;

(2) the holder of an account which is devoid of securities.

(c) An employee's activities such as mailing reports, dividend notices, and revised prospectuses do not constitute "soliciting" within the context of §4005.007. Furthermore, if an employee's job is fully justifiable even without soliciting existing security holders, occasional solicitations of existing security holders in this state will not affect the availability of §4005.007. However, if an employee's primary job is to solicit existing security holders in this state either on a full-time or part-time basis, §4005.007 is not available.

(d) Where an open-end investment company adopts a plan pursuant to SEC Rule 12b-1 (17 CFR §270.12b-1, as amended) and funds are used to pay commissions or other remuneration for soliciting existing security holders in this state, §4005.007 is not available.

(e) Where an offering provides for a minimum investment and only a portion of such minimum is paid initially, §4005.007 is not available for payments made subsequently to meet the required minimum investment.

History

• Source Note: The provisions of this §109.1 adopted to be effective January 1, 1976; amended to be effective May 17, 1976, 1 TexReg 1180; amended to be effective January 7, 1985, 9 TexReg 6472; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.2 Parent Subsidiary Transactions

Securities issued by a parent corporation for outstanding securities of a corporation in connection with a merger of such corporation into a wholly-owned or materially-owned (80%) subsidiary are exempt within the meaning of §4005.009 of the Act. The exemption also applies to the issuance of securities by the parent corporation in connection with a consolidation where the resulting new corporation is wholly-owned or materially-owned (80%) by the parent. Similarly, securities issued by a parent corporation for the purchase of assets for a wholly-owned or materially-owned (80%) subsidiary are exempt under §4005.009.

History

• Source Note: The provisions of this §109.2 adopted to be effective January 1, 1976; amended to be effective August 3, 1976, 1 TexReg 1999; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.3 Financial Institutions under the Texas Securities Act, §4005.011

The term "savings institution," as used in the Texas Securities Act, §4005.011, includes any federally chartered credit union, savings and loan association, or federal savings bank, and any credit union or savings and loan association chartered under the laws of any state of the United States.

History

• Source Note: The provisions of this §109.3 adopted to be effective January 1, 1976; amended to be effective May 17, 1976, 1 TexReg 1181; amended to be effective November 6, 1980, 5 TexReg 4223; amended to be effective June 20, 1985, 10 TexReg 1863; amended to be effective February 19, 1991, 16 TexReg 669; amended to be effective August 23, 1991, 16 TexReg 4349; amended to be effective December 1, 1992, 17 TexReg 8163; amended to be effective May 24, 1993, 18 TexReg 3045; amended to be effective April 5, 1998, 23 TexReg 3431; amended to be effective July 14, 2005, 30 TexReg 3987; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.4 Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors

(a) Availability. The exemption from securities registration provided by the Texas Securities Act, §4005.011, or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the specific securities for which the seller is claiming the exemption.

(b) Sales to certain institutional investors. The State Securities Board, pursuant to the Act, §4005.024, exempts from the securities registration requirements of the Act, Chapter 4003, Subchapters A, B, and C, the offer and sale of any securities to any of the following persons:

(1) an "institutional accredited investor," as that term is defined in §107.2 of this title (relating to Definitions), excluding, however, any self-directed employee benefit plan with investment decisions made solely by persons that are "individual accredited investors" as defined in §107.2 of this title;

(2) any "qualified institutional buyer" (as that term is defined in §107.2 of this title (relating to Definitions)); and

(3) a corporation, partnership, trust, estate, or other entity (excluding individuals) having net worth of not less than $5 million, or a wholly-owned subsidiary of such entity, as long as the entity was not formed for the purpose of acquiring the specific securities.

(c) Financial statements. For purposes of determining a purchaser's total assets or net worth under this section, the issuer and the seller may rely upon the entity's most recent annual balance sheet or other financial statement which shall have been audited by an independent accountant or which shall have been verified by a principal of the purchaser.

History

• Source Note: The provisions of this §109.4 adopted to be effective July 14, 2005, 30 TexReg 3987; amended to be effective June 21, 2011, 36 TexReg 3714; amended to be effective March 21, 2021, 46 TexReg 1733; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.5 Dealer Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors

(a) Availability. The exemption from dealer and agent registration provided by the Texas Securities Act, §4004.001, or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the specific securities for which the dealer or agent is claiming the exemption.

(b) Sales to certain institutional investors. The State Securities Board, pursuant to the Act, §4004.001, exempts a person from the dealer and agent registration requirements of the Act, when the person sells or offers for sale any securities to any of the following persons:

(1) an "institutional accredited investor," as that term is defined in §107.2 of this title (relating to Definitions), excluding, however, any self-directed employee benefit plan with investment decisions made solely by persons that are "individual accredited investors" as defined in §107.2 of this title;

(2) any "qualified institutional buyer" (as that term is defined in §107.2 of this title (relating to Definitions)); and

(3) a corporation, partnership, trust, estate, or other entity (excluding individuals) having net worth of not less than $5 million, or a wholly-owned subsidiary of such entity, as long as the entity was not formed for the purpose of acquiring the specific securities.

(c) Financial statements. For purposes of determining a purchaser's total assets or net worth under this section, the issuer and the seller may rely upon the entity's most recent annual balance sheet or other financial statement which shall have been audited by an independent accountant or which shall have been verified by a principal of the purchaser.

History

• Source Note: The provisions of this §109.5 adopted to be effective July 14, 2005, 30 TexReg 3987; amended to be effective June 21, 2011, 36 TexReg 3714; amended to be effective March 21, 2021, 46 TexReg 1733; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.6 Investment Adviser Registration Exemption for Investment Advice to Financial Institutions and Certain Institutional Investors

(a) Availability. The exemption from investment adviser and investment adviser representative registration provided by the Texas Securities Act, §4004.001, or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the investment advisory services for which the investment adviser or investment adviser representative is claiming the exemption. For purposes of this section, an investment adviser or investment adviser representative that is providing investment advisory services to a corporation, general partnership, limited partnership, limited liability company, trust or other legal entity, other than a private fund (as that term is defined in §139.23 of this title (relating to Registration Exemption for Investment Advisers to Private Funds)), is not providing investment advisory services to a shareholder, general partner, member, other security holder, beneficiary or other beneficial owner of the legal entity unless the investment adviser provides investment advisory services to such owner separate and apart from the investment advisory services provided to the legal entity.

(b) Investment advice rendered to certain institutional investors. The State Securities Board, pursuant to the Act, §4004.001, exempts from the investment adviser and investment adviser representative registration requirements of the Act, persons who render investment advisory services to any of the following:

(1) an "institutional accredited investor," as that term is defined in §107.2 of this title (relating to Definitions);

(2) any "qualified institutional buyer," as that term is defined in §107.2 of this title (relating to Definitions); and

(3) a corporation, partnership, trust, estate, or other entity (excluding individuals) having net worth of not less than $5 million, or a wholly-owned subsidiary of such entity.

(c) Exclusions from exemption. There is no exemption under this section for an investment adviser providing investment advisory services to a natural person. A private fund adviser, as that term is defined in §139.23 of this title (relating to Registration Exemption for Investment Advisers to Private Funds), may not rely on this exemption except as provided in subsection (e) of this section.

(d) Financial statements. For purposes of determining an institutional investor's total assets or net worth under this section, an investment adviser or investment adviser representative may rely upon the entity's most recent annual balance sheet or other financial statement which shall have been audited by an independent accountant or which shall have been verified by a principal of the institutional investor.

(e) Grandfathering. An investment adviser to a private fund, as that term is defined in §139.23 of this title (relating to Registration Exemption for Investment Advisers to Private Funds), may nonetheless qualify for the exemption described in subsection (b) of this section if:

(1) the private fund existed prior to March 31, 2014;

(2) the investment adviser qualified for the exemption in subsection (b) of this section as modified by subsection (c) of this section as both subsections existed prior to March 31, 2014; and

(3) as of March 31, 2014, the private fund ceases to accept new beneficial owners.

History

• Source Note: The provisions of this §109.6 adopted to be effective July 14, 2005, 30 TexReg 3987; amended to be effective March 31, 2014, 39 TexReg 491; amended to be effective March 21, 2021, 46 TexReg 1733; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.7 Secondary Trading Exemption under the Texas Securities Act, §4005.019

(a) When a withdrawal of an application for registration of securities is allowed and thereafter the applicant files for a secondary trading exemption under the Act, §4005.019, the Commissioner may, without a hearing, revoke or suspend the §4005.019 exemption. The applicant may either accept such action of the Commissioner or request a hearing under the Act, §4007.107.

(b) The language, ". . . at prices reasonably related to the current market price of the securities at the time of the sale," means that the market price of the security in the existing secondary market must have a basis supported by a substantial volume of bona fide sales transactions within or without this state. In the absence of a going market or where there have been only casual transactions, it shall be incumbent on the person filing the §4005.019 exemption notice to prove to the Commissioner that the securities will have a market price which has been fairly determined and justified at inception with reasonable assurance of continuity of the market into the future, pursuant to which the following criteria will be considered:

(1) the nature and extent of the business operations of the issuer and its predecessor, if any, and the period of time during which the issuer and its predecessor, if any, has been continuously engaged in business;

(2) the net asset value of the stock per share;

(3) if there is a record of earnings for the issuer, the value per share of the stock based upon a reasonable times-earnings factor (setting out the factor used) related to the industry represented by the issuer;

(4) if the value per share of the stock on any other basis has been fully justified;

(5) if the issuer undertakes to furnish to its shareholders and dealers deemed likely to trade the securities of the issuer, financial statements for the three most recent fiscal years ending as of the balance sheet date (or for the period of existence if less than three years) and annual financial statements thereafter for so long as the exemption is maintained by filing statements with the Commissioner;

(6) whether a registered Texas securities dealer who is financially able has made a written undertaking setting out:

(A) his willingness to make a market in the issue of securities;

(B) the price at which he will begin the market; and

(C) the procedures which he intends to follow for the purpose of assuring an orderly market; and

(7) supplementary data to assist in determining the character of the share distribution and the number of publicly-held shares shall be as follows:

(A) identification of 10 largest holders of record, including beneficial owners (if known) of holdings of record by nominees;

(B) list of holdings of 1,000 shares or more in the names of registered dealers and unregistered out-of-state dealers;

(C) number of transfers and shares transferred during the last two years (or period of existence of the issuer, if shorter);

(D) summary, by principal groups, of stock owned or controlled by:

(i) officers or directors and their immediate families; or

(ii) other concentrated holdings of 10% or more;

(E) estimates of number of nonofficer employees owning stock and the total shares held;

(F) company shares held in profit-sharing, savings, pension, or other similar funds or trusts established for the benefit of officers or employees; and

(G) number of round-lot and number of odd-lot holders of record and aggregate numbers of shares so held.

(c) Sales of securities pursuant to the Securities Act, §4005.019, may be made by or through securities dealers acting either as principal or agent in the transaction for which the exemption is claimed.

(d) Financial information required pursuant to the Act, §4005.019(b)(9)(B)(ii) and (iii), must be prepared as certified financial statements (consolidated, if applicable) and shall include a balance sheet as of a date within 18 months of the date of such sale and the related statements of income, changes in stockholders' equity, and changes in financial position for the three most recent fiscal years ending as of the balance sheet date, or for the period of the issuer's existence, if less than three years. Such financial statements should disclose dividends paid or declared by each class of stock, for each period for which an income statement is presented.

(e) The term "recognized securities manual" as used in the Texas Securities Act, §4005.019, is limited to Best Insurance Reports Life-Health, any Mergent's Manual, and the OTC Markets Group Inc. website (www.otcmarkets.com) for a company that is currently or has recently been quoted on the OTCQX or OTCQB markets. This designation encompasses both print and electronic data and includes periodic supplements to these publications. The information provided in the recognized securities manual must contain the information specified in subsection (d) of this section. All information provided must be current. The time for determining whether the entries are current is at the date of the particular sale, not the date the manual listings are published. If a listing is not continually updated, the exemption would not be available once the published balance sheet becomes more than 18 months old.

(f) The secondary trading exemption under the Act, §4005.019, is not available for the securities of an issuer formed in a manner that constitutes part of a scheme to violate or evade the securities registration provisions of the Act. Depending upon all the facts and circumstances, such a scheme may include the merger of a private corporation with a corporation which has no substantive operations or assets ("shell corporation") when as a result of the merger trading in the secondary market of the shares of the post-merger corporation may be at prices which bear no relationship to the underlying financial condition or operations of the post-merger corporation, and such trading may occur within two years of the date of such merger.

History

• Source Note: The provisions of this §109.7 adopted to be effective January 1, 1976; amended to be effective May 11, 1979, 4 TexReg 1543; amended to be effective September 6, 1979, 4 TexReg 3015; amended to be effective December 30, 1983, 8 TexReg 5276; amended to be effective February 15, 1989, 14 TexReg 693; amended to be effective November 29, 1989, 14 TexReg 6076; amended to be effective December 3, 2000, 25 TexReg 11645; amended to be effective June 19, 2013, 38 TexReg 3779; amended to be effective February 26, 2017, 42 TexReg 673; amended to be effective June 17, 2020, 45 TexReg 4001; amended to be effective July 18, 2024,49 TexReg 5141.

7 Tex. Admin. Code § 109.8 Initial Offering Completed

The phrase "initial offering of the securities has been completed," used in §4005.020 of the Act, means that any nonexempt public distribution of such securities has been completely sold to the public.

History

• Source Note: The provisions of this §109.8 adopted to be effective January 1, 1976; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.11 Guarantee of Options

(a) The broker-dealer guaranteeing the performance of the terms of the option must, on the date of the transaction, either be a member of the New York Stock Exchange or have stockholders' equity or partners' capital, according to generally accepted accounting principles, in excess of $1 million.

(b) A broker-dealer shall not:

(1) write call options for its account to its customers unless performance of the call option is guaranteed by the ownership by such broker-dealer of shares of the underlying security free of encumbrances sufficient to fully perform the terms of the option; or

(2) write put options for its account to its customers unless performance of the put option is guaranteed by sufficient unencumbered liquid net assets of the broker-dealer to fully perform the terms of the option.

(c) The guarantee must be full and unconditional and must be maintained throughout the term of the option.

(d) In lieu of the three requirements in subsections (a)-(c) of this section, the section 4005.023(b)(1) and (b)(2) guarantee requirements will be satisfied if the option is issued by a clearing corporation recognized by the State Securities Board as satisfying all the following standards.

(1) Performance of the option issued by the clearing corporation is guaranteed by the clearing corporation and by broker-dealers which are members of the issuing clearing corporation.

(2) Every broker-dealer which is a member of the clearing corporation must be registered under the Federal Securities Exchange Act of 1934, as amended.

(3) The clearing corporation must be registered as a national clearing agency under the Securities Exchange Act of 1934, as amended, and must file with the Commissioner a copy of the prospectus respecting such option currently being delivered pursuant to the requirements of the Securities Act of 1933, as amended, and further must agree to promptly file with the Commissioner a copy of any amendments of such prospectus.

(4) The option must either be "covered" and the underlying security on deposit with the clearing corporation or the clearing corporation must maintain adequate reserve funds and guarantee system to reasonably assure performance of the option.

(5) Any other conditions the State Securities Board deems necessary to adequately protect the investing public.

(e) Application for recognition by the State Securities Board may be made by any organized options clearing corporation. Clearing corporations recognized by the State Securities Board are: Options Clearing Corporation; Chicago, Illinois.

History

• Source Note: The provisions of this §109.11 adopted to be effective January 1, 1976; amended to be effective August 3, 1976, 1 TexReg 2000; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.12 Stock Dividends

The distribution by a corporation of securities direct to its stockholders as a stock dividend or other distribution paid out of earnings or surplus includes a stock dividend, stock split, reverse stock split, or other distribution out of paid-in capital (capital in excess of legal capital) or retained earnings.

History

• Source Note: The provisions of this §109.12 adopted to be effective September 6, 1979, 4 TexReg 3015.

7 Tex. Admin. Code § 109.13 Limited Offering Exemptions

(a) The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Private Offering Exemptions. The term "Private Offering Exemptions" refers to §4005.012 and §4005.013 of the Act.

(2) Limited Offering Exemptions. The term "Limited Offering Exemptions" refers to the two limited offering exemptions found in subsections (a)(1) and (a)(2) of §4005.012 of the Act. The term "Limited Offering Exemption (a)(1)" refers to the exemption in subsection (a)(1) of §4005.012 of the Act, and the term "Limited Offering Exemption (a)(2)" refers to the exemption in subsection (a)(2) of §4005.012 of the Act.

(3) Registration Sections. The term "Registration Sections" refers to Subchapters A, B, and C of Chapter 4003 of the Act.

(4) Public solicitation. The offer for sale or sale of the securities of the issuer would not involve the use of public solicitation under the Private Offering Exemptions if the issuer, after having made a reasonable factual inquiry has reasonable cause to believe, and does believe, that the purchasers of the securities are sophisticated, well-informed investors or well-informed investors who have a relationship with the issuer or its principals, executive officers, or directors evincing trust between the parties (namely close business association, close friendship, or close family ties), and such purchasers acquire the securities as ultimate purchasers and not as underwriters or conduits to other beneficial owners or subsequent purchasers. The use of a registered dealer in a sale otherwise meeting the requirements of either §4005.0012 or §4005.013 does not necessarily mean that the transaction involves the use of public solicitation. The offer without advertising to a person who did not come within the class of persons described in this subsection does not alone result in public solicitation if the issuer had a reasonable cause to believe and did believe that such person fell within the class of persons described, and that such offer was not made indiscriminately.

(5) Well informed. The term "well-informed" could be satisfied through the dissemination of printed material to each purchaser prior to his or her purchase, which by a fair and factual presentation discloses the plan of business, the history, and the financial statements of the issuer, including material facts necessary in order that the statements made, in the light of circumstances under which they are made, not be misleading.

(6) Sophisticated investor. In determining who is a sophisticated investor at least the following factors should be considered.

(A) The financial capacity of the investor, to be of such proportion that the total cost of that investor's commitment in the proposed investment would not be material when compared with his total financial capacity. It may be presumed that if the investment does not exceed 20% of the investor's net worth (or joint net worth with the investor's spouse) at the time of sale that the amount invested is not material.

(B) Knowledge of finance, securities, and investments, generally. This criteria may be met by the investor's purchaser representative if such purchaser representative has such knowledge, so long as such purchaser representative:

(i) has no business relationship with the issuer;

(ii) represents only the investor and not the issuer; and

(iii) is compensated only by the investor.

(C) Experience and skill in investments based on actual participation. This criteria may be met by the investor's purchaser representative if such purchaser representative has such experience and skill, so long as such purchaser representative:

(i) has no business relationship with the issuer;

(ii) represents only the investor and not the issuer; and

(iii) is compensated only by the investor.

(b) Advertisements. The term "advertisements" does not include the use of the type of printed material as set out in subsection (a) of this section under the discussion of the term "well-informed." Further, the main concept to be considered in a definitional analysis of the term "advertisements," as it is used in the Private Offering Exemptions is the method of use of the printed material. The following circumstances, though not intended to be exclusive, will be considered in determining whether the method of use of any printed material is within the limits of the Private Offering Exemptions:

(1) limited printing of the material;

(2) limited distribution of the material only to persons who the issuer, after having made a reasonable factual inquiry has reasonable cause to believe and does believe are sophisticated investors, or to persons who have a relationship with the issuer as set forth in subsection (a) of this section, or to their purchaser representatives;

(3) control of the printing and distribution of the printed material;

(4) recognition of the necessity of compliance with the requirements set forth in this subsection on the part of the issuer and the investor. Such recognition might consist of a printed prohibition on the front in large type that the circular is for that individual's confidential use only, and may not be reproduced; and, the use of a statement warning that any action contrary to these restrictions may place such individual and the issuer in violation of the Texas Securities Act.

(c) Number of security holders or purchasers of securities. In computing the number of purchasers or security holders for the Private Offering Exemptions, the following criteria shall be used.

(1) There shall be counted as one purchaser or security holder any purchaser or security holder together with:

(A) any relative or spouse of such purchaser or security holder who has the same home as such purchaser or security holder; any relative of such spouse who has the same home as such purchaser or security holder; any relative or spouse or relative of such spouse who is a dependent of such security holder;

(B) any trust or estate in which such purchaser or security holder or any of the persons related to him as specified in subparagraph (A) or (C) of this paragraph collectively have more than 50% of the beneficial interest (excluding contingent interests); and

(C) any corporation or other organization of which such purchaser or security holder or any of the persons related to him as specified in subparagraph (A) or subparagraph (B) of this paragraph collectively are the beneficial owners of more than 50% of the equity securities (excluding directors' qualified shares) or equity interest.

(2) There shall be counted as one purchaser or security holder any corporation, partnership, association, joint stock company, trust, or unincorporated association, organized and existing other than for the purpose of acquiring securities of the issuer for which the exemption is claimed under the Private Offering Exemptions.

(3) Any general partner of a limited partnership who is subject to general liability for the obligations of the limited partnership and actively engages in the control and management of the business and affairs of the limited partnership or of the managing general partner of the partnership shall not be counted as a purchaser or security holder for purposes of the Private Offering Exemptions.

(4) The Limited Offering Exemptions, as interpreted in subsections (a) - (j) of this section may not be combined with the exemptions promulgated pursuant to the Act, §4005.024, contained in subsections (k) and (l) of this section to exceed sales to 35 unaccredited investors in a 12-month period.

(5) "Security holders" or "purchasers of securities," as those terms are used in the Limited Offering Exemptions do not include holders of any options granted pursuant to a plan that falls within the exemption for compensatory or benefit plans provided by §4005.013 of the Act.

(d) Total number of security holders. The phrase "the total number of security holders of the issuer" in the Limited Offering Exemption (a)(1) includes all security holders of the issuer without regard to their places of residence (within or without the State of Texas) and without regard to where they acquired the securities. In determining the number of persons for purposes of the Limited Offering Exemption (a)(2), prior sales to persons residing outside the State of Texas and prior sales to Texas residents consummated outside the State of Texas shall be included unless such sales were made in compliance with §139.7 of this title (relating to Sale of Securities to Nonresidents).

(e) Other exemptions. The phrase "exempt under another provision of this subchapter" in §4005.012(b)(1) means exempt under any provisions of the Act, other than the Limited Offering Exemption (a)(1), and subsections (k) and (l) of this section.

(f) Compensation plans and contracts exemption found in §4005.013 of the Act.

(1) No public solicitation or advertisement under §4005.013 of the Act occurs by the distribution to eligible persons of a prospectus filed under the Securities Act of 1933 with the SEC for the plan or any other material required or permitted to be distributed by the Securities Act of 1933 in connection with such plan when the securities under the plan are sold or distributed in a transaction otherwise meeting the requirements of §4005.013.

(2) Insurance agents who are exclusive agents of the issuer or its subsidiary or derive more than 50% of their annual income from the issuer or its subsidiary are deemed "employees" as that term is used in §4005.013.

(g) Sales made under §4005.013 of the Act. Only the employer and its participating subsidiaries, parents, or subsidiaries of such parents, if any, may offer or sell securities in connection with the employee plan without registration as dealers. For purposes of §4005.013 of the Act, the term "issuer" includes a general partner of a limited partnership with respect to a security sold or distributed by such limited partnership in a transaction otherwise meeting the requirements of §4005.013 of the Act. An employee of the issuer or its participating subsidiary who aids in offering or selling such securities in connection with the plan is not required to be registered as an agent provided the employee meets all of the following conditions:

(1) the employee was not hired for the purpose of offering or selling such securities;

(2) the employee's activity involving the offer and sale of such securities is strictly incidental to his or her bona fide primary nonsecurities-related work duties; and

(3) the employee's compensation is based solely on the performance of such other duties, i.e., the employee does not receive any compensation for offering for sale, selling, or otherwise aiding the sale of securities.

(h) Section 4005.013 plans for counting purposes. A noncontributory stock ownership plan or stock ownership trust that holds securities of the issuer for the benefit of the participants in that issuer's plan shall be counted as one security holder under the Limited Offering Exemption (a)(1). Plan participants in such a stock ownership plan or trust will not be deemed security holders of the issuer for purposes of counting security holders under the Limited Offering Exemption (a)(1) solely because of their participation in the plan or trust. However, participants receiving distributions of securities from the plan or trust will be deemed security holders of the issuer on receipt of securities of the issuer from the plan or trust.

(i) Notices. There is no notice filing requirement for sales made under the Private Offering Exemptions.

(j) Limitations on disposition. The issuer and any person acting on its behalf shall exercise reasonable care to assure that the purchasers are acquiring the securities as an investment. Such reasonable care should include, but not be limited to, the following:

(1) making reasonable inquiry to determine if the purchaser is acquiring the securities for his or her own account or on behalf of other persons;

(2) placing a legend on the certificate or other document evidencing the securities to the effect that the securities have not been registered under any securities law and setting forth or referring to the restrictions on transferability and sale of the securities;

(3) issuing stop transfer instructions to the issuer's transfer agent, if any, with respect to the securities, or, if the issuer transfers its own securities, making a notation in the appropriate records of the issuer;

(4) obtaining from the purchaser a signed written agreement to the effect that the securities will not be sold without registration under applicable securities laws or exemptions therefrom; and

(5) prior to sale, written disclosure to each purchaser, to the effect that a purchaser of the securities must bear the economic risk of the investment for an indefinite period of time because the securities have not been registered under applicable securities laws and therefore cannot be sold unless they are subsequently registered under such securities laws or an exemption from such registration is available; and that the securities are subject to the limitations set forth in paragraphs (2) - (4) of this subsection.

(k) Limited offering exemption coordinating with SEC Regulation D, Rule 506. In addition to sales made under the Private Offering Exemptions, the State Securities Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Registration Sections, any offer or sale of securities offered or sold in compliance with the Securities Act of 1933, Regulation D (17 C.F.R. §§230.500-230.508, as amended), Rule 506, including any offer or sale made exempt by application of Rule 508(a), and which satisfies the following further conditions and limitations.

(1) In addition to the other requirements of this subsection, to claim this exemption, the issuer must comply with notice filing provisions set out in §114.4(b)(1) of this title (relating to Filings and Fees).

(2) Transactions which are exempt under this subsection may not be combined with offers and sales exempt under any other rule or section of the Act; however, nothing in this limitation shall act as an election. Should for any reason, the offer and sale fail to comply with all of the conditions for this exemption, the issuer may claim the availability of any other applicable exemption.

(3) In view of the objective of this subsection and the purposes and policies underlying the Texas Securities Act, the exemption is not available to any issuer with respect to any transaction which, although in technical compliance with this subsection, is part of a plan or scheme to evade registration or the conditions or limitations explicitly stated in this subsection.

(4) Nothing in this subsection is intended to relieve registered dealers, or agents from the due diligence, suitability, or know your customer standards or any other requirements of law otherwise applicable to such registered persons.

(5) The staff of the State Securities Board will review all notice filings made under this subsection to determine if the correct filing fee was submitted. If the staff determines that the fee paid was deficient, the staff will notify the filer through the EFD system or by email if the filing was not made through EFD. A filer who receives such a notice may correct the deficiency within 30 days of the date that the notice is sent by the staff. If a timely correction is made, the filing shall be deemed to be complete and in compliance with the filing requirements as of the date the original filing was received.

(6) When an offering is made in compliance with Regulation D of the SEC and the offering will be made by or through a registered securities dealer, the issuer and its directors, officers, agents, and employees may make themselves available to answer questions from offerees, as required by Rule 502(b)(2)(v) of Regulation D, without being required to register as securities dealers or agents under Chapter 4004 of the Act.

(l) Intrastate limited offering exemption. In addition to sales made under the Private Offering Exemptions, the State Securities Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Registration Sections, any offer or sale of any securities by the issuer itself, or by a registered dealer acting as agent for the issuer provided all offers and sales are made pursuant to an offering made and completed solely within this state and all the conditions in paragraphs (1) - (11) of this subsection are satisfied.

(1) The sale is made, without the use of any public solicitation or advertisements, as set forth in subsection (a) and subsection (b) of this section to:

(A) not more than 35 new security holders of the issuer who meet the criteria stated in subsection (a) of this section and who became security holders during the period of 12 months ending with the date of the sale in question (subject to paragraph (7) of this subsection); and

(B) other well-informed investors who are "accredited investors" as defined in §107.2 of this title (relating to Definitions). (For purposes of this subsection, the term "well informed" shall have the same meaning as set out in subsection (a)(5) of this section, and the term "Private Offering Exemptions" in such subsection shall include sales made pursuant to this subsection.)

(2) Neither the issuer nor the registered dealer (as such terms are defined in paragraph (4) of this subsection):

(A) is currently subject to any administrative order issued by state or federal authorities within five years of the expected offer and sale of securities in reliance upon this exemption, which order:

(i) is based upon a finding that such person has engaged in fraudulent conduct; or

(ii) has the effect of enjoining such person from activities subject to federal or state statutes designed to protect investors or consumers against unlawful or deceptive practices involving securities, insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;

(B) has been convicted within five years prior to commencement of the offering of any felony or misdemeanor of which fraud is an essential element, or which is a violation of the securities laws or regulations of this state, or of any other state of the United States, or of the United States, or any foreign jurisdiction; or which is a crime involving moral turpitude; or which is a criminal violation of statutes designed to protect consumers against unlawful practices involving insurance, securities, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;

(C) is subject to any order, judgment, or decree entered within five years prior to commencement of the offering by any court of competent jurisdiction which temporarily or permanently restrains or enjoins such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving any false filing with any state; or which restrains or enjoins such person from activities subject to federal or state statutes designed to protect consumers against unlawful or deceptive practices involving insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services.

(3) The prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business in the state in which the administrative order or judgment was entered against such party or, if the order or judgment was entered by federal authorities, the prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business by the SEC. Any disqualification caused by paragraph (2) of this subsection is automatically waived if the state or federal authorities which created the basis for disqualification determine upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied.

(4) For purposes of paragraphs (2) and (3) of this subsection only, "issuer" includes any directors, executive officers, general partners, or beneficial owners of 10% or more of any class of its equity securities (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities), and "registered dealer" shall include any partners, directors, executive officers, or beneficial owner of 10% or more of any class of the equity securities of the registered dealer (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities).

(5) Upon application, and for good cause shown, the Commissioner may waive a disqualification contained in paragraph (2) of this subsection.

(6) The offering complies with subsections (a) - (d) and (j) of this section. However, persons who are "accredited investors" as defined in §107.2 of this title are deemed to be "sophisticated" as defined in subsection (a)(6) of this section.

(7) This subsection may not be combined with either of the Limited Offering Exemptions, or subsection (k) of this section to make sales to more than 35 unaccredited security holders during a 12-month period. Except for accredited investors who became security holders pursuant to this subsection, security holders who purchase in sales made in compliance with this subsection are included in the count of security holders under the Limited Offering Exemption (a)(1) or purchasers under the Limited Offering Exemption (a)(2), but this subsection may be used to exceed the numbers of security holders or purchasers allowed by such sections over an extended period of time.

(8) Issuers who offer and sell securities under this subsection only through a securities dealer registered in Texas may do so without filing any notice with the State Securities Board.

(9) Notice filing requirements.

(A) An issuer who is not a registered securities dealer and who does not sell securities by or through a registered securities dealer shall file a notice on Form 133.29 not less than 10 business days before any sale claimed to be exempt under this subsection may be consummated for sales under paragraph (1)(B) of this subsection, in whole or in part to individual accredited investors, as defined in §107.2 of this title.

(B) For the purpose of filing Form 133.29, "business days" means ordinary business days and does not include Saturdays, Sundays, or state holidays.

(C) No notice is required for sales made under paragraph (1)(A) of this subsection or under paragraph (1)(B) of this subsection where the sales are made exclusively to institutional accredited investors as defined in §107.2 of this title.

(D) The issuer may be required by the Securities Commissioner to give details concerning any information requested in Form 133.29 and may be required to furnish any additional information deemed necessary by the Securities Commissioner to determine the issuer's business repute and qualifications.

(E) Every issuer filing a notice on Form 133.29 shall pay a filing fee of 1/10 of 1.0% of the aggregate amount of securities described as being offered for sale, but in no case more than $500.

(10) Accredited investor security holders who purchase in sales made under this exemption are not counted as security holders under the Limited Offering Exemption (a)(1) or purchasers under the Limited Offering Exemption (a)(2) in determining whether any other sales to other security holders or purchasers are exempt under the Private Offering Exemptions. That is to say, this exemption for sales to accredited investors is cumulative with and in addition to the Private Offering Exemptions, and sales made under paragraph (1)(B) of this subsection are not considered in determining whether sales made in reliance on the exemptions contained in the Private Offering Exemptions would be within the numerical limits on the number of security holders or purchasers contained in the Private Offering Exemptions.

(11) "Accredited investor" is defined in §107.2 of this title and for purposes of this subsection, includes any person who the issuer reasonably believes comes within that definition at the time of the sale of the securities to that person.

History

• Source Note: The provisions of this §109.13 adopted to be effective March 1, 1985, 10 TexReg 569; amended to be effective August 29, 1985, 10 TexReg 2999; amended to be effective April 8, 1986, 11 TexReg 1508; amended to be effective March 10, 1987, 12 TexReg 601; amended to be effective January 1, 1988, TexReg 4470; amended to be effective October 31, 1988, 13 TexReg 4851; amended to be effective November 29, 1989, 14 TexReg 6076; amended to be effective November 15, 1990, 15 TexReg 6290; amended to be effective June 8, 1994, 19 TexReg 4195; amended to be effective August 3, 1995, 20 TexReg 5381; amended to be effective April 8, 1997, 22 TexReg 3218; amended to be effective March 14, 1999, 24 TexReg 1769; amended to be effective August 12, 2001, 26 TexReg 5788; amended to be effective June 12, 2002, 27 TexReg 4934; amended to be effective June 21, 2011, 36 TexReg 3715; amended to be effective February 5, 2014, 39 TexReg 492; amended to be effective December 23, 2018, 43 TexReg 8088; amended to be effective November 12, 2019, 44 TexReg 6858; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.14 Oil, Gas, and Other Mineral Interests

(a) It is the intent of the State Securities Board that §109.13(a)-(c) and (j) of this title (relating to Limited Offering Exemptions) apply to transactions made pursuant to the Securities Act, §4005.021, and that the terms defined in §109.13(a)-(c) and (j) of this title (relating to Limited Offering Exemptions) have the same meanings for purposes of §4005.021 as they do for exemptions set forth in §4005.012 and §4005.013 of the Securities Act.

(b) For the purposes of §4005.021, an employee of the owner of an oil, gas, or mineral lease, fee, or title may aid such owner/employer in selling interests in such lease, fee, or title and will not be considered an agent required to be licensed under the Act provided all the following conditions are satisfied:

(1) the employee was not hired for the purpose of offering or selling such securities;

(2) the employee's activity involving the offer and sale of such securities is strictly incidental to his bona fide primary nonsecurities-related work duties; and

(3) the employee's compensation is based solely on the performance of such other duties, i.e., the employee does not receive any compensation for offering for sale, selling, or otherwise aiding in the sale of securities.

(c) In addition to sales made under the Securities Act, §4005.021, the State Securities Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Act, Chapter 4003, Subchapters A, B, and C, the sale of interests in and under oil, gas, and mining leases, fees, or titles, or contracts relating thereto (hereinafter called securities), by the owner itself, or by a registered dealer acting as agent for the owner, provided all of the conditions of §109.13(k) or (l) of this title (relating to Limited Offering Exemptions) are met. The purpose of this subsection is to provide a mechanism which will allow for sales of the securities listed herein to accredited investors where the conditions of §109.13(k) or (l) of this title (relating to Limited Offering Exemptions) are met.

(d) Exemption for transactions among persons in the oil and gas industry.

(1) In addition to offers and sales made pursuant to the Act, §4005.021, the State Securities Board, pursuant to the Act, §4005.024, exempts from the securities registration requirements of the Act, Chapter 4003, Subchapters A, B, and C, and the dealer and agent registration requirements of the Act, Chapter 4004, the offer and sale of any interest in or under an oil, gas, or mining lease, fee, or title, or payments out of production in or under such leases, fees, or titles or contracts relating thereto by the owner or an agent for the owner when such offer or sale is made to persons and/or companies each of whom the owner or owner's agent shall have reasonable cause to believe and does believe meets the following criteria:

(A) is engaged in the business of exploring for or producing oil, gas, or other minerals as an ongoing business or is engaged in the practice of a profession, or discipline, which is directly related to the exploration for, production of, refining of, or marketing of oil, gas, or other minerals such as the interest being sold; or

(B) is a landman, drilling company, well service company, production company, refining company, geologist, geophysicist, petroleum engineer, earth scientist; or

(C) is an executive officer of a company whose primary plan of business involves either subparagraphs (A) or (B) of this paragraph.

(2) The offer to a person who did not meet the criteria set forth in paragraph (1)(A)-(C) of this subsection will not cause the exemption to be lost if such offer was not made indiscriminately.

(3) For purposes of this rule, an "agent for the owner" includes the following:

(A) officers, directors, and employees who are actively engaged in the day-to-day activities of the owner;

(B) independent landmen, engineers, geologists, and consultants who have a contractual working relationship with the owner;

(C) persons who meet the dealer registration requirements of Chapter 4004 of the Securities Act; and

(D) persons who represent the owner in transactions exclusively with persons described in paragraph (1)(A)-(C) of this subsection.

(4) This exemption includes sales at auction.

(e) Any person who acts as an agent of an owner or a purchaser in connection with a sale of an interest described in subsection (d) of this section to a person who does not meet the criteria set forth in subsection (d)(1)(A)-(C) of this section will not be exempt from the dealer registration requirements of Chapter 4004 of the Act unless another exemption is available.

History

• Source Note: The provisions of this §109.14 adopted to be effective March 1, 1985, 10 TexReg 569; amended to be effective August 29, 1985, 10 TexReg 3001; amended to be effective November 29, 1989, 14 TexReg 6076; amended to be effective December 16, 1991, 16 TexReg 7007; amended to be effective July 18, 2024, 49 TexReg 5141.

7 Tex. Admin. Code § 109.17 Banks under the Securities Act, §4005.016

(a) The phrase "a savings and loan association organized and subject to regulation under the laws of this State" shall include any Texas state chartered savings bank.

(b) The phrase "a federal savings and loan association" shall include any federally chartered savings bank.

(c) The phrase "a bank organized and subject to regulation under the laws of . . ." shall include any Texas state chartered limited banking association.

History

• Source Note: The provisions of this §109.17 adopted to be effective August 28, 1992, 17 TexReg 5681; amended to be effective December 20, 1993, 18 TexReg 9093; amended to be effective June 8, 1994, 19 TexReg 4195; amended to be effective July 18, 2024, 49 TexReg 5141.

Chapter 111 SECURITIES EXEMPT FROM REGISTRATION

7 Tex. Admin. Code § 111.2 Listed and Designated Securities

(a) Fully listed. As used in the Texas Securities Act, §4005.054, "fully listed" includes any security listed or approved for listing upon notice of issuance on an exchange specified in the Act, §4005.054, or on an exchange listed in subsection (b) of this section.

(b) Approved exchanges. The Securities Commissioner has approved the following exchanges, by written order, as satisfying the requirements of the Texas Securities Act, Chapter 4005, Subchapter C, for eligibility:

(1) Pacific Stock Exchange;

(2) Chicago Board Options Exchange.

(c) Warrants for listed securities. In addition to sales made under the Texas Securities Act, §4005.054, the Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Act, Chapter 4003, Subchapters A, B, and C, the offer and sale by the issuer itself, or by a registered dealer, of warrants to purchase securities of the issuer which at the time of sale of the warrants are exempt pursuant to the Act, §4005.054.

(d) Recognized and responsible stock exchange. In order to implement the general purposes of the Texas Securities Act declared in §4001.002(a)(2) to maximize coordination with federal and other states law and administration, particularly with respect to exemptions, the Board hereby defines the term "recognized and responsible stock exchange," as used in the Act, §4005.054(a)(1)(E), not to include any organization which is not registered with the SEC as a national securities exchange pursuant to the Securities Exchange Act of 1934, §6.

(e) Who may sell. Securities described in the Act, §4005.054, may be sold by or through a registered securities dealer acting either as a principal or agent.

(f) National market system of the NASDAQ stock market. The "national market system of the NASDAQ stock market," as used in the Act, §4005.054(a)(2), includes NASDAQ Global Select Market, NASDAQ Global Market, and NASDAQ Capital Market.

History

• Source Note: The provisions of this §111.2 adopted to be effective September 14, 1977, 2 TexReg 3339; amended to be effective February 2, 1983, 8 TexReg 280; amended to be effective October 26, 1983, 8 TexReg 4178; amended to be effective January 7, 1984, 9 TexReg 6473; amended to be effective October 30, 1985, 10 TexReg 4081; amended to be effective November 29, 1989, 14 TexReg 6077; amended to be effective August 23, 1991, 16 TexReg 4349; amended to be effective August 21, 1997, 22 TexReg 7486; amended to be effective January 7, 2007, 32 TexReg 43; amended to be effective November 14, 2024, 49 TexReg 8873.

Chapter 113 REGISTRATION OF SECURITIES

7 Tex. Admin. Code § 113.1 Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Exemptions Sections--Refers to Subchapters A and B of Chapter 4005 of the Texas Securities Act.

(2) Registration by Coordination--Refers to Subchapter C of Chapter 4003 of the Texas Securities Act.

(3) Registration by Qualification--Refers to Subchapter A of Chapter 4003 of the Texas Securities Act.

(4) Registration Sections--Refers to Subchapters A, B, and C of Chapter 4003 of the Texas Securities Act.

History

• Source Note: The provisions of this §113.1 adopted to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.2 Registration by Qualification or Coordination

(a) Registration by Qualification. A Regulation "A" filing with the SEC is a form of exemption and cannot be the basis for a filing for Registration by Coordination with the State Securities Board. Such a registration should meet the requirements as outlined in the sections of the Act concerning Registration by Qualification or, if federal covered securities, the requirements in §114.4 of this title (relating to Filings and Fees).

(b) Registration by Coordination.

(1) Time to file. Applications for Registration by Coordination should be filed contemporaneously with the SEC registration application. Delayed filings will jeopardize coordination effectiveness. Applications filed after effectiveness with the SEC are not eligible to use Registration by Coordination.

(2) Who should file. Applications to register securities of open-end investment companies and unit investment trusts subject to the provisions of the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, will be considered and treated as applications for Registration by Coordination, if the securities are not federal covered securities as that term is defined in §107.2 of this title (relating to Definitions). Filings and fees relating to federal covered securities are addressed in Chapter 114 of this title (relating to Federal Covered Securities).

History

• Source Note: The provisions of this §113.2 adopted to be effective January 1, 1976; amended to be effective July 17, 1978, 3 TexReg 2314; amended to be effective September 22, 1995, 20 TexReg 7187; amended to be effective April 8, 1997, 22 TexReg 3219; amended to be effective November 7, 1999, 24 TexReg 9607; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.3 Fair, Just, and Equitable Standards

The following factors, among others, will usually be considered in determining whether or not a securities issue is fair, just, and equitable.

(1) General meaning. "Fair, just, and equitable" as used in the Texas Securities Act, §4003.006 and §4003.103, means fair, just, and equitable to the new investors. It does not relate to customers or competitors of the business as such and does not apply to other business relationships of the issuer, promoter, or business. The words "fair, just, and equitable" are accorded their generally recognized meanings and are not used in any narrow, technical sense.

(2) Limitation on liability. Issues of securities that expose public investors to unlimited liability normally are not fair, just, or equitable; however, the Securities Commissioner may consider disclosure, sophistication of investors, potential probability of liability, amount of potential liability exposure, and amount of insurance against such exposure as possible mitigating factors.

History

• Source Note: The provisions of this §113.3 adopted to be effective January 1, 1976; amended to be effective May 11, 1979, 4 TexReg 1543; amended to be effective July 22, 1981, 6 TexReg 2383; amended to be effective June 16, 1983, 8 TexReg 1857; amended to be effective March 19, 1984, 9 TexReg 1437; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.4 Application for Registration

(a) Misleading name. The improper use by an applicant of an assumed name containing "incorporated," "corporation," "associates," "limited," or an abbreviation of one of those words, may be grounds for denying registration if such designation is thereby misleading.

(b) No recommendations by Board. The State Securities Board will not recommend any specific dealer, underwriter, lawyer, or accountant to an applicant in any matter concerning the preparation and presentation for approval of a securities registration application.

(c) Consents to service of process.

(1) Except as provided in paragraph (2) of this subsection, all applications to register securities issued by an issuer which is organized under the laws of any other state, territory, or government, or domiciled in any state other than Texas, must include with the application a written consent to service of process duly executed by an authorized agent of the issuer appointing the Securities Commissioner irrevocably its true and lawful attorney upon whom process in any action or proceeding against such issuer arising out of any transaction subject to the Texas Securities Act may be served with the same effect as if such issuer were organized or created under the laws of Texas and had been lawfully served with process herein.

(2) The consent to service of process required under paragraph (1) of this subsection is not required when the application for registration is filed by a registered dealer acting as a principal in a firm commitment underwriting.

(d) Abandonment of application.

(1) An application for registration of securities may be declared abandoned if the applicant fails to substantively respond within 30 days to a letter indicating that failure to respond will result in abandonment, which letter will be sent no sooner than 30 days after the last substantive request letter regarding the application to which there has been no reply.

(2) Except for good cause shown, the application for registration of securities that fails to meet registration requirements within one year of the filing date of the application will expire and become null and void. A copy of this rule will be provided to an applicant at least 60 days prior to the expiration of the application.

(e) Sales in excess of amount registered.

(1) An offeror who sells securities in this state in excess of the amount of securities registered may take the actions described in and pay the fee or fees, as applicable, as required under and prescribed by the Act, §4006.151(a).

(2) Registration of the excess securities, if granted, shall be effective as provided in the Act, §4006.151(b).

(3) As an alternative to paragraph (1) of this subsection, the offeror may issue letters of rescission to persons who bought excess securities and include a statement in the prospectus admitting the error, or show sales of unregistered securities as a contingent liability.

History

• Source Note: The provisions of this §113.4 adopted to be effective January 1, 1976; amended to be effective November 15, 1977, 2 TexReg 4180; amended to be effective April 15, 1980, 5 TexReg 1285; amended to be effective June 16, 1983, 8 TexReg 1857; amended to be effective January 12, 1984, 8 TexReg 5529; amended to be effective March 19, 1984, 9 TexReg 1437; amended to be effective June 1, 1984, 9 TexReg 2776; amended to be effective November 15, 1990, 15 TexReg 6291; amended to be effective September 22, 1995, 20 TexReg 7187; amended to be effective December 2, 1997, 22 TexReg 11666; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective August 10, 2003,28 TexReg 5991; amended to be effective February 24, 2004, 29 TexReg 1643; amended to be effective November 12, 2019, 44 TexReg 6858; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.5 Financial Statements

(a) Audited financial statements. Except as provided in subsection (b) of this section, all financial statements submitted to the Securities Commissioner pursuant to the Texas Securities Act, §§4003.002, 4003.003 or 4003.004 (including all financial statements of the issuer and any entity that is being taken over by an issuer which has not been operating) must be audited, and an opinion must be expressed by an independent certified public accountant or an independent public accountant. Such opinion shall be one acceptable to the Commissioner.

(b) Reviewed financial statements. Financial statements, prepared in accordance with generally accepted accounting principles, submitted by a small business issuer in connection with a small business offering may be reviewed by an independent certified public accountant in accordance with the standards for reviewed financial statements promulgated by the American Institute of Certified Public Accountants.

(c) Small business issuer. For purposes of subsection (b) of this section, the term "small business issuer" shall mean any corporation:

(1) that has not previously sold securities by means of an offering involving public solicitation or advertising unless such offering was made in compliance with:

(A) former §139.25 of this title (relating to Intrastate Crowdfunding Exemption);

(B) §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings);

(C) §139.16 of this title (relating to Sales to Individual Accredited Investors);

(D) §139.19 of this title (relating to Accredited Investor Exemption);

(E) §109.4 of this title (relating to Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors); or

(F) the Texas Securities Act, §4005.011;

(2) that has not been previously required under federal or state securities law to provide audited financial statements in connection with any sale of its securities;

(3) that is not an investment company (including any mutual fund);

(4) that does not engage or propose to engage in petroleum exploration or production or other extractive industries;

(5) that is not subject to the reporting requirements of the Securities Exchange Act of 1934, §13 or §15(d);

(6) that has its principal place of business in Texas and employs at least 50% of its full-time employees in Texas; and

(7) whose previous sales of securities (exclusive of debt financing with banks and similar commercial lenders) does not exceed $1 million.

(d) Parent corporations. If a corporation otherwise meeting the criteria specified in subsection (c) of this section is a majority-owned subsidiary of another corporation, the subsidiary shall not be considered a "small business issuer" for purposes of subsection (b) of this section unless its parent corporation also meets the criteria specified in subsection (c) of this section.

(e) Small business offering. For purposes of subsection (b) of this section, the term "small business offering" shall mean that the amount of the offering must not exceed $5 million.

History

• Source Note: The provisions of this §113.5 adopted to be effective January 1, 1976; amended to be effective November 28, 1977, 2 TexReg 4414; amended to be effective September 22, 1995, 20 TexReg 7188; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective January 8, 2006, 30 TexReg 8865; amended to be effective November 17, 2014, 39 TexReg 8960; amended to be effective December 23, 2018, 43 TexReg 8088; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.6 Renewal Update

It is the responsibility of the applicant for renewal to see that all exhibits and information required to be filed with the Securities Commissioner for an original registration pursuant to the Registration Sections are maintained current with the Commissioner for the issuer whose registration is renewed under the Act, so long as the permit is outstanding. Whenever there are material changes, the prospectus must be amended and filed with the Commissioner.

History

• Source Note: The provisions of this §113.6 adopted to be effective January 1, 1976; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.7 Reporting Changes in Filed Materials

While an application to register securities is pending with the securities commissioner, any change in information material to the application (including documents on file such as financials) must be promptly reported to the commissioner by the applicant, and any new developments which are material must likewise be promptly reported by the applicant.

History

• Source Note: The provisions of this §113.7 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 113.8 Notification of Status in Other States

Any issuer with an application for Registration by Coordination pending must file with the Securities Commissioner the original list of other states where filing has been made or is expected to be made as required by the Act, §4003.102(1)(B), and must make a timely report of the names of any states where such an application is subsequently made, withdrawn, or denied (together with the reasons for any withdrawal or denial).

History

• Source Note: The provisions of this §113.8 adopted to be effective January 1, 1976; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.9 Securities Underlying Transferable Warrants and Employee Stock Options

(a) When equity securities underlying transferable warrants or employee stock options are registered under the Registration Sections, those equity securities shall thereafter be deemed to be properly registered in Texas regardless of the time at which the warrants are exercised by warrant or option holders. Continuous registration (or annual renewal of registration) of the underlying equity securities during the life of the warrants or options shall not be required solely because of the existence of outstanding warrants or options.

(b) Once the distribution process is completed pursuant to the registration, the issuer or dealer who sold such registered securities is not required to remain continuously registered pursuant to the Texas Securities Act, §4004.051, solely because of the existence of outstanding warrants or options. However, if the issuer or dealer solicits the holders to exercise their warrants or options, the issuer or dealer must be registered as a securities dealer if the transaction does not fall within an exemption other than this section.

(c) This section is adopted pursuant to the authority granted by the Texas Securities Act, §4004.001 and §4005.024.

History

• Source Note: The provisions of this §113.9 adopted to be effective January 25, 1980, 5 TexReg 139; amended to be effective October 4, 1984, 9 TexReg 4974; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.10 Sales Reports

All registrants must prepare and forward to the securities commissioner annual reports showing the amount of securities which have been sold in Texas, the consideration received therefor, and the amount of unsold securities authorized to be sold in Texas. Upon completion of all offerings of securities registered in Texas, a final sales report must be filed with the securities commissioner showing the total aggregate amount of securities sold by a registrant and the total consideration received therefor.

History

• Source Note: The provisions of this §113.10 adopted to be effective April 15, 1980, 5 TexReg 1285; amended to be effective January 7, 1985, 9 TexReg 6473.

7 Tex. Admin. Code § 113.11 Shelf Registration of Securities

(a) Applicability.

(1) This section shall apply to the Registration by Coordination in Texas of securities registered with the SEC for offer and sale on a delayed or continuous basis under SEC Rule 415 (17 CFR §230.415, as amended).

(2) Each series or takedown requires separate registration in Texas, except in the following cases:

(A) where there is disclosure in the prospectus that neither the security to be offered nor the selling method to be used may be varied from one series or takedown to the next; or

(B) as provided in subsection (b) of this section.

(3) Where appropriate, the statements of policy in §113.14(b) of this title (relating to Statements of Policy) and other provisions of this chapter will be applied.

(b) Certain debt offerings by substantial issuers.

(1) This subsection (b) applies to the registration of debt securities of issuers eligible to use SEC Form S-3 (17 CFR §239.13, as amended), to register debt securities with the SEC under SEC Rule 415.

(2) Separate registration of each series or takedown of debt securities of such an issuer is not required if the applicant (and the issuer if the applicant is other than the issuer) undertakes that all of the following conditions will be met:

(A) only the type of debt security that is specifically denominated and described in the prospectus supplement or prospectus amendment filed with the application to register securities in Texas will be sold in each takedown or series for which the registration is sought;

(B) all of the debt securities will be subject to and issued under the same indenture;

(C) the maturity of the securities will not be less than a specified length of time nor more than a specified length of time from the date of issue, and the interest rate will be within a specified range unless the Texas permit is first amended to permit interest rates differing from such maximum and minimum.

(3) The permit issued upon registration of debt securities pursuant to paragraph (2)(A) - (C) of this subsection shall incorporate the relevant terms of the required undertaking.

History

• Source Note: The provisions of this §113.11 adopted to be effective August 8, 1984, 9 TexReg 4075; amended to be effective December 2, 1997, 22 TexReg 11666; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective November 7, 1999, 24 TexReg 9608; amended to be effective April 3, 2012, 37 TexReg 2166; amended to be effective November 12, 2019, 44 TexReg 6858; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.12 Applicability of Statements of Policy to Exempt Offerings

This chapter and the statements of policy listed in §113.14 of this title (relating to Statements of Policy) do not apply to offerings made pursuant to an exemption under the Exemptions Sections, or an exemption by Board rule pursuant to the Texas Securities Act, §4005.024, or to an offering of federal covered securities, as that term is defined in §107.2 of this title (relating to Definitions).

History

• Source Note: The provisions of this §113.12 adopted to be effective November 15, 1990, 15 TexReg 6291; amended to be effective August 23, 1993, 18 TexReg 5324; amended to be effective April 8, 1997, 22 TexReg 3219; amended to be effective December 2, 1997, 22 TexReg 11666; amended to be effective December 6, 1998, 23 TexReg 12293; amended to be effective November 7, 1999, 24 TexReg 9608; amended to be effective August 18, 2011, 36 TexReg 5093; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.13 Multijurisdictional Disclosure System--MJDS Offerings

(a) This section shall apply to the Registration by Coordination in Texas of securities registered with the SEC in accordance with the multijurisdictional disclosure system (MJDS) adopted in SEC Release Number 33-6902.

(b) For purposes of the sections in the Act concerning Registration by Coordination, MJDS offerings filed on SEC Form F-7, Form F-8, or Form F-10, shall become effective the later of three days after filing, or the effective date with the SEC, as long as the application for registration is filed contemporaneously with the SEC registration application in accordance with subsection (b) of §113.2 of this title (relating to Registration by Qualification or Coordination).

(c) Financial statements and financial information for offerings filed under subsection (b) of this section shall comply with instructions provided with SEC Form F-7, Form F-8, or Form F-10.

(d) In a rights offering, SEC Form F-7 will be accepted in lieu of any state form required to claim an exemption for any transaction pursuant to an offer to existing securities holders.

(e) After the SEC has declared effective an issuer's Form F-8 or Form F-10 registration statement, a non-issuer transaction in any class of the issuer's securities is exempt from registration, whether or not the transaction is effected through a broker-dealer.

History

• Source Note: The provisions of this §113.13 adopted to be effective January 8, 2006, 30 TexReg 8866; amended to be effective April 7, 2024, 49 TexReg 2062.

7 Tex. Admin. Code § 113.14 Statements of Policy

(a) The Securities Commissioner, where applicable, will utilize the criteria contained in the NASAA Statements of Policy set forth in subsection (b) of this section for offerings registering pursuant to the Registration Sections. While applications not conforming to a statement of policy shall be looked upon with disfavor, where good cause is shown or to protect investors, certain provisions may be modified or waived by the Commissioner.

(b) In order to promote uniform regulation, the following NASAA Statements of Policy shall apply to the registration of securities:

(1) Corporate Securities Definitions, as amended by NASAA on May 6, 2018;

(2) Impoundment of Proceeds, as amended by NASAA on September 12, 2023;

(3) Loans and Other Material Affiliated Transactions, as amended by NASAA on May 6, 2018;

(4) Options and Warrants, as amended by NASAA on September 12, 2023;

(5) Preferred Stock, as amended by NASAA on September 11, 2016;

(6) Promoters' Equity Investment, as amended by NASAA on September 11, 2016;

(7) Promotional Shares, as amended by NASAA on September 12, 2023;

(8) Specificity in Use of Proceeds, as amended by NASAA on September 11, 2016;

(9) Underwriting and Selling Expenses, Underwriter's Warrants, and Selling Security Holders, as amended by NASAA on May 6, 2018;

(10) Unsound Financial Condition, as amended by NASAA on May 6, 2018;

(11) Unequal Voting Rights, as amended by NASAA on September 11, 2016;

(12) Debt Securities, as amended by NASAA on September 12, 2023;

(13) Real Estate Programs, as amended by NASAA on May 7, 2007;

(14) Oil and Gas Programs, as amended by NASAA on May 6, 2012;

(15) Asset-backed Securities, as amended by NASAA on May 6, 2012;

(16) Equipment Programs, as amended by NASAA on May 6, 2012;

(17) Real Estate Investment Trusts, as amended by NASAA on May 7, 2007;

(18) Mortgage Program Guidelines, as amended by NASAA on May 7, 2007;

(19) Omnibus Guidelines, as amended by NASAA on May 7, 2007;

(20) Registration of Commodity Pool Programs, as amended by NASAA on May 6, 2012; and

(21) Use of Electronic Offering Documents and Electronic Signatures, adopted by NASAA on May 8, 2017.

(c) Copies of the NASAA Statements of Policy are available online at the NASAA web site (www.nasaa.org) and the Texas State Securities Board web site (www.ssb.texas.gov). Copies may be obtained by contacting the Texas State Securities Board, P.O. Box 13167, Austin, Texas 78711, or by calling (512) 305-8300.

History

• Source Note: The provisions of this §113.14 adopted to be effective January 7, 2009, 34 TexReg 44; amended to be effective August 18, 2011, 36 TexReg 5093; amended to be effective May 15, 2014, 39 TexReg 3704; amended to be effective June 12, 2018, 43 TexReg 3779; amended to be effective August 25, 2019, 44 TexReg 4310; amended to be effective April 7, 2024, 49 TexReg 2062; amended to be effective November 14, 2024, 49 TexReg 8874.

Chapter 114 FEDERAL COVERED SECURITIES

7 Tex. Admin. Code § 114.1 Introduction

(a) Scope. This chapter covers filings and fees required to be paid in connection with the issuance of an authorization to offer and sell federal covered securities.

(b) Availability of a corresponding state exemption. Except as otherwise provided herein, the filing and fee requirements detailed in this chapter do not apply to federal covered securities that are exempt from registration pursuant to the Exemptions Sections, or by Board rule pursuant to the Texas Securities Act, §4005.024. Transactions in federal covered securities may be exempt under any other Board rule or section of the Texas Securities Act; however, nothing in this chapter shall act as an election. Should for any reason, the offer and sale of federal covered securities fail to comply with all of the conditions in this chapter, a person may claim the availability of any other applicable exemption. A person, claiming an exemption outside this chapter, must comply with all conditions associated with that exemption.

History

• Source Note: The provisions of this §114.1 adopted to be effective April 8, 1997, 22 TexReg 3219; amended to be effective April 5, 1998, 23 TexReg 3431; amended to be effective April 7, 2024, 49 TexReg 2063.

7 Tex. Admin. Code § 114.2 Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Exemptions Sections--Refers to Subchapters A and B of Chapter 4005 of the Texas Securities Act.

(2) Federal covered securities--Shall have the same meaning as provided in §107.2 of this title (relating to Definitions).

(3) Listed securities--The category of nationally traded federal covered securities defined in the Securities Act of 1933, §18(b)(1).

History

• Source Note: The provisions of this §114.2 adopted to be effective April 8, 1997, 22 TexReg 3219; amended to be effective April 7, 2024, 49 TexReg 2063.

7 Tex. Admin. Code § 114.3 Consents to Service of Process

(a) Unless otherwise provided in subsection (b) of this section, a consent to service of process is required from an issuer of federal covered securities that is organized under the laws of any other state, territory, or government, or domiciled in any state other than Texas. The written consent to service of process must be duly executed by an authorized agent of the issuer and irrevocably appoint the Securities Commissioner as the issuer's true and lawful attorney upon whom all process may be served in any action or proceeding against such issuer arising out of any transaction subject to the Texas Securities Act with the same effect as if such issuer were organized or created under the laws of Texas and had been lawfully served with process therein.

(b) The consent to service of process is not required when the notice filing is made by a registered dealer acting as a principal in a firm commitment underwriting.

History

• Source Note: The provisions of this §114.3 adopted to be effective April 8, 1997, 22 TexReg 3219; amended to be effective April 5, 1998, 23 TexReg 3431; amended to be effective August 10, 2003, 28 TexReg 5992; amended to be effective November 12, 2019, 44 TexReg 6859.

7 Tex. Admin. Code § 114.4 Filings and Fees

(a) Generally. Unless otherwise provided in subsection (b) of this section, prior to the initial offer of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner:

(1) a notice filing, consisting of:

(A) page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information;

(B) if the issuer is an investment company, Form NF, Uniform Investment Company Notice Filing; or

(C) if the issuer is a unit investment trust, Form NF may be filed and the payment of the filing fee, set out in paragraph (3) of this subsection, paid electronically through the EFD System.

(2) a consent to service of process signed by the issuer, if required by §114.3 of this title (relating to Consents to Service of Process), if, previously, such a consent to service has not been filed with the Securities Commissioner; and

(3) the fees provided for in the Texas Securities Act, §4006.001(1) and §4006.055.

(b) Special circumstances.

(1) SEC Regulation D, Rule 506 offerings. In connection with an offering described in both §109.13(k) of this title (relating to Limited Offering Exemptions) and SEC Regulation D, Rule 506, at the time the Form D is filed with the SEC, but no later than 15 days after the first sale of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner:

(A) a notice on Form D; and

(B) the fee as provided in the Texas Securities Act, §4006.052.

(C) The filing of Form D and the payment of the filing fee shall be made electronically through the EFD System.

(2) Listed securities. No filing, consent to service, or fee shall be required of an issuer offering federal covered securities that are also "listed securities" as defined in §114.2 of this title (relating to Definitions).

(3) Money market status approved. Section 123.3 of this title (relating to Conditional Exemption for Money Market Funds) sets forth the requirements for obtaining and maintaining a money market designation and the reduced fee schedule available to funds so designated. In connection with an offering of securities of an issuer that has applied for and been granted money market status as provided in §123.3 of this title (relating to Conditional Exemption for Money Market Funds), the issuer shall provide to the Securities Commissioner:

(A) a consent to service of process signed by the issuer, if required by §114.3 of this title (relating to Consents to Service of Process), if such a consent to service has not previously been filed with the Securities Commissioner;

(B) any other filing required by §123.3 of this title (relating to Conditional Exemption for Money Market Funds) or subsection (f) of this section; and

(C) the fee provided for in §123.3 of this title (relating to Conditional Exemption for Money Market Funds).

(4) Secondary trading. A registered dealer or issuer that chooses to comply with the Texas Securities Act, §4005.019(b)(9)(B), by filing a form, shall provide to the Securities Commissioner, prior to the sale of the securities in this state:

(A) a notice filing, consisting of page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information;

(B) a consent to service of process signed by the dealer or issuer, if such a consent to service has not previously been filed with the Securities Commissioner;

(C) the fee as provided in the Act, §4006.051; and

(D) a written statement from the issuer that the issuer of such securities is in compliance with the reporting requirements of the Securities Exchange Act of 1934, §13 or §15(d), as applicable.

(5) SEC Regulation A, Tier 2. Prior to the initial offer of the federal covered securities in this state, the issuer shall provide to the Securities Commissioner:

(A) a notice filing on either:

(i) Uniform Notice Filing of Regulation A - Tier 2 Offering form; or

(ii) page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information;

(B) a consent to service of process signed by the issuer, if required by §114.3 of this title (relating to Consents to Service of Process), and if the notice filing required by subparagraph (A) of this paragraph is not made on the Uniform Notice Filing of Regulation A - Tier 2 Offering form; and

(C) the fees provided for in the Act, §4006.001(1) and §4006.055.

(6) SEC Regulation Crowdfunding. If the issuer has its principal place of business in this state, the issuer shall provide to the Securities Commissioner the items required in this paragraph when the issuer makes its initial SEC Form C filing concerning the offering with the SEC. If the issuer does not have its principal place of business in this state but residents of this state have purchased 50% or greater of the aggregate of the offering, the issuer shall provide to the Securities Commissioner the items required in this paragraph when the issuer becomes aware that such purchases have met this threshold and in no event later than thirty (30) days from the date of completion of the offering. For Federal Crowdfunding offerings, an issuer shall provide to the Securities Commissioner:

(A) a notice filing on either:

(i) Uniform Notice of Federal Crowdfunding Offering form (Form U-CF) or copies of all documents filed with the SEC; or

(ii) page 1 of a Form U-1, Uniform Application to Register Securities, with items 1-6 completed, or a document providing substantially the same information;

(B) a consent to service of process signed by the issuer, if required by §114.3 of this title (relating to Consents to Service of Process), and if the notice filing required by subparagraph (A) of this paragraph is not made on Form U-CF;

(C) the fees provided for in the Act, §4006.001(1) and §4006.055; and

(D) a written statement from the issuer of the following:

(i) the aggregate amount of securities proposed to be sold to persons located in this state; and

(ii) either:

(I) the date the issuer made its initial SEC Form C filing concerning the offering with the SEC and the issuer's principal place of business in this state; or

(II) if the issuer does not have its principal place of business in this state, the date the issuer became aware that the issuer met the threshold filing requirement in this state or the date of the completion of the offering.

(c) Supplemental reports.

(1) Unless otherwise provided in paragraph (2) of this subsection, each applicant required to pay a fee in connection with federal covered securities offered in this state shall submit to the Securities Commissioner annual reports showing the amount of federal covered securities authorized to be sold in Texas, the actual amount sold in Texas, the consideration received therefor, and the amount of unsold securities authorized to be sold in Texas. Upon completion of all offerings of federal covered securities authorized for sale in Texas, a final sales report must be filed with the Securities Commissioner showing the total aggregate amount of federal covered securities authorized and sold in Texas and the total consideration received therefor.

(2) This subsection does not apply to an applicant proceeding pursuant to subsection (b)(1) or (b)(4) of this section.

(d) Excess sales.

(1) Except as provided in paragraph (2) of this subsection, an offeror who sells securities in this state in excess of the amount of federal covered securities authorized may do the following:

(A) If the authorization is still in effect an offeror may:

(i) request authorization for the excess securities by paying three times the difference between the initial fee paid and one-tenth of 1.0% of the aggregate amount of the securities sold to persons in this state, as provided in the Texas Securities Act, §4006.055 and §4006.151; and

(ii) pay the amendment fee provided for in the Texas Securities Act, §4006.001(1).

(B) If the authorization is no longer in effect an offeror may:

(i) request authorization of the excess securities in accordance with subparagraph (A)(i) of this paragraph, plus interest on the amount of fees owed computed at the rate of 6.0% a year from the date the authorization was no longer in effect until the date the subsequent request is made; and

(ii) pay the amendment fee provided for in the Texas Securities Act, §4006.001(1).

(C) The authorization for the excess securities shall be effective retroactively to the effective date of the initial authorization for the offering.

(2) An offeror in an SEC Regulation D, Rule 506 offering, who paid less than the maximum fee prescribed in subsection (b)(1) of this section and offered a greater amount of federal covered securities than authorized may do the following:

(A) file an amended Form D disclosing the amount of federal covered securities offered; and

(B) pay three times the difference between the initial fee paid and the fee which should have been paid, plus interest on the fee owed computed at the rate of 6.0% a year from the date the original Form D was received by the Securities Commissioner until the date the amended notice is received by the Securities Commissioner, as provided in the Texas Securities Act, 4006.152.

(C) The filing of Form D and the payment of the filing fee shall be made electronically through the EFD System.

(3) After compliance with paragraph (2) of this subsection, the amended Form D shall be effective retroactively to the date of the initial filing.

(e) Requests for additional documents. The Securities Commissioner may, upon written request, require a copy of any document required to be filed with the SEC in connection with the offering or sale of the federal covered securities.

(f) Period of effectiveness.

(1) The initial authorization for federal covered securities of an open-end investment company, as defined in the Investment Company Act of 1940, shall be effective until two months after the end of the issuer's fiscal year. After the initial authorization, the issuer or its agent may renew the authorization by submitting, within two months after the end of the issuer's fiscal year:

(A) a notice filing, consisting of Form NF, Uniform Investment Company Notice Filing; and

(B) payment of the appropriate fees.

(2) The authorization for federal covered securities of a unit investment trust, as defined in the Investment Company Act of 1940, shall be effective until one year from the date of effectiveness granted by the SEC.

(3) Any other authorization of federal covered securities shall be effective for one year from the date the authorization is accepted by the Securities Commissioner.

(4) The renewal of an authorization for federal covered securities under this chapter may be renewed for additional periods of one year if the notice filing and renewal fees are received prior to the expiration date of the existing authorization. Failure to tender the renewal fee prior to the expiration date may subject the issuer to higher fees, pursuant to the Texas Securities Act, §§4006.151, 4006.152, or 4006.153.

(5) For SEC Regulation D, Rule 506 offerings issued under special circumstances in subsection (b)(1) of this section, the period of effectiveness extends from the date of the notice filing until the offering is completed or terminated.

(g) Applicability of dealer and agent registration requirements. In conducting sales in this chapter, dealer and agent registration requirements of the Texas Securities Act and Board rules must be complied with.

(h) Preservation of fees. The fees provided in this section correspond to the filing or registration fees that would be collected pursuant to the Texas Securities Act in effect on the day before the effectiveness of the National Securities Markets Improvement Act of 1996, Public Law Number 104-290.

(i) Applicability of antifraud provisions. With regard to this chapter, the Texas Securities Act prohibits fraud or fraudulent practice in connection with the sale or offer for sale of federal covered securities.

History

• Source Note: The provisions of this §114.4 adopted to be effective April 8, 1997, 22 TexReg 3219; amended to be effective December 2, 1997, 22 TexReg 12038; amended to be effective November 7, 1999, 24 TexReg 9608; amended to be effective May 2, 2000, 25 TexReg 3740; amended to be effective February 24, 2004, 29 TexReg 1643; amended to be effective June 21, 2011, 36 TexReg 3715; amended to be effective December 23, 2018, 43 TexReg 8089; amended to be effective November 12, 2019, 44 TexReg 6859; amended to be effective April 7, 2024, 49 TexReg 2063; amended to be effective November 14, 2024, 49 TexReg 8874.

Chapter 115 SECURITIES DEALERS AND AGENTS

7 Tex. Admin. Code § 115.1 General Provisions

(a) Definitions. Words and terms used in this chapter are also defined in §107.2 of this title (relating to Definitions). The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Applicant--A person who submits an application for registration as a dealer or an agent.

(2) Branch office--Any location where one or more agents of a dealer regularly conduct the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security, or that is held out as such.

(A) This definition excludes:

(i) any location that is established solely for customer service and/or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office;

(ii) any location that is the agent's primary residence, provided that:

(I) only one agent, or multiple agents who reside at that location and are members of the same immediate family, conduct business at the location;

(II) the location is not held out to the public as an office and the agent does not meet with customers at the location;

(III) neither customer funds nor securities are handled at that location;

(IV) the agent is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, advertisements, and other communications to the public by such agent;

(V) the agent's correspondence and communications with the public are subject to the dealer's supervision;

(VI) electronic communications (e.g., e-mail) are made through the dealer's electronic system;

(VII) all orders are entered through the designated branch office or an electronic system established by the dealer that is reviewable at the branch office;

(VIII) written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the dealer; and

(IX) a list of the residence locations are maintained by the dealer;

(iii) any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided the dealer complies with the provisions of clause (ii)(II) - (VIII) of this subparagraph;

(iv) any office of convenience, where agents occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office;

(v) any location that is used primarily to engage in non-securities activities and from which the agent(s) effects no more than 25 securities transactions in any one calendar year; provided that any advertisement or sales literature identifying such location also sets forth the address and telephone number of the location from which the agent(s) conducting business at the non-branch locations are directly supervised;

(vi) the floor of a registered national securities exchange where a dealer conducts a direct access business with public customers;

(vii) a temporary location established in response to the implementation of a business continuity plan; and

(viii) a location identified and designated with FINRA by the registered dealer as a residential supervisory location (RSL) in accordance with FINRA Rule 3110.19, and which location has been provided to FINRA in accordance with FINRA Rule 3110.19(d).

(B) Notwithstanding the exclusions in subparagraph (A) of this paragraph, any location other than an RSL that meets the requirements of §115.1(a)(2)(A)(viii) that is responsible for supervising the activities of persons associated with the dealer at one or more non-branch locations of the dealer is considered to be a branch office.

(C) The term "business day" shall not include any partial business day provided that the agent spends at least four hours on such business day at his or her designated branch office during the hours that such office is normally open for business.

(3) Supervisor--The person named by a dealer to supervise the activities of a branch office and registered as an agent with the Securities Commissioner.

(4) Control--The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or company, whether through the ownership of voting securities, by contract, or otherwise.

(5) In this state--As used in the Texas Securities Act, §§4001.052, 4001.056, 4004.051, and 4004.101, has the same meaning as the term "within this state" as defined in §107.2 of this title and paragraph (8) of this subsection.

(6) FINRA--The Financial Industry Regulatory Authority, created through the consolidation of NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange.

(7) Officer--A president, vice president, secretary, treasurer, or principal financial officer, comptroller, or principal accounting officer, or any other person occupying a similar status or performing similar functions with respect to any organization or entity, whether incorporated or unincorporated.

(8) Within this state or in this state--

(A) A person is a "dealer" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.056 or §4004.051, if either the person or the person's agent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be a dealer in more than one state at the same time.

(B) Likewise, a person is an "agent" who engages "within this state" or "in this state" in one or more of the activities set out in the Texas Securities Act, §4001.052 or §4004.101, whether by direct act or through subagents except as otherwise provided, if either the person or the person's agent is present in this state or the offeree/purchaser or the offeree/purchaser's agent is present in this state at the time of the particular activity. A person can be an agent in more than one state at the same time.

(C) Offers and sales can be made by personal contact, mail, telegram, telephone, wireless, electronic communication, or any other form of oral or written communication.

(9) Finder--An individual who receives compensation for introducing an accredited investor to an issuer or an issuer to an accredited investor solely for the purpose of a potential investment in the securities of the issuer, but does not participate in negotiating any of the terms of an investment and does not give advice to any such parties regarding the advantages or disadvantages of entering into an investment, and conducts this activity in accordance with §115.11 of this title (relating to Finder Registration and Activities). Note that an individual registered as a finder is not permitted to register in any other capacity; however, a registered general dealer is allowed to engage in finder activity without separate registration as a finder.

(10) Texas crowdfunding portal--Any person registered as a Texas dealer pursuant to §115.19 of this title (relating to Texas Crowdfunding Portal Registration and Activities) or §115.20 of this title (relating to Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities).

(b) Registration requirements of dealers, issuers, and agents, and notice filings for branch offices.

(1) Requirements of registration or notice filing.

(A) No dealer, issuer, or agent of a dealer or issuer shall sell or offer for sale any securities within this state without first being registered as a dealer or agent, or exempt from registration.

(B) Each branch office in Texas must make a notice filing to become designated as a branch office of a dealer. A registered officer, partner, or agent must be named as supervisor.

(2) Persons not required to register as an agent.

(A) Registration as an agent is not required for a person, associated with a dealer registered in Texas, who effects a transaction pursuant to the Securities Exchange Act of 1934, §15(i)(3), (15 U.S.C. Sec. 78o(i)(3)), provided such person is:

(i) not ineligible to register with this state for any reason other than such a transaction; and

(ii) registered with a registered securities association and at least one other state.

(B) For purposes of this paragraph, a person is "ineligible to register with this state," if the person:

(i) has been convicted of a securities-related felony; or

(ii) has been convicted of a theft-related felony.

(C) For purposes of this paragraph, a "registered securities association" is one currently recognized as such by the SEC pursuant to the Securities Exchange Act of 1934, §15A.

(c) Types of registrations.

(1) General registration. A general registration is a registration to deal in all categories of securities, without limitation

(2) Restricted registration. The restricted registrations are as follows:

(A) The Securities Commissioner recognizes the specialized knowledge examinations administered by FINRA as restricted registration categories. The registration of an applicant passing a specialized knowledge examination in lieu of the general securities examination pursuant to §115.3(b) of this chapter (relating to Examination) is restricted to and effective only for conducting the business and securities activities and effecting transactions associated with the specialized examination.

(B) Additional restricted registration categories include:

(i) registration to deal exclusively in the sale of interests (other than interests in limited partnerships) in oil, gas, and mining leases, fees, or titles or contracts relating thereto;

(ii) registration to deal exclusively in real estate syndication interests and/or condominium securities, including interests in real estate limited partnerships;

(iii) registration to deal exclusively in sales of securities to the dealer's own employees;

(iv) registration for an issuer to deal exclusively in its own securities;

(v) registration to act exclusively as a finder;

(vi) registration to act exclusively as a Texas crowdfunding portal; and

(vii) registration with other restrictions which the Securities Commissioner may impose based upon the facts.

(3) In restricted registrations, the evidence of registration shall indicate that the holder thereof is entitled to act as a dealer only in the specified issue or category of securities.

(d) Prohibition on fraud and availability of an exemption from registration. The Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by a dealer or agent in connection with transactions involving securities in Texas. However, the registration requirements detailed in this chapter do not apply to dealers and agents that are exempt from registration as such pursuant to the Texas Securities Act, Chapter 4005, Subchapter A, or by Board rule pursuant to the Texas Securities Act, §4004.001 or §4005.024, contained in Chapter 109 or 139 of this title.

History

• Source Note: The provisions of this §115.1 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective August 22, 2004, 29 TexReg 7966; amended to be effective January 8, 2006, 30 TexReg 8866; amended to be effective September 1, 2006, 31 TexReg 6709; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective August 16, 2010, 35 TexReg 7050; amended to be effective November 8, 2012, 37 TexReg 8786; amended to be effective November 17, 2014, 39 TexReg 8961; amended to be effective December 23, 2018, 43 TexReg 8089; amended to be effective November 12, 2019, 44 TexReg 6859; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.2 Application Requirements

(a) Securities dealer application requirements. A complete application consists of the following:

(1) items filed via the Central Registration Depository System (CRD) which is jointly operated by NASAA, the SEC, and FINRA, for FINRA member firms, or items filed either in paper form or as provided in §115.22 of this chapter (relating to Electronic Submission of Forms and Fees) for non-FINRA member firms, using the applicable uniform forms:

(A) Form BD;

(B) Form U-4 for the designated officer and a Form U-4 for each agent to be registered (officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners); and

(C) the appropriate registration fee(s).

(2) items filed with the Securities Commissioner either in paper form or as provided in §115.22 of this chapter:

(A) a copy of articles of incorporation, certificate of formation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the appropriate jurisdiction or by an officer or partner of the applicant;

(B) a balance sheet prepared in accordance with United States generally accepted accounting principles reflecting the financial condition of the dealer as of a date not more than 90 days prior to the date of such filing. The balance sheet should be compiled, reviewed, or audited by independent certified public accountants or independent public accountants, or must instead be certified by the applicant's principal financial officer. If certified by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer; and

(C) any other information deemed necessary by the Securities Commissioner to determine a dealer's financial responsibility or dealer's or agent's business repute or qualifications.

(b) Designated officer registration. Dealers, including an individual filing as a sole proprietor, must file a Form U-4 application for a designated officer to register in connection with the registration of the dealer. The dealer's designated officer must be an officer, partner, or the sole proprietor of the dealer and have completed the necessary registration and examination requirements. If the designated officer of a dealer, other than a sole proprietor, resigns or is otherwise removed from his or her position, the dealer shall make an application to register another officer or partner within 30 days.

(c) Branch office designation and inspection.

(1) A dealer may designate a branch office upon initial application of the dealer or by amendment to a current Form BR. No sales-related activity may occur in any branch office location until such time as the dealer has notified the Securities Commissioner that such location will function as a branch office by submitting Form BR on CRD for FINRA member firms. For non-FINRA member firms, the request is made by submitting Form BR to the Securities Commissioner.

(2) Simultaneous with the designation of a branch office, a supervisor must be designated for that branch office. A supervisor is not required to be registered as a FINRA principal, but must be registered in Texas as an agent and is responsible for supervision of the activities of the branch office. A supervisor may not supervise sales activities encompassing a broader range of products than those covered by the supervisor's qualification examination(s). Within 10 business days after a supervisor ceases to be employed or registered in such capacity by the dealer, the dealer must designate a new supervisor, qualified by passage of the appropriate examinations, for the branch office.

(3) Each branch office of a dealer that is registered with the Securities Commissioner is subject to unannounced inspections at any time during normal business hours.

(d) Automatic withdrawal of a dealer or agent application for registration that has been pending for at least 90 days. If an application for dealer or agent registration has been pending for at least 90 days and the applicant has failed to substantively respond to a written request for information sent by either electronic mail or by certified mail to the applicant's address as set forth in the application, an automatic withdrawal will occur. The written request must have advised the applicant that if a substantive response is not received within 30 days from the date of the request, the application will be withdrawn automatically. Regardless of how long an application has been pending, it may not be withdrawn automatically without sending notice of this subsection to the address set forth in the application and allowing the applicant 30 calendar days from the date of the notice to provide a substantive written response. A copy of this subsection and the most recent written request for information will be included with the notice.

(e) Central Registration Depository System (CRD).

(1) Whenever the Texas Securities Act or Board rules require the filing of an application with the Securities Commissioner for dealer or agent registration, members of FINRA or applicants for membership in FINRA shall make such filing electronically through CRD.

(2) Uniform forms submitted through the CRD that designate Texas as a jurisdiction in which the filing is to be made are deemed to be filed with the Securities Commissioner and constitute official records of the Board.

History

• Source Note: The provisions of this §115.2 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective November 26, 2001, 26 TexReg 9581; amended to be effective March 6, 2002, 27 TexReg 1475; amended to be effective June 12, 2002, 27 TexReg 4935; amended to be effective August 22, 2004, 29 TexReg 7968; amended to be effective January 8, 2006, 30 TexReg 8866; amended to be effective April 2, 2006, 31 TexReg 2845; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective August 18, 2011, 36 TexReg 5094; amended to be effective October 6, 2015, 40 TexReg 6888; amended to be effective November 12, 2019, 44 TexReg 6859; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.3 Examination

(a) Requirement.

(1) To determine the applicant's qualifications and competency to engage in the business of dealing in and selling securities, the State Securities Board requires a written examination on general securities principles and on state securities law. Applicants must make a passing score, as determined by NASAA, FINRA, or the Securities Commissioner, as appropriate, on any required examination.

(2) If, at the time the applicant completes the examinations required in subsection (b) of this section, the Securities Industry Essentials (SIE) examination is coupled with the FINRA general or specialized knowledge examination for the registration category sought, the applicant must obtain a passing score on the SIE examination.

(b) Examinations accepted.

(1) Each applicant must pass an examination on general securities principles. This requirement is satisfied by passing the examination on general securities principles administered by FINRA. As set forth in paragraph (3) of this subsection, applicants for restricted registrations may substitute a specialized knowledge examination dealing with a particular type of security for an examination on general securities principles.

(2) The Securities Commissioner recognizes the general examinations administered by FINRA as an examination on general securities principles sufficient to meet that requirement in paragraph (1) of this subsection.

(3) In lieu of an examination on general securities principles, an applicant may substitute one or more specialized knowledge examination(s) administered by FINRA. The Securities Commissioner also recognizes the specialized knowledge examinations administered by FINRA as restricted registration categories. The registration of an applicant passing a specialized knowledge examination is restricted and effective only for conducting the business and securities activities and effecting transactions associated with the specialized examination.

(4) Each applicant must pass an examination on state securities law. This requirement may be satisfied by passing an examination on the Texas Securities Act administered by this Agency or by passing the NASAA Uniform Securities Agent State Law Examination (Series 63) or the NASAA Uniform Combined State Law Examination (Series 66).

(c) Waivers of examination requirements.

(1) All persons who were registered in Texas on August 23, 1963, are not required to take any examinations.

(2) A full waiver of the examination requirements of the Texas Securities Act, §4004.151, is granted by the Board to the following classes of persons:

(A) issuers offering securities in rights offerings to their own securities holders;

(B) issuers offering their own securities in exchange for outstanding securities of another corporation, provided consummation of the offer is dependent upon tender of at least 80% of such outstanding securities;

(C) issuers restricting distribution of securities to security holders of an affiliate company, a subsidiary, or a parent of the issuer, provided the registration certificate is issued on a temporary basis and terminated immediately after the offering;

(D) officers and employees whose firms restrict their officers' and employees' securities activities to acting as brokers between and among principals for the sale of a majority of the stock or equity securities of a privately held business pursuant to a privately negotiated purchase agreement, where the managerial control of the business will devolve upon the purchaser(s) and where compensation received by the firm will be payable for the brokerage activities only;

(E) a finder;

(F) a person who completed the required examinations, but whose registration has lapsed for more than two years and who has been continually employed in a securities-related position with an entity which was not required to be registered;

(G) a person who completed the required examinations and whose registration with FINRA and with another state securities regulator has not lapsed for more than two years; and

(H) a Texas crowdfunding portal and its agents.

(3) A partial waiver of the examination requirements of the Texas Securities Act, §4004.151, is granted by the Board to the following classes of persons:

(A) applicants who have been continuously registered with the SEC, FINRA, or any other exchange listed in the Act, §4005.054, or recognized by the Board pursuant to §111.2 of this title (relating to Listed and Designated Securities) for 10 years immediately preceding the application for registration in Texas. These applicants are required to pass an examination on state securities law as required by subsection (b)(4) of this section;

(B) applicants who passed the "state securities examination" promulgated and formerly administered by the Psychological Corporation, New York, New York, and later by the Psychological Corporation, San Antonio, Texas, which was an examination on general securities principles. These applicants are required to pass an examination on state securities law as required by subsection (b)(4) of this section;

(C) applicants seeking registration for the purpose of dealing exclusively in real estate syndication interests or condominium securities, provided such persons are licensed, at the time of application, under The Real Estate License Act (Texas Occupations Code, Chapter 1101). Such persons are not required to take a general securities examination, but are required to pass an examination on state securities law as required by subsection (b)(4) of this section;

(D) applicants seeking registration for the purpose of dealing exclusively in oil and gas interests (other than interests in limited partnerships). Such persons are not required to take the general securities examination, but are required to pass an examination on state securities law as required by subsection (b)(4) of this section; and

(E) applicants who are officers, partners, or employees of an issuer (other than an open-end investment company) if the issuer's securities will be registered for sale in Texas. Such officers, partners, and employees are not required to take the general securities examination, but are required to pass an examination on state securities law as required by subsection (b)(4) of this section. Evidences of registration granted pursuant to this subparagraph are restricted to sales of the currently registered securities of the issuer.

(4) The Securities Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151.

(5) The following classes of persons are granted a partial waiver by the Board of the examination requirements of §4004.151 of the Act and subsection (a)(1) of this section:

(A) NASAA Exam Validity Extension Program ("EVEP"). Applicants who previously took and passed an examination on state securities law as required by subsection (a)(1) of this section (State Law Requirement), whose registration with another state securities regulator has not lapsed for more than five years who have participated in the EVEP and have maintained compliance with the EVEP requirements are granted a waiver of the State Law Requirement.

(B) FINRA Maintaining Qualifications Program ("MQP").

(i) Applicants who previously took and passed an examination or examinations on general securities principles as required by subsection (a)(1) of this section (GSP Requirement), whose registration with FINRA and with another state securities regulator has not lapsed for more than five years who have participated in the MQP and have maintained compliance with the MQP requirements are granted a waiver of the GSP Requirement.

(ii) Applicants who previously took and passed an examination or examinations on one or more specialized knowledge examinations administered by FINRA as provided in subsection (b)(3) of this section, whose registration with FINRA and with another state securities regulator has not lapsed for more than five years who have participated in the MQP and have maintained compliance with the MQP requirements are granted a waiver of the requirements to pass the FINRA specialized knowledge examination(s) required to obtain the applicable restricted registration(s) as provided in subsection (b)(3) of this section.

(C) FINRA Examination Waivers. Applicants who have received a waiver of any examination requirement(s) by FINRA, including an examination on general securities principles, the SIE examination, or one or more specialized knowledge examinations administered by FINRA, are granted a waiver of the corresponding examination requirement(s) in this section.

(d) Texas securities law examination.

(1) The fee for each filing of a request to take the Texas securities law examination is $35. An admission letter issued by the Board is required for all entrants. The examination is given at the main office of the State Securities Board in Austin and at the Agency's branch offices.

(2) While taking the examination on the Texas Securities Act, each applicant may use an unmarked copy of the Texas Securities Act as it is printed and distributed by the State Securities Board. No other reference materials are allowed to be used by applicants during the examination.

(3) Reexamination. An applicant who fails the examination on the Texas Securities Act may request to retake the examination no sooner than after one week from the date of the examination. The applicant must bring his or her application up to date before retaking an examination.

(4) Disability accommodations. The Texas securities law examination shall be administered to applicants with disabilities in compliance with the Americans with Disabilities Act of 1990, as amended ("ADA").

(A) Any applicant with a disability who wishes to request disability accommodations must submit to the Securities Commissioner a Form 133.3, ADA Accommodations Request Form, that has been completed and signed by the applicant and includes supporting documentation from a licensed or certified health professional appropriate for diagnosing and treating the disability, at least 60 days prior to the examination. A prior history of receiving disability accommodations, without demonstration of a current need, will not necessarily warrant approval of disability accommodations.

(B) The Securities Commissioner may request additional documentation to substantiate a request for disability accommodations.

(C) Documentation shall not be older than three years from the date of submission.

(D) All medical records provided to the Securities Commissioner are confidential under the Health Insurance Portability and Accountability Act ("HIPAA").

(E) The Securities Commissioner is not required to approve every request for disability accommodations or to provide every accommodation or service requested. The Securities Commissioner is not required to grant a request for disability accommodations if doing so would fundamentally alter the measurement of knowledge or the measurement of skill intended to be tested by the Texas securities law examination, would affect the security of the examination, or would create an undue financial or administrative burden.

(F) Once disability accommodations have been granted, they may not be altered during the examination unless prior approval of the Securities Commissioner is obtained.

(5) Information about taking the examination and how to apply to take the examination in Austin or at an Agency branch office is available on the Agency's website located at www.ssb.texas.gov or by contacting the Registration Division of the State Securities Board.

History

• Source Note: The provisions of this §115.3 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective November 26, 2001, 26 TexReg 9581; amended to be effective July 14, 2005, 30 TexReg 3988; amended to be effective September 1, 2006, 31 TexReg 6712; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective August 16, 2010, 35 TexReg 7050; amended to be effective December 21, 2011, 36 TexReg 8505; amended to be effective June 19, 2013, 38 TexReg 3780, amended to be effective November 17, 2014, 39 TexReg 8961; amended to be effective December 23, 2018, 43 TexReg 8089; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.4 Evidences of Registration

(a) Issuance. An evidence of registration or certificate of registration shall be issued for each registered securities dealer reflecting the registered officer or partner.

(b) Amendments. Any changes in the information reflected on the evidence of registration must be submitted to the Securities Commissioner within 30 days of such change. An amendment fee, in the amount set forth in the Texas Securities Act, §4006.054, is required to amend the evidence of registration.

(c) Successions.

(1) Succession by application.

(A) If a succession results in a surviving entity that is not currently registered as a securities dealer, the successor entity must file a new application, including the fees, as required in §115.2 of this title (relating to Application Requirements). Such a succession may include, but is not limited to, any of the following that results in either a change in control of the beneficial owners, or a change in management:

(i) a merger;

(ii) a consolidation;

(iii) an acquisition; or

(iv) a reorganization.

(B) A complete application for the successor entity should be filed far enough in advance, but no later than 30 days after succession, so the application can be reviewed and approved prior to the successor entity taking over the business of the predecessor securities dealer. If a successor entity has taken over the business of a predecessor securities dealer before the application of the successor entity has been reviewed and approved, the registration of the successor entity will be automatically granted a temporary registration for 60 days from the date of succession to complete the registration for the new entity. If the successor entity fails to complete the registration requirements within the 60-day temporary registration period, it may submit a written request to the Securities Commissioner to grant an extension of the temporary registration for up to 30 additional days. If the Commissioner, in the exercise of his or her discretion, declines to grant the extension request, the registration will terminate for the dealer and all its agents on the expiration of the 60-day temporary registration. Any sales by the dealer and/or its agents after termination of the temporary registration are subject to the sanctions provided by the Texas Securities Act for selling securities while unregistered.

(C) Upon registration of the successor entity, the registration of the predecessor securities dealer will be terminated.

(2) Succession by amendment.

(A) When a succession does not result in a change in control of the beneficial owners or management, or does not result in any acquisition or assumption of substantially all of the assets and liabilities of the predecessor securities dealer, the successor entity may file an amendment in lieu of filing a new application. Such a succession may include, but is not limited to, any of the following:

(i) an internal corporate reorganization or restructuring;

(ii) a conversion;

(iii) a change in the form of business; or

(iv) a change in the composition of a partnership that does not result in change of control of the partnership.

(B) The provisions in subsection (b) of this section apply to a succession by amendment.

(d) Termination. A securities dealer is required to notify the Securities Commissioner upon termination of any registered agent from its employ. Upon receipt of such notification, the Commissioner may terminate the registration. Dealers who are members of FINRA must file a Form U-5, Uniform Termination Notice for Securities Industry Registration, through the CRD to comply with this subsection.

(e) Renewal.

(1) Procedures for renewing expired and unexpired registrations are set forth in the Texas Securities Act, Chapter 4004, Subchapter F.

(2) A notice of impending expiration of registration (renewal application) will be sent to a currently registered dealer. Members of FINRA shall file the renewal application electronically through the CRD. For non-FINRA member firms, the renewal application should be returned to the State Securities Board for processing, along with the appropriate fee.

(3) If a person's registration is not renewed in a timely manner because such person is a military service member, as defined in §115.18(a) of this chapter (relating to Special Provisions Relating to Military Applicants), such person may renew the registration pursuant to the provisions of §115.18(e).

History

• Source Note: The provisions of this §115.4 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective January 8, 2006, 30 TexReg 8866; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective November 8, 2012, 37 TexReg 8786; amended to be effective February 24, 2016, 41 TexReg 1123; amended to be effective November 12, 2019, 44 TexReg 6859; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.5 Minimum Records

(a) Dealer records. Compliance with the record-keeping requirements of the United States SEC, found in 17 Code of Federal Regulations §240.17a-3 and §240.17a-4 (17 CFR §240.17a-3 and §240.17a-4, as amended), will satisfy the requirements of this section.

(b) Records to be made by certain dealers. A person or company registered in Texas as a securities dealer shall make and keep current the following minimum records or the equivalent thereof.

(1) Blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash, and other debits and credits. Such records shall show the account for which each such transaction was effected, the name and amount of securities, the unit and aggregate purchase or sale price (if any), the trade date, and the name or other designation of the person from whom purchased or received or to whom sold or delivered.

(2) Ledgers (or other records) that reflect all assets and liabilities, income and expense, and capital accounts.

(3) Ledger accounts (or other records) itemizing separately as to each cash and margin account of every customer and of such dealer and its partners, all purchases, sales, receipts, and deliveries of securities and commodities for such account and all other debits and credits to such account.

(4) Ledgers (or other records) that reflect the following:

(A) securities in transfer;

(B) dividends and interest received;

(C) securities borrowed and securities loaned;

(D) monies borrowed and monies loaned (together with a record of the collateral therefor and any substitutions in such collateral); and

(E) securities failed to receive and failed to deliver.

(5) A securities record or ledger that reflects separately for each security as of the clearance dates all "long" or "short" positions (including securities in safekeeping) carried by such dealer for his or her account or for the account of his or her customers or partners and showing the location of all securities long and the offsetting position of all securities short, including long security count differences and short security count differences classified by the date of the physical count and verification in which they were discovered, and in all cases the name or designation of the account in which each position is carried.

(6) Order memoranda:

(A) A memorandum of each brokerage order and of any other instruction given or received for the purchase or sale of securities, whether executed or unexecuted. Such memorandum shall show the terms and conditions of the order or instructions and of any modifications or cancellation thereof, the account for which entered, the time the order was received, the time of entry, the price at which executed, the identity of each employee, if any, responsible for the account, the identity of any other person who entered or accepted the order on behalf of the customer or, if a customer entered the order on an electronic system, a notation of that entry, and, to the extent feasible, the time of execution or cancellation. The memorandum need not show the identity of any person, other than the employee responsible for the account, who may have entered or accepted the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible employee; in that circumstance, the dealer shall maintain a separate record that identifies each other person. Orders entered pursuant to the exercise of discretionary power by such dealer or any of its employees shall be so designated. The term "instruction" shall be deemed to include instructions between partners and employees of a dealer. The term "time of entry" shall be deemed to mean the time when such dealer transmits the order or instruction for execution.

(B) This memorandum need not be made as to a purchase, sale or redemption of a security on a subscription way basis directly from or to the issuer, if the dealer maintains a copy of the customer's subscription agreement regarding a purchase, or a copy of any other document required by the issuer regarding a sale or redemption.

(7) A memorandum of each purchase and sale for the account of such dealer showing the price, and, to the extent feasible, the time of execution; and, in addition, where such purchase or sale is with a customer other than a dealer, a memorandum of each order received, showing the time of receipt, the terms and conditions of the order and of any modification thereof, the account in which it was entered, the identity of each employee, if any, responsible for the account, the identity of any other person who entered or accepted the order on behalf of the customer or, if a customer entered the order on an electronic system, a notation of that entry. The memorandum need not show the identity of any person other than the employee responsible for the account who may have entered the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible employee; in that circumstance, the dealer shall maintain a separate record that identifies each other person. An order with a customer other than a dealer entered pursuant to the exercise of discretionary authority by the dealer, or agent thereof, shall be so designated.

(8) Copies of confirmations of all purchases and sales of securities and copies of notices of all other debits and credits for securities, cash, and other items for the account of customers and partners of such dealer.

(9) A record in respect of each cash and margin account with such dealer containing the name and address of the beneficial owner of such account and, in the case of a margin account, the signature of such owner; provided that, in the case of a joint account or an account of a corporation, such records are required only in respect of the person or persons authorized to transact business for such account.

(10) A record of all puts, calls, spreads, straddles, standby commitments, and other options in which such dealer has any direct or indirect interest or which such dealer has granted or guaranteed, containing at least an identification of the security and the number of units involved.

(11) A questionnaire or application for employment executed by each partner, officer, director, agent, trader, manager, and each employee who handles funds or securities or who solicits transactions or accounts for such dealer, which questionnaire or application shall be approved in writing by an authorized representative of such dealer and shall contain at least the following information with respect to such person (in the case of persons registered with the State Securities Board, a copy of their application for registration as an agent, officer, or partner will satisfy this requirement):

(A) name, address, social security number, and the starting date of employment or other association with the dealer;

(B) date of birth;

(C) the educational institutions attended and whether he or she graduated therefrom;

(D) a complete, consecutive statement of all business connections for at least the preceding 10 years, including the reason for leaving each prior employment, and whether the employment was part-time or full-time;

(E) a record of any denial, suspension, expulsion, or revocation of membership or registration of any dealer he or she was associated with in any capacity when such action was taken;

(F) a record of any denial of membership or registration, and of any disciplinary action taken, or sanction imposed, on the person by any federal or state agency, or by any national securities exchange or national securities association, including any finding that he or she was a cause of any disciplinary action or had violated any law;

(G) a record of any permanent or temporary injunction entered against the person or any dealer he or she was associated with in any capacity at the time such injunction was entered;

(H) a record of any arrest or indictment for any felony or misdemeanor, and the disposition of any such arrest or indictment or further explanation thereof, and a record of any conviction for any felony or any misdemeanor, except minor traffic offenses, of which he or she has been the subject; and

(I) a record of any other name or names he or she has been known by or has used.

(12) A record listing of every agent of the dealer that shows, for each agent, every office of the dealer where the agent regularly conducts the business of handling funds or securities or effecting any transaction in, or inducing or attempting to induce the purchase or sale of any security for the dealer, and the CRD number, if any, and every internal identification number or code assigned to that agent by the dealer.

(13) For each account with a natural person as a customer or owner:

(A) An account record including the customer's or owner's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is an agent of a dealer), annual income, net worth (excluding value of primary residence), and the account's investment objectives. In the case of a joint account, the account record must include personal information for each joint owner who is a natural person; however, financial information for the individual joint owners may be combined. The account record shall indicate whether it has been signed by the agent responsible for the account, if any, and approved or accepted by a supervisor of the dealer.

(B) A record indicating that:

(i) The dealer has furnished to each customer or owner within 30 days of the opening of the account, and thereafter at intervals no greater than 36 months, a copy of the account record or an alternate document with all information required by subparagraph (A) of this paragraph. The dealer may elect to send this notification with the next statement mailed to the customer or owner after the opening of the account. The dealer may choose to exclude any tax identification number and date of birth from the account record or alternate document furnished to the customer or owner. The dealer shall include with the account record or alternate document provided to each customer or owner an explanation of any terms regarding investment objectives. The account record or alternate document furnished to the customer or owner shall include or be accompanied by prominent statements that the customer or owner should mark any corrections and return the account record or alternate document to the dealer, and that the customer or owner should notify the dealer of any future changes to information contained in the account record.

(ii) For each account record updated to reflect a change in the name or address of the customer or owner, the dealer furnished a notification of that change to the customer's old address, or to each joint owner, and the agent, if any, responsible for that account, on or before the thirtieth day after the date the dealer received notice of the change.

(iii) For each change in the account's investment objectives the dealer has furnished to each customer or owner, and the agent, if any, responsible for that account a copy of the updated customer account record or alternative document with all information required to be furnished by subparagraph (A) of this paragraph on or before the thirtieth day after the date the dealer received notice of any change, or, if the account was updated for some reason other than the dealer receiving notice of a change, after the date the account record was updated. The dealer may elect to send this notification with the next statement scheduled to be mailed to the customer or owner.

(C) For purposes of this paragraph, the neglect, refusal, or inability of a customer or owner to provide or update any account record information required under subparagraph (A) of this paragraph shall excuse the dealer from obtaining that required information.

(D) the account record requirements in subparagraph (A) of this paragraph shall only apply to accounts for which the dealer is, or has within the past 36 months been, required to make a suitability determination. Additionally, the furnishing requirement in subparagraph (B)(i) of this paragraph shall not be applicable to an account for which, within the last 36 months, the dealer has not been required to make a suitability determination. Subparagraph (C) of this paragraph does not relieve a dealer from any regulatory obligation regarding the collection of information from a customer or owner.

(E) If an account is a discretionary account, a record containing the dated signature of each customer or owner granting the authority and the dated signature of each natural person to whom discretionary authority was granted.

(F) A record for each account indicating that each customer or owner was furnished with a copy of each written agreement entered into on or after May 2, 2003 pertaining to that account and that, if requested by the customer or owner, the customer or owner was furnished with a fully executed copy of each agreement.

(14) A record:

(A) As to each agent of each written customer complaint received by the dealer concerning that associated person. The record shall include the complainant's name, address, and account number; the date the complaint was received; the name of any other agents identified in the complaint; a description of the nature of the complaint; and the disposition of the complaint. Instead of the record, a dealer may maintain a copy of each original complaint in a separate file by the agent named in the complaint along with a record of the disposition of the complaint.

(B) Indicating that each customer of the dealer has been provided with a notice containing the address and telephone number of the department of the dealer to which any complaints as to the account may be directed.

(15) A record:

(A) As to each agent listing each purchase and sale of a security attributable, for compensation purposes, to that agent. The record shall include the amount of compensation if monetary and a description of the compensation if non-monetary. In lieu of making this record, a dealer may elect to produce the required information promptly upon request of a representative of the Securities Commissioner.

(B) Of all agreements pertaining to the relationship between each agent and the dealer including a summary of each agent's compensation arrangement or plan with the dealer, including commission and concession schedules and, to the extent that compensation is based on factors other than remuneration per trade, the method by which the compensation is determined.

(16) A record, which need not be separate from the advertisements, sales literature, or communications, documenting that advertisements, sales literature, or any other communications with the public by a dealer or its agents have been approved by a supervisor.

(17) A record for each office listing, by name or title, each person at that office who, without delay, can explain the types of records the dealer maintains at that office and the information contained in those records.

(18) A record listing each supervisor of a dealer responsible for establishing policies and procedures that require acceptance or approval of a record by a supervisor.

(c) Exemptions from the requirements of subsection (b) of this section:

(1) A dealer is not required to make or keep such records of transactions cleared for such dealer by a member of FINRA, the American Stock Exchange, the Boston Stock Exchange, the Chicago Stock Exchange, the Pacific Stock Exchange, the Chicago Board Options Exchange, or any other recognized and responsible stock exchange approved by the Securities Commissioner pursuant to the Texas Securities Act, Chapter 4005, Subchapter C, where such records are customarily made and kept by the clearing member.

(2) A dealer is not required to make or keep such records that reflect the sale of United States Tax Savings Notes, United States Defense Savings Stamps, or United States Defense Savings Bonds, Series E, F, and G.

(3) A dealer is not required to make or keep such records with respect to any cash transaction of $100 or less involving only subscription rights or warrants which by their terms expire within 90 days after the issuance thereof.

(4) For purposes of transactions in municipal securities by municipal securities dealers, compliance with Rule G-8 of the Municipal Securities Rulemaking Board will be deemed to be in compliance with subsection (b) of this section.

(d) Maintenance of office records.

(1) Every dealer shall make and keep current, as to each office, the books and records described in paragraphs (1), (6), (7), (11), (13), (14)(A), (15), (16), (17), and (18) of subsection (b) of this section.

(2) When used in this section, the term "office" means any location where one or more agents regularly conduct the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security. The term "office" as used in this section is not related to the term "branch office" defined in 115.1 of this chapter (relating to General Provisions).

(e) Records to be preserved by dealers.

(1) Persons subject to subsection (b) of this section shall preserve:

(A) all records required to be made pursuant to paragraphs (1), (2), (3), (5), (17), and (18) of subsection (b) of this section for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years in an easily accessible place; and

(B) all records required to be made pursuant to paragraphs (4), (6)-(10), and (14)-(16) of subsection (b) of this section for a period of not less than three years from the end of the fiscal year during which the last entry was made on such record, the first two years in an easily accessible place.

(2) Persons subject to subsection (b) of this section shall maintain and preserve in an easily accessible place:

(A) all records required to be made pursuant to paragraph (11) of subsection (b) of this section until at least three years following termination of the employment or other relationship between the dealer and the person to whom the records relate;

(B) All account record information required pursuant to subsection (b)(13) of this section until at least six years after the earlier of the date the account was closed or the date on which the information was replaced or updated;

(C) Each report which a securities regulatory authority has requested or required the dealer to make and furnish to it pursuant to an order or settlement, and each securities regulatory authority examination report until three years after the date of the report;

(D) Each compliance, supervisory, and procedures manual, including any updates, modifications, and revisions to the manual, describing the policies and practices of the dealer with respect to compliance with applicable laws and rules, and supervision of the activities of each natural person associated with the dealer until three years after the termination of the use of the manual; and

(E) All reports produced to review for unusual activity in customer accounts until 18 months after the date the report was generated. In lieu of maintaining the reports, a dealer may produce promptly the reports upon request by a representative of the Securities Commissioner. If a report was generated in a computer system that has been changed in the most recent 18 month period in a manner such that the report cannot be reproduced using historical data in the same format as it was originally generated, the report may be produced by using the historical data in the current system, but must be accompanied by a record explaining each system change which affected the reports. If a report is generated in a computer system that has been changed in the most recent 18 month period in a manner such that the report cannot be reproduced in any format using historical data, the dealer shall promptly produce upon request a record of the parameters that were used to generate the report at the time specified by a representative of the Securities Commissioner, including a record of the frequency with which the reports were generated.

(3) Persons registered as dealers in Texas shall preserve for a period of not less than three years from the end of the fiscal year during which the last entry was made on such record, the first two years in an easily accessible place:

(A) all checkbooks, bank statements, cancelled checks, and cash reconciliations;

(B) all bills receivable or payable (or copies thereof), paid or unpaid, relating to the business of the dealer, as such;

(C) originals of all communications received and copies of all communications sent by the dealer (including interoffice memoranda and communications) relating to the business of the dealer. As used in this subparagraph, the term "communications" includes sales scripts;

(D) all trial balances, financial statements, branch office reconciliations, and internal audit working papers relating to the business of the dealer;

(E) all guarantees of accounts and all powers of attorneys and other evidence of the granting of any discretionary authority given in respect of any account, and copies of resolutions empowering an agent to act on behalf of a corporation;

(F) all written agreements (or copies thereof) entered into by the dealer relating to the business of the dealer, including agreements with respect to any account;

(G) all customer complaints received by the dealer relating to the business of the dealer, and all documents relating to such complaints; and

(H) all information including but not limited to offering materials and subscription agreements on any private placements offered by the dealer.

(4) Persons registered as dealers in Texas shall preserve for a period of not less than six years from when a customer's account was closed, any account cards or records which relate to the terms and conditions with respect to the opening and maintenance of such account.

(5) Persons registered as dealers in Texas shall preserve for at least three years after the termination of the enterprise partnership articles and any amendments thereto, articles of incorporation, certificates of formation, charters, minute books, and stock certificate books of the dealer and of any predecessor, all Forms BD, all Forms BDW, all amendments to these forms, all licenses or other documentation showing the registration of the dealer with any securities regulatory authority.

(6) The records required to be maintained and preserved pursuant to this section may be immediately produced or reproduced on microfilm or other photograph and may be maintained and preserved for the required time in that form provided that such microfilms or other photographs are arranged and indexed in such a manner as to permit the immediate location of any particular document, and that such microfilms or other photographs are at all times available for inspection by representatives of the Securities Commissioner together with facilities for immediate, easily readable projection of the microfilm or other photograph and for the production of easily readable facsimile enlargements.

(7) If a person ceases to be registered as a dealer in Texas, such person shall for the remainder of the periods of time specified in this section continue to preserve the records required herein.

(8) For purposes of transactions in municipal securities by municipal securities dealers, compliance with Rule G-9 of the Municipal Securities Rulemaking Board will be deemed to be compliance with this subsection.

(9) The records required to be maintained pursuant to this section may be maintained by any electronic storage media available so long as such records are available for immediate and complete access by representatives of the Securities Commissioner. Any electronic storage media must preserve the records exclusively in a non-rewriteable, non-erasable format; verify automatically the quality and accuracy of the storage media recording process; serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media; and have the capacity to download indexes and records preserved on electronic storage media to an acceptable medium. In the event that a records retention system commingles records required to be kept under this section with records not required to be kept, representatives of the Securities Commissioner may review all commingled records.

(f) The Securities Commissioner has a right to review all records maintained by registered dealers regardless of whether such records are required to be maintained under any specific applicable rule provision.

(g) Records for the most recent two year period required to be made and maintained pursuant to subsections (d), (e)(2)(D), and (e)(3)(C) of this section, which relate to an office shall be maintained at the office to which they relate. If an office is a private residence where only one agent (or multiple agents who reside at that location and are members of the same immediate family) regularly conducts business, and it is not held out to the public as an office nor are funds or securities of any customer of the dealer handled there, the dealer need not maintain records at that office, but the records must be maintained at another location within Texas as the dealer may select. Rather than maintain the records at each office, the dealer may choose to produce the records promptly at the request of a representative of the Securities Commissioner at the office to which they relate or at another location agreed to by the representative.

(h) SEC Regulation Best Interest Records. In addition to the requirements in this section, a person or company registered in Texas as a securities dealer shall make and keep appropriate books and records to document compliance with the obligations set forth in SEC Regulation Best Interest (17 CFR §240.15l-1, as amended), including all records described in SEC Rule §240.17a-3(a)(35), and shall preserve the records required to be preserved by SEC Rule §240.17a-4(e)(5) for a period of not less than six years after the earlier of the date the account was closed or the date in which the information was collected, provided, replaced, or updated.

History

• Source Note: The provisions of this §115.5 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective November 26, 2001, 26 TexReg 9581; amended to be effective October 29, 2003, 28 TexReg 9236; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.6 Registration of Persons with Criminal Backgrounds

(a) An application for registration may be denied, or a registration may be revoked or suspended, if the Securities Commissioner finds that the person has been convicted of any felony, or of a misdemeanor offense that directly relates to its duties and responsibilities. In determining whether a misdemeanor directly relates to such duties and responsibilities, the Securities Commissioner shall consider each of the following factors:

(1) the nature and seriousness of the crime;

(2) the relationship of the crime to the purposes for requiring registration of dealers and agents;

(3) the extent to which the registration applied for might offer an opportunity to engage in further criminal activity of the same type as that in which the applicant previously had been involved;

(4) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a registered dealer or agent; and

(5) any correlation between the elements of the crime and its duties and responsibilities.

(b) After the Securities Commissioner has determined the criminal conviction directly relates to the duties and responsibilities of the license, the Securities Commissioner shall consider the following evidence in determining whether the person is eligible for a license issued by the Agency:

(1) The extent and nature of the person's past criminal activity.

(2) The age of the applicant at the time of the commission of the crime.

(3) The amount of time that has elapsed since the applicant's last criminal activity.

(4) The conduct and work activity of the applicant prior to and following the criminal activity.

(5) Evidence of the applicant's rehabilitation or rehabilitative effort while incarcerated or following release.

(6) Evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision.

(7) Other evidence of the applicant's present fitness, including letters of recommendation, may be provided and considered, including letters from prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the applicant; the sheriff and chief of police in the community where the applicant resides; and any other persons in contact with the applicant.

(8) It shall be the responsibility of the applicant to the extent possible to secure and provide to the Securities Commissioner the letters of recommendation described by paragraph (7) of this subsection.

(c) The State Securities Board considers that the following misdemeanors directly relate to the duties and responsibilities of securities dealers and agents:

(1) any criminal violation of which fraud is an essential element or that involves wrongful taking or possession of property or services;

(2) any criminal violation of the securities laws or regulations of this state, or of any other state in the United States, or of the United States, or any foreign jurisdiction;

(3) any criminal violation of statutes designed to protect consumers against unlawful practices involving insurance, securities, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services; and

(4) any criminal violation involving an assault on a person.

(d) Prior to filing an application, a person may request a preliminary evaluation of license eligibility from the State Securities Board by following the procedure set out in §104.7 of this title (relating to Preliminary Evaluation of License Eligibility) and paying the requisite fee.

(e) Prior to taking any action under subsection (a) of this section to deny any application for registration, the State Securities Board shall comply with the notification requirements of Texas Occupations Code, §53.0231 Notice of Pending Denial of License, and §53.051.

(f) Prior to taking any action under subsection (a) of this section to revoke or suspend any application for registration, the State Securities Board shall comply with the notification requirements of Texas Occupations Code, §53.051.

(g) State Auditor Applicant Best Practices Guide.

(1) The State Securities Board provides a link on its website to the Applicant Best Practices Guide, which is published by the state auditor as required by Texas Occupations Code, §53.026. This guide sets forth best practices for an applicant with a prior conviction to use when applying for a license.

(2) In each notice to deny, revoke, or suspend a registration or to deny a person the opportunity be examined for a registration, the State Securities Board shall include a link to the guide as described in paragraph (1) of this subsection.

History

• Source Note: The provisions of this §115.6 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective March 28, 2010, 35 TexReg 2549; amended to be effective November 12, 2019, 44 TexReg 6859; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.7 Maintenance and Inspection of Records

(a) The Securities Commissioner, without notice, may inspect a registered dealer as necessary to ensure compliance with the Texas Securities Act and Board rules.

(b) The Commissioner or his or her authorized representative, during regular business hours, may:

(1) enter the business premises of a registered dealer; and

(2) examine and copy books and records pertinent to the inspection.

(c) During the inspection, the dealer shall:

(1) provide to the Commissioner or the Commissioner's authorized representative immediate and complete access to the person's office, place of business, files, safe, and any other location in which books and records pertinent to the inspection are located; and

(2) allow the Commissioner or the Commissioner's authorized representative to make photostatic or electronic copies of books or records subject to inspection.

(d) A dealer may not charge a fee for copying information under this section.

(e) The Commissioner or his or her authorized representative may require that all records required to be maintained pursuant to Board rules or maintained in the normal course of business of the dealer be made available in any office of the State Securities Board designated by the Commissioner or his or her representative within 48 hours of a request or within a greater time period as the Commissioner or his or her authorized representative deems reasonable.

History

• Source Note: The provisions of this §115.7 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective November 26, 2001, 26 TexReg 9581.

7 Tex. Admin. Code § 115.8 Fee Requirements

(a) Registration and notice filing fees. Information about registration and notice filing fees for original and renewal applications for dealers and agents are available on the Agency's website located at www.ssb.texas.gov or by contacting the Registration Division of the State Securities Board.

(b) Reduced fees for certain persons registered in multiple capacities.

(1) In general. A person may request reduced fees under paragraph (2) of this subsection, provided they are registered or are seeking registration in Texas:

(A) as either an agent of a securities dealer or as a sole proprietor securities dealer; and

(B) as either an investment adviser representative of an investment adviser that has less than five investment adviser representatives or as a sole proprietor investment adviser with less than five investment adviser representatives.

(2) Procedure. Persons meeting the requirements of paragraph (1) of this subsection may request reduced registration fees by filing Form 133.36, Request for Reduced Fees for Certain Persons Registered in Multiple Capacities. Form 133.36 must be filed at the time the original application for investment adviser representative or sole proprietor investment adviser registration is filed, or at least 30 days before the person's existing investment adviser representative or sole proprietor investment adviser registration will expire. On review of Form 133.36, the Securities Commissioner may, in his or her discretion, grant or deny the request for reduced fees or direct the person to supply additional information.

(3) Reduced fees. If the Securities Commissioner grants a person's request, the person must pay all applicable fees for securities agent or dealer registration as specified in the Texas Securities Act, §4006.001, but is exempt from the fees specified in the Texas Securities Act, §4006.001, in connection with original and renewal applications for investment adviser representative or sole proprietor investment adviser registration, as applicable at the time Form 133.36 is filed. The reduction in fees granted by the Securities Commissioner under this subsection shall continue in force, without any further filings, as long as a person remains registered in a multiple capacity status.

(c) Reduced fees for sole proprietor dealers. A person seeking registration in multiple capacities as a sole proprietor dealer and as the designated officer of that sole proprietor dealer shall pay only the fee required in connection with the original or renewal application for registering as a sole proprietor dealer.

(d) Fees for concurrent registrations. Notwithstanding the Texas Securities Act, Chapter 4006, a person shall pay only one fee required under that section to engage in business in this state concurrently for the same person or company as:

(1) a dealer and an investment adviser; or

(2) an agent and an investment adviser representative.

(e) Waiver of initial application fee and examination fee for certain military applicants. A military applicant who meets the requirements in §115.18(c) of this chapter (relating to Special Provisions Relating to Military Applicants) is eligible to have his or her initial application fee in Texas and the fee to take the Texas Securities Law Examination waived or refunded by following the procedure set out in §115.18(c).

History

• Source Note: The provisions of this §115.8 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective November 26, 2001, 26 TexReg 9581; amended to be effective February 24, 2004, 29 TexReg 1643; amended to be effective August 18, 2011, 36 TexReg 5094; amended to be effective February 24, 2016, 41 TexReg 1123; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.9 Post-Registration Reporting Requirements

(a) Each person registered as a securities dealer shall report to the Securities Commissioner within 30 days after its occurrence or entry against the registered person or an agent thereof, the matters described in this subsection. Likewise, each person registered as an agent of a securities dealer shall report to the Commissioner within 30 days after its occurrence or entry against the agent the matters described in this subsection. The following matters must be reported:

(1) any administrative order issued by state or federal authorities, which order:

(A) is based upon a finding that such person has engaged in fraudulent conduct; or

(B) was entered after notice and opportunity for a hearing, denying, suspending, or revoking the person's registration as a dealer, agent, investment adviser, or investment adviser representative, or the substantial equivalent of those terms;

(2) any felony criminal action or conviction;

(3) any action or conviction of a misdemeanor offense that directly relates to the person's duties and responsibilities as a dealer or agent, including any criminal violation listed in §115.6(c) of this chapter (relating to Registration of Persons with Criminal Backgrounds);

(4) any order, judgment, or decree entered by any court of competent jurisdiction which temporarily or permanently restrains or enjoins such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving any false filing with any state; or which restrains or enjoins such person from activities subject to federal or state statutes designed to protect consumers against unlawful or deceptive practices involving insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;

(5) any expulsion, bar, suspension, censure, fine, or penalty imposed by a self-regulatory organization;

(6) any change in any other information previously disclosed to the Securities Commissioner on any application form or filing, including change of legal status; and

(7) the filing of any voluntary or involuntary bankruptcy petition.

(b) Upon request by the Securities Commissioner, a securities dealer or agent is required to furnish to the Commissioner copies of the order, conviction, or decrees, or other documents which evidence events disclosable pursuant to subsection (a) of this section.

(c) For purposes of this section, a securities "dealer" shall include any partners, directors, executive officers, or beneficial owners of 10% or more of any class of the equity securities of a registered dealer (beneficial ownership meaning the power to vote or direct the vote of and/or the power to dispose or direct the disposition of such securities).

History

• Source Note: The provisions of this §115.9 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.10 Supervisory Requirements

(a) Supervisory system. Each dealer shall establish, maintain, and enforce a system to supervise the activities of its agents that is reasonably designed to achieve compliance with the Texas Securities Act, Board rules, and all applicable securities laws and regulations. A dealer's supervisory system shall provide, at a minimum, for the following:

(1) the establishment and maintenance of written procedures; and

(2) the appointment of one or more registered agents to carry out the supervisory responsibilities of the dealer.

(b) Written procedures.

(1) Each dealer shall establish, maintain, and enforce written procedures to supervise the activities of its agents that are reasonably designed to achieve compliance with the Texas Securities Act, Board rules, and all applicable securities laws and regulations.

(2) The dealer's written supervisory procedures shall set forth the supervisory system established by the dealer and shall include the titles and locations of supervisory personnel and the responsibilities of each supervisory person.

(3) The dealer shall maintain on an internal record the names of all persons who are designated as supervisory personnel and the dates for which such designation is or was effective. Such record shall be preserved by the dealer for a period of not less than three years, the first two years in an easily accessible place.

(4) A current copy of a dealer's written supervisory procedures, or the relevant portions thereof, shall be kept and maintained in each branch office and at each location where supervisory activities are conducted on behalf of the dealer. Each dealer shall amend its written supervisory procedures as appropriate within a reasonable time after changes occur in applicable securities laws and regulations.

(c) Internal inspections.

(1) Each dealer shall conduct a review, at least annually or to be conducted within the timeframes in accordance with and as required by FINRA Rule 3110(c), of the businesses in which it engages, which review of locations shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations. The dealer shall document this review and provide the documentation to the Securities Commissioner upon request. Each dealer shall review the activities of each office or location in accordance with and as required by FINRA Rule 3110(c), including the periodic examination of customer accounts to detect and prevent violations of applicable securities laws and regulations. Each branch office of the dealer shall be inspected according to a cycle which shall be set forth in the dealer's written supervisory and inspection procedures and in compliance with and as required by FINRA Rule 3110(c). In establishing such cycle, the dealer shall give consideration to the nature and complexity of the securities activities for which the location is responsible, the volume of business done, and the number of associated persons assigned to the location. Each dealer shall retain a written record of the dates upon which each review and internal inspection is conducted.

(2) For purposes of this subsection, registered dealers that have notified FINRA of their participation in the FINRA remote inspections pilot program established by FINRA Rule 3110.18, or any successor program established by FINRA, and which are in compliance with the requirements of FINRA Rule 3110.18 or successor program will satisfy the requirements of this subsection, provided however, that if a dealer or one or more of its locations becomes ineligible to participate in the program, the dealer must comply with the applicable requirements set forth in paragraph (1) of this subsection.

(d) Review of transactions and correspondence. Each dealer shall establish and implement procedures for the review and endorsement by a designated supervisor, in writing on an internal record, of all transactions and for the review by that supervisor of incoming and outgoing written and electronic correspondence of its registered agents with the public relating to the securities activities of such dealer. Such procedures should be in writing and be designed to reasonably supervise each agent. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to the Securities Commissioner upon request.

History

• Source Note: The provisions of this §115.10 adopted to be effective August 12, 2001, 26 TexReg 5794; amended to be effective January 8, 2006, 30 TexReg 8866 ; amended to be effective August 16, 2010, 35 TexReg 7050; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.11 Finder Registration and Activities

(a) Prohibited activities. A finder is not permitted to register in any other capacity and shall not:

(1) participate in negotiating any of the terms of an investment;

(2) give advice to an accredited investor or an issuer regarding the advantages or disadvantages of entering into an investment;

(3) conduct due diligence on behalf of a potential issuer or potential investor, provide valuation, or provide other analysis to an accredited investor or an issuer regarding an investment;

(4) advertise to seek accredited investors or issuers;

(5) have custody of an accredited investor's funds or securities;

(6) serve as an escrow agent for the parties; or

(7) disclose information to an accredited investor or to an issuer other than the information described in subsections (b) and (c) of this section.

(b) Required disclosures.

(1) A finder must disclose the following to each accredited investor:

(A) that compensation will be paid to the finder;

(B) that the finder can neither recommend nor advise the accredited investor with respect to the offering; and

(C) any potential conflict of interest in connection with the finder's activities.

(2) The disclosures required by paragraph (1) of this subsection must be provided in writing.

(c) Permitted disclosures.

(1) A finder may provide to an accredited investor some or all of the following information:

(A) the name, address, and telephone number of the issuer of the securities;

(B) the name, a brief description, and price (if known) of any security to be issued;

(C) a brief description of the business of the issuer in 25 words or less;

(D) the type, number, and aggregate amount of securities being offered; and/or

(E) the name, address, and telephone number of the person to contact for additional information.

(2) A finder may provide to an issuer contact information regarding an accredited investor.

(d) Recordkeeping.

(1) A finder is not required to maintain the records listed in §115.5 of this title (relating to Minimum Records); however, compliance with the recordkeeping requirements of §115.5 of this title will satisfy the requirements of this subsection.

(2) A finder shall maintain and preserve a copy of the Form BD and the Form U-4 used to register the finder, and any amendments thereto, for a period of five (5) years from the date of the termination of the finder's registration.

(3) A finder shall maintain and preserve for a period of five (5) years the following records related to transactions that are completed and to transactions where the finder receives compensation:

(A) records of compensation received for acting as a finder, including the name of the payor, the date of payment, name of the issuer, and name of the accredited investor;

(B) copies of information provided by the finder to prospective accredited investors;

(C) any agreements and/or contracts between the finder and the accredited investor;

(D) any agreements and/or contracts between the finder and the issuer;

(E) any lists of contacts/prospective accredited investors and/or issuers; and

(F) any correspondence with accredited investors and/or issuers.

(4) The records required to be maintained and preserved pursuant to this subsection must be maintained in a manner that will permit the immediate location of any particular document.

(5) The records required to be maintained and preserved pursuant to this subsection may be archived if they are more than two years old.

(6) A finder shall not commingle records to be maintained and preserved pursuant to this subsection with other records.

(7) A finder shall, upon written request of the Securities Commissioner, furnish to the Securities Commissioner any records required to be maintained and preserved under this subsection.

(e) Supervisory requirements. Because a finder is an individual who will not have agents, a finder is not required to maintain a supervisory system as provided in §115.10 of this title (relating to Supervisory Requirements).

(f) Filings.

(1) Application. In lieu of the application requirements listed in §115.2 of this chapter (relating to Application Requirements), a complete application for a finder consists of the following and must be filed with the Securities Commissioner:

(A) Form BD, including all applicable Disclosure Reporting Pages. For any question that does not pertain to the finder's business, the finder must indicate that the question is not applicable. To identify the finder's activities, the finder must mark Form BD, Item 12.Z, that refers to "Other," and describe such activities on Form BD, Schedule D, Section II. A finder is not required to complete certain schedules of the Form BD unless requested to do so by the Securities Commissioner. Such schedules include Schedule A, B, C, and E, and Schedule D, Sections IV, V and VI.

(B) Form U-4, with the following items completed:

(i) Item 1 (General Information) limited to completion of the:

(I) first, middle, last name; and

(II) individual social security number.

(ii) Item 3 (Registration With Unaffiliated Firms);

(iii) Item 6 (Registration Requests With Affiliated Firms);

(iv) Item 9 (Identifying Information/Name Change);

(v) Item 10 (Other Names);

(vi) Item 11 (Residential History);

(vii) Item 12 (Employment History);

(viii) Item 13 (Other Business);

(ix) Item 14 (Disclosure Questions and related Disclosure Reporting Pages if applicable);

(x) Item 15 (Signatures);

(xi) Item 15A (Individual/Applicant's Acknowledgement and Consent); and

(xii) Item 15D (Amendment Individual/Applicant's Acknowledgement and Consent).

(C) any other information deemed necessary by the Securities Commissioner to determine a finder's financial responsibility or a finder's business repute or qualifications; and

(D) the appropriate registration fee(s).

(2) Post-reporting requirements. A finder is subject to the dealer and agent requirements contained in §115.9 of this title (relating to Post-Registration Reporting Requirements).

History

• Source Note: The provisions of this §115.11 adopted to be effective September 1, 2006, 31 TexReg 6713; amended to be effective November 8, 2012, 37 TexReg 8787; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.16 Use of Senior-Specific Certifications and Professional Designations

(a) The use of a senior specific certification or designation by any person in connection with the offer, sale, or purchase of securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in such a way as to mislead any person shall be an inequitable practice within the meaning of the Texas Securities Act, §4007.105(a)(3). The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

(1) use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use such certification or designation;

(2) use of a nonexistent or self-conferred certification or professional designation;

(3) use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification or professional designation does not have; and

(4) use of a certification or professional designation that was obtained from a designating or certifying organization that:

(A) is primarily engaged in the business of instruction in sales and/or marketing;

(B) does not have reasonable standards or procedures for assuring the competency of its designees or certificants;

(C) does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or

(D) does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.

(b) There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of subsection (a)(4) of this section when the organization has been accredited by:

(1) The American National Standards Institute;

(2) The National Commission for Certifying Agencies; or

(3) an organization that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

(c) In determining whether a combination of words (or an acronym standing for a combination of words) constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees, factors to be considered shall include:

(1) use of one or more words such as "senior," "retirement," "elder," or like words, combined with one or more words such as "certified," "registered," "chartered," "adviser," "specialist," "consultant," "planner," or like words, in the name of the certification or professional designation; and

(2) the manner in which those words are combined.

(d) For purposes of this rule, a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency, when that job title:

(1) indicates seniority or standing within the organization; or

(2) specifies an individual's area of specialization within the organization.

(e) For purposes of subsection (d) of this section, "financial services regulatory agency" includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940.

(f) Nothing in this rule shall limit the Securities Commissioner's authority to enforce existing provisions of law.

History

• Source Note: The provisions of this §115.16 adopted to be effective October 30, 2008, 33 TexReg 8761; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.18 Special Provisions Relating to Military Applicants

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Current registration--A registration or license that is:

(A) issued by another state, the District of Columbia, or a territory of the United States that has registration requirements that are similar in scope of practice to the requirements for a Texas registration in the same capacity;

(B) in good standing; and

(C) in the same capacity as the application for registration in Texas.

(2) Good standing--For purposes of this section, a person's registration is in good standing with another state's licensing authority if the person:

(A) has a registration that is current, has not been suspended or revoked, and has not been voluntarily surrendered during an investigation for unprofessional conduct;

(B) has not been disciplined by the licensing authority with respect to the registration or person's practice of the occupation for which the registration is granted; and

(C) is not currently under investigation by the licensing authority for unprofessional conduct related to the person's registration or profession.

(3) Military spouse--A person who is married to a military service member.

(4) Military service member--A person who is on active duty.

(5) Military veteran--A person who has served on active duty and who was discharged or released from active duty.

(6) Active duty--Current full-time military service in the armed forces of the United States or active duty military service as a member of the Texas military forces, as defined by Government Code, §437.001, or similar military service of another state.

(7) Armed forces of the United States--The Army, Navy, Space Force, Air Force, Coast Guard, or Marine Corps of the United States or a reserve unit of one of those branches of the armed forces.

(8) Military applicant--A military spouse, military service member, or military veteran.

(b) Expedited review of an application submitted by a military applicant as authorized by Occupations Code, §§55.004, 55.005, and 55.006.

(1) A military applicant may use the procedure set out in this subsection if the military applicant:

(A) holds a current registration in another jurisdiction; or

(B) has been registered in Texas in the same capacity within the five years preceding the date of the application for registration.

(2) If the military applicant is not registered within five business days of submitting an application, the military applicant may request special consideration of his or her application for registration by filing Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the Securities Commissioner. Within five business days of receipt of the completed Form 133.4, the military applicant shall be registered.

(3) In addition to the waivers of examination requirements set out in §115.3 of this title (relating to Examination), the Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151, on a showing of alternative demonstrations of competency to meet the requirements for obtaining the registration sought.

(4) A military applicant proceeding under this subsection may be registered despite having pending and/or deficient items ("deficiencies"). The deficiencies will be communicated to the military applicant in writing or by electronic means within five business days from approval of the registration.

(5) The deficiencies noted at the time the registration is granted must be resolved by the military applicant within a 12 month period. Failure to resolve outstanding deficiencies will cause the registration granted under this subsection or any renewal of such registration to automatically terminate 12 months after the date the registration was initially granted pursuant to this subsection.

(c) Waiver or refund of initial application fee and Texas Securities Law Examination fee for a military applicant as authorized by Occupations Code, §55.009.

(1) To qualify for a fee waiver or refund, the military applicant must submit Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the applicant's registration application.

(2) To request a waiver or refund of a fee previously paid, the applicant must submit Form 133.19, Waiver or Refund Request by a Military Applicant.

(A) If requesting a waiver of the fee to take the Texas Securities Law Examination, Form 133.19 must be submitted when filing the request to take the Texas Securities Law Examination.

(B) If requesting a waiver of the initial application fee, Form 133.19 must be submitted with the initial application.

(C) If requesting a refund of the initial application fee or Texas Securities Law Examination fee that was paid in error, Form 133.19 must be submitted within four years from the date the fee was collected or received.

(d) Registration of persons with military experience as authorized by Occupations Code, §55.007.

(1) An applicant who is a military service member or military veteran may request special consideration of verified military service, training, or education towards registration requirements, other than an examination requirement, for the registration sought by submitting Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the applicant's registration application.

(2) The procedure authorized by this subsection is not available to a military service member or military veteran who:

(A) is registered in another jurisdiction but such registration is not in good standing; or

(B) has been convicted of a crime that could be the basis for denial of the registration pursuant to the Texas Securities Act, §4007.105.

(e) Renewals by military service members, as authorized by Occupations Code, §55.002 and §55.003. If a military service member's registration is not renewed in a timely manner, the military service member may renew the registration pursuant to this subsection.

(1) Renewal of the registration may be requested by the military service member, the military service member's spouse, or an individual having power of attorney from the military service member. The renewal application shall include a current address and telephone number for the individual requesting the renewal.

(2) Renewal may be requested before or within two years after expiration of the registration.

(3) A copy of the official orders or other official military documentation showing that the military service member is or was on active duty shall be submitted to the Securities Commissioner along with the renewal application.

(4) A copy of the power of attorney from the military service member, if any, shall be filed with the Securities Commissioner along with the renewal application if the individual having the power of attorney executes any of the documents required in this subsection.

(5) A renewal application submitted to the Securities Commissioner pursuant to this subsection shall be accompanied by the applicable renewal fee set out in §115.8 of this title (relating to Fee Requirements).

(6) The State Securities Board will not assess any increased fee or other penalty against the military service member for failure to timely renew the registration if it is established to the satisfaction of the Securities Commissioner that all requirements of this subsection have been met.

(f) Other provisions in this chapter.

(1) Unless specifically allowed in this section, an applicant must meet the requirements for registration or renewal specified in this chapter. This includes the requirement that certain filings be made electronically through the CRD.

(2) A one-year period, instead of the 90-day period contained in §115.2 of this title (relating to Application Requirements), will apply to the automatic withdrawal of an application for which a Form 133.4 is properly filed.

(g) Additional information. An applicant receiving special consideration pursuant to this section in connection with a registration application or renewal shall provide any other information deemed necessary by the Commissioner. Such information may include, but is not limited to documentation:

(1) demonstrating status as a military spouse, service member, or military veteran;

(2) to determine whether the applicant meets licensing requirements through some alternative method;

(3) relating to prior military service, training, or education that may be credited towards a registration requirement; or

(4) to determine a dealer's financial responsibility or a dealer's or agent's business repute or qualifications.

(h) Recognition of out-of-state license or registration of an individual who is either a military service member or a military spouse as authorized by Occupations Code, §55.0041.

(1) An individual who is a resident of Texas and who is either a military service member or a military spouse may use the procedures set out in this subsection if the individual holds a current registration in another jurisdiction;

(2) The period covered by this subsection is only for the time during which the military service member is stationed at a military installation in Texas. In the case of a military spouse, the period covered by this subsection is for the time that the military spouse is a resident of Texas and is married to his or her respective military service member who is a military service member stationed at a military installation in Texas. Notwithstanding, if the individual is a military spouse, in the event of a divorce or other event that affects the individual's status as a military spouse, the recognition period covered by this subsection for such former spouse may continue until the third anniversary of the date the former spouse submitted the form and other documentation required by paragraph (4) of this subsection.

(3) Option 1: registration in Texas with waiver or refund of the initial registration and renewal fees. If the individual is registered in Texas, for all or part of the period set out in paragraph (2) of this subsection, the individual may request a waiver or refund of a fee previously paid.

(A) The initial registration fee may be waived or refunded by following the procedure set out in subsection (c) of this section, including filing Form 133.19, Waiver or Refund Request by a Military Applicant.

(B) A renewal fee may be waived by submitting Form 133.22, Waiver or Refund Request by a Military Service Member or Military Spouse for a Renewal Fee, at the time the renewal is submitted. A refund of a renewal fee that was paid in error, is requested by submitting Form 133.22 within four years from the date the fee was collected or received.

(4) Option 2: recognition of out-of-state registration without Texas registration. Upon recognition under subparagraph (C) or (D) of this paragraph, the individual will be considered to be notice filed in Texas. Such notice filing expires at the end of the calendar year.

(A) An individual may engage in activity without a license or registration under the authority of Occupations Code, §55.0041, and this paragraph, only for the period specified in paragraph (2) of this subsection.

(B) An individual who becomes ineligible under Occupations Code, §55.0041, or paragraph (1) or (2) of this subsection must notify the Securities Commissioner of such ineligibility within 30 days and immediately cease activity until such time as the individual is registered in the appropriate capacity to conduct activity in Texas.

(C) Before engaging in an activity requiring registration in Texas, the individual must initially:

(i) submit to the Securities Commissioner:

(I) Form 133.23, Request for Recognition of Out-Of-State License or Registration Pursuant to Occupations Code §55.0041;

(II) a copy of the member's military orders showing relocation to Texas;

(III) a copy of the individual's marriage license if the applicant is a military spouse; and

(IV) a notarized affidavit as required by Occupations Code §55.0041(b), included as part of Form 133.23, which affirms under penalty of perjury that the applicant is the person described and identified in the form; all statements in the application are true, correct, and complete; the applicant understands the scope of practice for the applicable registration in this state and will not perform outside that scope of practice; and the applicant is in good standing in each state in which the applicant holds or has held an applicable registration.

(ii) receive notification that the Registration Division has recognized the individual's license in another jurisdiction, which the Registration Division shall provide such notice no later than the 10th business day after the date the individual submits the information required by subparagraph (C)(i) of this paragraph.

(D) To continue to conduct business in Texas without registration under Option 2, the individual must renew recognition annually on the same schedule as renewals of registration. This enables the Registration Division to determine that the individual remains eligible under Occupations Code, §55.0041, to continue to conduct securities activities in Texas without being registered.

(i) A renewal is made by submitting the same documents identified in subparagraph (C)(i) of this paragraph.

(ii) A renewal is not effective until the Registration Division receives the documents identified in subparagraph (C)(i) of this paragraph.

(E) An individual proceeding under this paragraph shall be recognized despite having pending and/or deficient items ("deficiencies"). The deficiencies will be communicated to the individual in writing or by electronic means within five business days from the date of the notice of recognition under this paragraph. Such deficiencies must be resolved by the individual within a 12-month period. Failure to resolve outstanding deficiencies will cause the recognition granted under this paragraph or any renewal of such recognition to automatically terminate 12 months after the date the individual was notified of the recognition pursuant to this paragraph.

(i) The purpose of this section is to establish procedures authorized by Texas Occupations Code, Chapter 55, and is not intended to modify or alter rights that may be provided under federal law.

History

• Source Note: The provisions of this §115.18 adopted to be effective June 13, 2012, 37 TexReg 4185; amended to be effective March 1, 2014, 39 TexReg 493; amended to be effective February 24, 2016, 41 TexReg 1123; amended to be effective November 12, 2019, 44 TexReg 6861; amended to be effective November 21, 2021, 46 TexReg 7780; amended to be effective April 7, 2024, 49 TexReg 2064; amended to be effective March 26, 2026, 51 TexReg 1821.

7 Tex. Admin. Code § 115.19 Texas Crowdfunding Portal Registration and Activities

(a) Intrastate portal. A Texas crowdfunding portal:

(1) must be an entity incorporated or organized under the laws of Texas, authorized to do business in Texas, and engaged exclusively in intrastate offers and sales of securities in Texas;

(2) must limit its activities to operating an Internet website utilized to offer and sell securities exempt from registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings); and

(3) does not operate or facilitate a secondary market in securities.

(b) Internet website. The Internet website operated by the Texas crowdfunding portal must meet the following requirements:

(1) if the issuer is utilizing the exemption provided by §139.25 of this title (relating to Intrastate Crowdfunding Exemption) the website must contain:

(A) a disclaimer that reflects that access to securities offerings on the website is limited to Texas residents and offers and sales of the securities appearing on the website are limited to persons that are Texas residents;

(B) an affirmative representation by a visitor to the Internet website that the visitor is a resident of Texas is required before the visitor can view securities-related offering materials on the website;

(C) evidence of residency within Texas is required before a sale is made to a prospective purchaser. An affirmative representation made by a prospective purchaser that the prospective purchaser is a Texas resident and proof of at least one of the following would be considered sufficient evidence that the individual is a resident of this state:

(i) a valid Texas driver license or official personal identification card issued by the State of Texas;

(ii) a current Texas voter registration; or

(iii) general property tax records showing the individual owns and occupies property in this state as his or her principal residence;

(2) prior to offering an investment opportunity to residents of Texas and throughout the term of the offering, the portal shall give the Securities Commissioner access to the Internet website; and

(3) prior to permitting an investment in any securities listed on the Internet website, the portal shall obtain an affirmative acknowledgment from the investor of the following:

(A) There is no ready market for the sale of the securities acquired from this offering; it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely;

(B) The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law;

(C) In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and

(D) No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the disclosure statement or any other information on this Internet website.

(c) Prohibited activities. A Texas crowdfunding portal shall not:

(1) offer investment advice or recommendations;

(2) compensate employees, agents, or other persons not registered with the Securities Commissioner for soliciting offers or sales of securities displayed or referenced on its platform or portal;

(3) hold, manage, possess or otherwise handle investor funds or securities, except through the use of a segregated account if permitted under §139.25(f) of this title (relating to Intrastate Crowdfunding Exemption) or §139.26(e) of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 1474A Offerings). When a segregated account is used to hold investor payments, the portal must disclose this to prospective purchasers and investors along with a statement that the portal, in administering the segregated account, must:

(A) be responsible for the prudent processing, safeguarding, and accounting for funds entrusted to the portal by the investors and the issuer;

(B) act to the advantage of and in the best interests of the investors and the issuer; and

(C) ensure that all requirements of the Account Agreement between the portal and the issuer are met before funds are disbursed from the segregated account;

(4) be affiliated with or under common control with an issuer whose securities appear on the Internet website;

(5) hold a financial interest in any issuer offering securities on the portal's Internet website; or

(6) receive a financial interest in an issuer as compensation for services provided to or on behalf of an issuer.

(d) Background and regulatory checks. Prior to offering securities to residents of Texas, the Texas crowdfunding portal shall conduct a reasonable investigation of the background and regulatory history of each issuer whose securities are offered on the portal's Internet website and of each of the issuer's control persons. "Control persons" for purposes of this subsection means the issuer's officers; directors; or other persons having the power, directly or indirectly, to direct the management or policies of the issuer, whether by contract or otherwise; and persons holding more than 20% of the outstanding equity of the issuer. The portal must deny an issuer access to its Internet website if the portal has a reasonable basis for believing that:

(1) the issuer or any of its control persons is subject to a disqualification under §139.25 of this title (relating to Intrastate Crowdfunding Exemption) or under §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings);

(2) the issuer has engaged in, is engaging in, or the offering involves any act, practice, or course of business that will, directly or indirectly, operate as a fraud or deceit upon any person; or

(3) it cannot adequately or effectively assess the risk of fraud by the issuer or its potential offering.

(e) Recordkeeping.

(1) A Texas crowdfunding portal is not required to maintain the records listed in §115.5 of this title (relating to Minimum Records) or to maintain a supervisory system under §115.10 of this title (relating to Supervisory Requirements).

(2) A portal shall maintain and preserve for a period of five (5) years from either the date of the document or communication or the date of the closing or termination of the securities offering, whichever is later, the following records related to offers and sales made through the Internet website and to transactions where the portal receives compensation:

(A) records of compensation received for acting as a portal, including the name of the payor, the date of payment, name of the issuer, and name of the investor;

(B) copies of information provided by the portal to issuers offering securities through the portal, prospective purchasers, and investors;

(C) any agreements and/or contracts between the portal and an issuer, prospective purchaser, investor, bank or other depository institution;

(D) any information used to establish that an issuer, prospective purchaser, or investor is a Texas resident;

(E) any information used to establish that a prospective purchaser or investor is an accredited investor as defined in §107.2 of this title (relating to Definitions);

(F) any correspondence or other communications with issuers, prospective purchasers, and/or investors;

(G) any information made available through the portal's Internet website relating to an offering;

(H) ledgers (or other records) that reflect all assets and liabilities, income and expense, capital accounts, and escrow or segregated accounts; and

(I) any other records relating to the offers and/or sales of securities made through the Internet website.

(3) A portal shall maintain and preserve a copy of the Form 133.15 (relating to Texas Crowdfunding Portal Registration), Form 133.16 (relating to Texas Crowdfunding Portal Withdrawal of Registration), and the Form U-4 (Uniform Application for Securities Industry Registration or Transfer) used to register the portal and its designated officer, and any amendments thereto, for a period of five (5) years from the termination of the portal's registration.

(4) The records required to be maintained and preserved under this subsection may be archived if they are over two years old.

(5) A portal shall, upon written request of the Securities Commissioner, furnish to the Commissioner any records required to be maintained and preserved under this subsection.

(6) The portal shall provide to the Commissioner access, inspection, and review of any Internet website operated by a portal and records maintained by the portal; and

(7) The records required to be kept and preserved under this subsection must be maintained in a manner, including by any electronic storage media, that will permit the immediate location of any particular document so long as such records are available for immediate and complete access by representatives of the Commissioner. Any electronic storage system must preserve the records exclusively in a non-rewriteable, non-erasable format; verify automatically the quality and accuracy of the storage media recording process; serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media; and can download indexes and records preserved on electronic storage media to an acceptable medium. In the event that a records retention system commingles records required to be kept under this subsection with records not required to be kept, representatives of the Commissioner may review all commingled records.

(f) Filings.

(1) Application. In lieu of the application requirements in §115.2 of this title (relating to Application Requirements), a complete application for a Texas crowdfunding portal consists of the following and must be filed with the Securities Commissioner:

(A) Form 133.15, including all applicable schedules and supplemental information;

(B) Form U-4, for the designated officer and a Form U-4 for each agent to be registered (officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners);

(C) a copy of the articles of incorporation or other documents which indicate the form of organization, certified by the Texas Secretary of State or by an officer or partner of the applicant;

(D) any other information deemed necessary by the Commissioner to determine the financial responsibility, business repute, or qualifications of the portal; and

(E) the appropriate registration fee(s).

(2) Post-reporting requirements. A portal is subject to the dealer and agent requirements in §115.9 of this title (relating to Post-Registration Reporting Requirements).

(3) Renewal. Registration as a portal expires at the close of the calendar year, but subsequent registration for the succeeding year shall be issued upon written application and upon payment of the appropriate renewal fee(s), without filing of further statements or furnishing any further information unless specifically requested by the Commissioner.

History

• Source Note: The provisions of this §115.19 adopted to be effective November 17, 2014, 39 TexReg 8961; amended to be effective October 20, 2016, 41 TexReg 8195; amended to be effective June 12, 2018, 43 TexReg 3780.

7 Tex. Admin. Code § 115.20 Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Authorized small business development entity--An entity incorporated or organized under the laws of Texas and authorized to do business in Texas that is:

(A) a Type A corporation authorized under the Texas Local Government Code, Chapter 504;

(B) a Type B corporation authorized under Texas Local Government Code, Chapter 505;

(C) a Texas nonprofit organization authorized by an agency or authority of the federal government to distribute housing and community development block grants;

(D) a Texas municipal corporation;

(E) the Texas Veterans Commission; or

(F) a Texas nonprofit community development financial institution certified by the Community Development Financial Institutions Fund.

(2) Registered Small Business Development Entity--An Authorized Small Business Development Entity registered as a Texas crowdfunding portal under this section.

(3) Crowdfunding Web Portal--The Internet website of a Registered Small Business Development Entity through which offers and sales of securities exempt from registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings) are made.

(4) Third Party Operator--A third party that a Registered Small Business Development Entity subcontracts with pursuant to subsection (h) of this section.

(b) Securities offered and sold. A Registered Small Business Development Entity must limit the securities offered and sold on its Crowdfunding Web Portal to those of issuers located within its service area. Such securities must be exempt from securities registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings).

(c) Internet website. The Crowdfunding Web Portal must meet the requirements in §115.19(b) of this chapter (relating to Texas Crowdfunding Portal Registration and Activities).

(d) Prohibited activities. A Registered Small Business Development Entity shall not engage in the activities listed in §115.19(c) of this chapter (relating to Texas Crowdfunding Portal Registration and Activities), except that a Registered Small Business Development Entity is permitted to hold a financial interest in an issuer offering securities on its Crowdfunding Web Portal. A Registered Small Business Development Entity may not operate or facilitate a secondary market in securities offered and sold through its Crowdfunding Web Portal.

(e) Background and regulatory checks. A Registered Small Business Development Entity must meet the requirements in §115.19(d) of this chapter (relating to Texas Crowdfunding Portal Registration and Activities).

(f) Recordkeeping. A Registered Small Business Development Entity must meet the requirements in §115.19(e) of this chapter (relating to Texas Crowdfunding Portal Registration and Activities). In lieu of a copy of Form 133.15 (relating to Texas Crowdfunding Portal Registration), the Registered Small Business Development Entity must maintain a copy of Form 133.20 (relating to Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity).

(g) Filings.

(1) Application. In lieu of the application requirements in §115.2 of this title (relating to Application Requirements), a complete application of an Authorized Small Business Development Entity registering as a Texas crowdfunding portal consists of the following and must be filed with the Securities Commissioner:

(A) Form 133.20, including all applicable schedules and supplemental information;

(B) Form U-4, for the designated officer and a Form U-4 for each agent to be registered (officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners);

(C) a copy of the articles of incorporation or other documents which indicate the form of organization, certified by the Texas Secretary of State or by an officer or partner of the applicant;

(D) any other information deemed necessary by the Commissioner to determine the financial responsibility, business repute, or qualifications of the applicant; and

(E) the appropriate registration fee(s).

(2) Post-reporting requirements. A Registered Small Business Development Entity is subject to the dealer and agent requirements in §115.9 of this title (relating to Post-Registration Reporting Requirements).

(3) Renewal. The registration of a Registered Small Business Development Entity expires at the close of the calendar year, but subsequent registration for the succeeding year shall be issued upon written application and upon payment of the appropriate renewal fee(s), without filing of further statements or furnishing any further information unless specifically requested by the Commissioner.

(h) Subcontracting of portal operations. A Registered Small Business Development Entity may subcontract with a Third Party Operator to operate its Crowdfunding Web Portal under the following conditions:

(1) The Third Party Operator is located in Texas and authorized to do business in Texas;

(2) A written agreement is executed between the Registered Small Business Development Entity and the Third Party Operator specifying:

(A) the scope of work to be performed by the Third Party Operator;

(B) that the business offices and records reflecting the activities of the Crowdfunding Web Portal are located in Texas and those locations are identified in the written agreement; and

(C) the division of responsibility between the Registered Small Business Development Entity and the Third Party Operator for maintaining records and instituting procedures to comply with subsections (c), (d), and (e) of this section; and

(3) A copy of the written agreement required by paragraph (2) is filed with the Securities Commissioner a minimum of 10 days prior to the commencement of operations by the Third Party Operator of the Crowdfunding Web Portal;

(4) A Registered Small Business Development Entity registered as a Texas Crowdfunding Portal pursuant to this section is responsible for ensuring the Securities Commissioner is provided with access to the records and website as required by subsection (f) of this section and §115.19(e) of this chapter.

History

• Source Note: The provisions of this §115.20 adopted to be effective June 14, 2016, 41 TexReg 4251; amended to be effective June 12, 2018, 43 TexReg 3780.

7 Tex. Admin. Code § 115.21 System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Chapter 4004, Subchapter H

(a) System. Each dealer shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Chapter 4004, Subchapter H.

(b) Reporting. The report of suspected financial exploitation (complaint) required by the Texas Securities Act, §4004.352, must be made in writing to the Securities Commissioner. The complaint may be in the form of a letter or memorandum and submitted electronically, by facsimile, or any other method designed to assure its prompt receipt. A template for submitting the required information is available on the website of the Texas State Securities Board. The complaint shall include:

(1) the name, age, and address of the vulnerable adult;

(2) the name and address of any person responsible for the care of the vulnerable adult;

(3) the nature and extent of the condition of the vulnerable adult;

(4) the basis of the dealer's knowledge; and

(5) any other relevant information.

History

• Source Note: The provisions of this §115.21 adopted to be effective June 12, 2018, 43 TexReg 3780; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.22 Electronic Submission of Forms and Fees

(a) This section does not apply to forms or fees required by §115.2 of this chapter (relating to Application Requirements), to be submitted electronically through the CRD System.

(b) Documents and fees submitted by applicants for finder registration or for dealer and agent registration may, at the option of the filer, be submitted electronically to the Securities Commissioner.

(c) Filings made and fees paid may be submitted electronically, as the Agency's system is developed to accept them.

(d) All electronic submissions of forms or fees must be made in accordance with the submission procedures set out on the Agency's website (www.ssb.texas.gov). Please check the Agency's website for a complete list of forms and fees that are currently being accepted electronically.

History

• Source Note: The provisions of this §115.22 adopted to be effective November 12, 2019, 44 TexReg 6861; amended to be effective March 13, 2025, 50 TexReg 1804.

7 Tex. Admin. Code § 115.23 Notice of Cybersecurity Incident

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Cybersecurity incident--

(A) the unauthorized acquisition of computerized or electronic data that compromises the security, confidentiality, or integrity of sensitive personal information being maintained;

(B) an occurrence that otherwise jeopardizes the security of the information system or the information the system processes, stores or transmits; or

(C) violates the security policies, security procedures or acceptable use policies of the information system owner to the extent such occurrence results from unauthorized or malicious activity.

(2) Information system--a set of applications, services, information technology assets or other information-handling components organized for the collection, processing, maintenance, use, sharing, dissemination or disposition of electronic information, which is maintained by the dealer, an affiliate, or a third party service provider at the direction of the dealer.

(3) "Triggering event" means a cybersecurity incident regarding the information system maintained by or on behalf of the dealer, that will require:

(A) submission of a notice to a state or federal agency, law enforcement, or to a self-regulatory body; or

(B) sending a data breach notification to customers of the dealer under applicable state or federal law, including Business and Commerce Code, §521.053, or a similar law of another state.

(b) Notice to the Securities Commissioner. When a triggering event occurs that does or may affect customers or clients of the dealer located in Texas, the registered dealer must provide notice to the Securities Commissioner at the time the notice or notification identified in paragraph (3)(A) or (3)(B) of subsection (a) of this section occurs.

(c) Content of notice. The notice required by subsection (b) of this section is met by the registered dealer forwarding a copy of the notice or notification identified in paragraph (3)(A) or (3)(B) of subsection (a) of this section or other document containing substantially the same information. Additionally, if such information is available to the registered dealer at the time the notice is provided, the dealer should identify the number of customers located in Texas affected by the triggering event.

History

• Source Note: The provisions of this §115.23 adopted to be effective February 27, 2020, 45 TexReg 1219.

7 Tex. Admin. Code § 115.24 Adoption by Reference of Conduct Rules

(a) Each dealer or agent, as defined by §4001.052 or §4001.056 of the Securities Act, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interests of the dealer or agent making the recommendation ahead of the interest(s) of the retail customer. The best interest obligation shall be satisfied if the dealer or agent complies with the obligations set forth in SEC Regulation Best Interest (17 CFR §240.15l-1, as amended).

(b) Each dealer or agent shall also comply with any other applicable fair practice or ethical standard rule that is promulgated by FINRA, the SEC, the Commodity Futures Trading Commission (CFTC), or any self-regulatory organization approved by the SEC or the CFTC.

History

• Source Note: The provisions of this §115.24 adopted to be effective March 13, 2025, 50 TexReg 1804.

Chapter 116 INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

7 Tex. Admin. Code § 116.1 General Provisions

(a) Definitions. Words and terms used in this chapter are also defined in §107.2 of this title (relating to Definitions). The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise.

(1) Applicant--A person who submits an application for registration as an investment adviser or an investment adviser representative.

(2) Branch office--Any location where one or more representatives of an investment adviser regularly conduct investment advisory services or that is held out as such.

(A) This definition excludes:

(i) any location that is established solely for customer service and/or back office type functions where no advisory services are conducted and that is not held out to the public as a branch office;

(ii) any location that is the investment adviser representative's primary residence, provided that:

(I) only one investment adviser representative, or multiple representatives who reside at that location and are members of the same immediate family, conduct business at the location;

(II) the location is not held out to the public as an office and the investment adviser representative does not meet with customers at the location;

(III) neither customer funds nor securities are handled at that location;

(IV) the investment adviser representative is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, advertisements, and other communications to the public by such representative;

(V) the investment adviser representative's correspondence and communications with the public are subject to the investment adviser's supervision;

(VI) electronic communications (e.g., e-mail) are made through the investment adviser's electronic system;

(VII) all orders are entered through the designated branch office or an electronic system established by the investment adviser that is reviewable at the branch office;

(VIII) written supervisory procedures pertaining to supervision of investment advisory services conducted at the residence are maintained by the investment adviser; and

(IX) a list of the residence locations are maintained by the investment adviser;

(iii) any location, other than a primary residence, that is used for investment advisory services for less than 30 business days in any one calendar year, provided the investment adviser complies with the provisions of clause (ii)(II) - (VIII) of this subparagraph;

(iv) any office of convenience, where investment adviser representatives occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office;

(v) any location that is used primarily to engage in non-securities activities and from which the investment adviser representative(s) effects no more than 25 investment advisory services in any one calendar year; provided that any advertisement or sales literature identifying such location also sets forth the address and telephone number of the location from which the representative(s) conducting business at the non-branch locations are directly supervised; and

(vi) a temporary location established in response to the implementation of a business continuity plan.

(B) Notwithstanding the exclusions in subparagraph (A) of this paragraph, any location that is responsible for supervising the activities of persons associated with the investment adviser at one or more non-branch locations of the investment adviser is considered to be a branch office.

(C) The term "business day" shall not include any partial business day provided that the investment adviser representative spends at least four hours on such business day at his or her designated branch office during the hours that such office is normally open for business.

(3) Supervisor--The person named by the investment adviser to supervise the activities of a branch office and registered as an investment adviser representative.

(4) Control--The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or company, whether through the ownership of voting securities, by contract, or otherwise.

(5) In this state--

(A) A person renders services as an investment adviser "in this state" as set out in the Texas Securities Act, §4004.052, if either the person or the person's agent is present in this state or the client/customer or the client/customer's agent is present in this state at the time of the particular activity. A person can be an investment adviser in more than one state at the same time.

(B) Likewise, a person renders services as an investment adviser representative "in this state" as set out in the Texas Securities Act, §4004.102, whether by direct act or through subagents except as otherwise provided, if either the person or the person's agent is present in this state or the client/customer or the client/customer's agent is present in this state at the time of the particular activity. A person can be an investment adviser representative in more than one state at the same time.

(C) Rendering services as an investment adviser or as an investment adviser representative can be made by personal contact, mail, telegram, telephone, wireless, electronic communication, or any other form of oral or written communication.

(6) Investment adviser--A person who, for compensation, engages in the business of advising others, either directly or through publications or writings, with respect to the value of securities or to the advisability of investing in, purchasing, or selling securities or a person who, for compensation and as part of a regular business, issues or adopts analyses or a report concerning securities. The term does not include:

(A) a bank or a bank holding company, as defined by the Bank Holding Company Act of 1956 (12 U.S.C. §1841 et seq.), as amended, that is not an investment company;

(B) a lawyer, accountant, engineer, teacher, or geologist whose performance of the services is solely incidental to the practice of the person's profession;

(C) a dealer or agent who receives no special compensation for those services and whose performance of those services is solely incidental to transacting business as a dealer or agent;

(D) the publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation; or

(E) a person whose advice, analyses, or report does not concern a security other than a security that is:

(i) a direct obligation of or an obligation the principal or interest of which is guaranteed by the United States government, or

(ii) issued or guaranteed by a corporation in which the United States has a direct or indirect interest and designated by the United States Secretary of the Treasury under Securities Exchange Act of 1934, §3(a)(12), (15 U.S.C. §78c(a)(12)), as amended, as an exempt security for purposes of that Act.

(7) Investment adviser representative or representative of an investment adviser--Each person or company who, for compensation, is employed, appointed, or authorized by an investment adviser to solicit clients for the investment adviser or who, on behalf of an investment adviser, provides investment advice, directly or through subagents, to the investment adviser's clients. The term does not include a partner of a partnership or an officer of a corporation or other entity that is registered as an investment adviser under the Texas Securities Act solely because of the person's status as an officer or partner of that entity.

(8) Rendering services as an investment adviser--Any act by which investment advisory services are provided for compensation.

(9) Solicitor--Any investment adviser or investment adviser representative who limits their activities to referring potential clients to an investment adviser for compensation.

(10) Federal covered investment adviser--An investment adviser who is registered under the Investment Advisers Act of 1940 (15 U.S.C. §80b-1 et seq.), as amended. A federal covered investment adviser is not required to be registered pursuant to the Texas Securities Act.

(11) Registered investment adviser--An investment adviser who has been issued a registration certificate by the Securities Commissioner under the Texas Securities Act, §4004.054. (A federal covered investment adviser is not prohibited from being registered with the Securities Commissioner. If a federal covered investment adviser elects to register with the Securities Commissioner, it is subject to all of the registration requirements of the Act.)

(12) Officer--A president, vice president, secretary, treasurer, or principal financial officer, comptroller, or principal accounting officer, or any other person occupying a similar status or performing similar functions with respect to any organization or entity, whether incorporated or unincorporated.

(b) Registration of investment advisers and investment adviser representatives, and notice filings for branch offices.

(1) Requirements of registration or notice filing.

(A) Any person who renders services as an investment adviser, including acting as a solicitor, may not engage in such activity for compensation without first being registered as an investment adviser under the provisions of the Texas Securities Act or notice-filed under the provisions of paragraph (2) of this subsection. Likewise, every person employed or appointed, or authorized by such person to render services, which include the giving of investment advice or acting as a solicitor, cannot conduct such activities unless registered as an investment adviser or an investment adviser representative under the provisions of the Act, or notice-filed as an investment adviser or an investment adviser representative under the provisions of paragraph (2) of this subsection.

(B) Each branch office of a registered investment adviser in Texas must make a notice filing to become designated as a branch office of the investment adviser. A registered officer, partner, or investment adviser representative must be named as supervisor.

(2) Exemption from the registration requirements. The Board pursuant to the Texas Securities Act, §§4004.001 and 4005.024, exempts from the registration provisions of the Act, §§4004.052 and 4004.102, persons not required to register as an investment adviser or an investment adviser representative on or after July 8, 1997, by act of Congress in Public Law Number 104-290, Title III.

(A) Registration as an investment adviser is not required for the following:

(i) an investment adviser registered under the Investment Advisers Act of 1940, §203;

(ii) an investment adviser registered with the SEC pursuant to a rule or order adopted under the Investment Advisers Act of 1940, §203A(c);

(iii) a person not registered under the Investment Advisers Act of 1940, §203, because such person is excepted from the definition of an investment adviser under the Investment Advisers Act of 1940, §202(a)(11); or

(iv) an investment adviser who does not have a place of business located in this state and, during the preceding 12-month period, has had fewer than six clients who are Texas residents.

(B) Registration as an investment adviser representative of an investment adviser described in subparagraph (A) of this paragraph is not required for an investment adviser representative who does not have a place of business located in Texas but who otherwise engages in the rendering of investment advice in this state.

(C) Notice filing requirements and fees for investment advisers and investment adviser representatives, including solicitors, exempted from registration pursuant to this subsection only.

(i) Initially, the provisions of subparagraphs (A) and (B) of this paragraph are available provided that the investment adviser files:

(I) Form ADV and Form U-4 for each individual to be notice filed as an investment adviser representative or solicitor through the IARD designating Texas as a jurisdiction in which the filing is to be made; and

(II) an initial fee equal to the amount that would have been paid had the investment adviser and each investment adviser representative or solicitor filed for registration in Texas.

(ii) Annually, the investment adviser files renewal fees which would have been paid had the investment adviser and each investment adviser representative or solicitor been registered in Texas.

(c) Types of registrations.

(1) General registration. A general registration is a registration to render advisory services regarding all categories of securities, without limitation.

(2) Restricted registration. A restricted registration as an investment adviser or as an investment adviser representative may be issued based upon the qualifying examination(s) passed by the investment adviser or investment adviser representative.

(3) In restricted registration, the evidence of registration shall indicate that the holder thereof is entitled to act as an investment adviser, investment adviser representative, or solicitor only in the restricted capacity.

(d) Prohibition on fraud and availability of an exemption from registration. The Texas Securities Act prohibits fraud or fraudulent practices in dealing in any manner in any securities whether or not the person engaging in fraud or fraudulent practices is required to be registered or notice filed with the Securities Commissioner. The Agency has jurisdiction to investigate and bring enforcement actions to the full extent authorized in the Texas Securities Act with respect to fraud or deceit, or unlawful conduct by an investment adviser or investment adviser representative in connection with transactions involving securities in Texas. However, the registration requirements detailed in this chapter do not apply to investment advisers and investment adviser representatives that are exempt from registration as such pursuant to the Texas Securities Act, Chapter 4005, Subchapter A, or by Board rule pursuant to the Texas Securities Act, §4004.001 or §4005.024, contained in Chapters 109 or 139 of this title.

History

• Source Note: The provisions of this §116.1 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective March 6, 2002, 27 TexReg 1475; amended to be effective August 22, 2004, 29 TexReg 7968; amended to be effective January 8, 2006, 30 TexReg 8868; amended to be effective August 18, 2011, 36 TexReg 5094; amended to be effective December 21, 2011, 36 TexReg 8507; amended to be effective November 12, 2019, 44 TexReg 6861; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.2 Application Requirements

(a) Investment adviser and investment adviser representative application requirements. A complete application consists of the following:

(1) items filed electronically via the Investment Adviser Registration Depository (IARD), which is jointly operated by NASAA, the SEC, and FINRA, or items filed either in paper form or as provided in §116.22 of this chapter (relating to Electronic Submission of Forms and Fees) using the applicable uniform forms:

(A) Form ADV;

(B) Form U-4 for the designated officer and a Form U-4 for each investment adviser representative or solicitor to be registered;

(C) disclosure document or Part 2 of Form ADV; and

(D) the appropriate registration fee(s).

(2) items filed with the Securities Commissioner either in paper form or as provided in §116.22 of this chapter:

(A) a copy of articles of incorporation, certificate of formation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the jurisdiction or by an officer or partner of the applicant;

(B) a balance sheet prepared in accordance with United States generally accepted accounting principles reflecting the financial condition of the investment adviser as of a date not more than 90 days prior to the date of such filing. The balance sheet should be compiled, reviewed, or audited by independent certified public accountants or independent public accountants, or must instead be certified by the applicant's principal financial officer. If certified by the principal financial officer of the applicant, such officer shall make the certification on Form 133.18, Certification of Balance Sheet by Principal Financial Officer.

(C) a copy of the investment adviser's standard advisory contract;

(D) fee schedule; and

(E) any other information deemed necessary by the Securities Commissioner to determine an investment adviser's financial responsibility or an investment adviser's or investment adviser representative's business repute or qualification.

(b) Designated officer registration. Investment advisers, including an individual filing as a sole proprietor, must file a Form U-4 application for a designated officer to register in connection with the registration of the investment adviser. The investment adviser's designated officer must be an officer, partner, or the sole proprietor of the investment adviser and have completed the necessary registration and examination requirements. If the designated officer of an investment adviser, other than a sole proprietor, resigns or is otherwise removed from his or her position, the investment adviser shall make an application to register another officer or partner within 30 days.

(c) Branch office designation and inspection.

(1) An investment adviser may designate a branch office upon initial application of the investment adviser or by amendment to a current Form BR. No investment advisory activity may occur in any branch office location until such time as the investment adviser has notified the Securities Commissioner that such location will function as a branch office by submitting Form BR on CRD.

(2) Simultaneous with the designation of a branch office, a supervisor must be named for that branch office. The supervisor must satisfy the examination qualifications required of the investment adviser before the branch office is designated. A supervisor is responsible for supervision of the activities of the branch office. Within 10 business days after a supervisor ceases to be employed or registered in such capacity by the investment adviser, the investment adviser must designate a new supervisor, qualified by passage of the appropriate examinations, for the branch office.

(3) Each branch office of an investment adviser that is registered with the Commissioner is subject to unannounced inspections at any time during normal business hours.

(d) Automatic withdrawal of an investment adviser or investment adviser representative application for registration that has been pending for at least 90 days. If an application for investment adviser or investment adviser representative registration has been pending for at least 90 days and the applicant has failed to substantively respond to a written request for information sent by either electronic mail or by certified mail to the applicant's address as set forth in the application, an automatic withdrawal will occur. The written request must have advised the applicant that if a substantive response is not received within 30 days from the date of the request, the application will be withdrawn automatically. Regardless of how long an application has been pending, it may not be withdrawn automatically without sending notice of this subsection to the address set forth in the application and allowing the applicant 30 calendar days from the date of the notice to provide a substantive written response. A copy of this subsection and the most recent written request for information will be included with the notice.

(e) Investment Adviser Registration Depository (IARD). Uniform forms submitted through the IARD that designate Texas as a jurisdiction in which the filing is to be made are deemed to be filed with the Securities Commissioner and constitute official records of the Board.

History

• Source Note: The provisions of this §116.2 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective March 6, 2002, 27 TexReg 1475; amended to be effective January 8, 2006, 30 TexReg 8868; amended to be effective April 2, 2006, 31 TexReg 2846; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective March 9, 2011, 36 TexReg 1473; amended to be effective August 18, 2011, 36 TexReg 5095; amended to be effective October 6, 2015, 40 TexReg 6889; amended to be effective November 12, 2019, 44 TexReg 6861; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.3 Examination

(a) Requirement. To determine the applicant's qualifications and competency to engage in the business of rendering investment advice, the State Securities Board requires written examinations. Applicants must make a passing score on any required examination.

(b) Examinations accepted.

(1) Each applicant for registration as an investment adviser or investment adviser representative must pass:

(A) the NASAA Uniform Investment Adviser Law Examination (Series 65); or

(B) the following combination of examinations:

(i) a general securities representative examination as described in §115.3(b)(2) of this title (relating to Examination) or a limited examination as described in §115.3(b)(3) of this title; and

(ii) the NASAA Uniform Combined State Law Examination (Series 66), the Uniform Investment Advisers State Law Examination (Series, 65, as it existed and was administered on or before December 31, 1999), or an examination of the Texas Securities Act Administered by this Agency.

(2) The examinations (except the Texas Securities Act examination) listed in paragraph (1) of this subsection are administered by FINRA.

(c) Waivers of examination requirements.

(1) All persons who were registered in Texas on August 23, 1963, are not required to take any examinations.

(2) A full waiver of the examination requirements of the Texas Securities Act, §4004.151, is granted by the Board to the following classes of persons:

(A) a person who was registered as an investment adviser or investment adviser representative on or before December 31, 1999, provided the person has maintained a registration as an investment adviser or investment adviser representative with any state securities administrator that has not lapsed for more than two years from the date of the last registration;

(B) applicants who are certified by the CFA Institute, or its predecessors, the Association for Investment Management and Research, the Financial Analysts Federation, or the Institute of Chartered Financial Analysts, to be chartered financial analysts (CFA);

(C) applicants who are certified by the Certified Financial Planner Board of Standards, Inc., to use the mark "CERTIFIED FINANCIAL PLANNER" (CFP);

(D) applicants who are designated by the American Institute of Certified Public Accountants as accredited personal financial specialists (PFS);

(E) applicants who are designated by the Investment & Wealth Institute as Certified Investment Management Analysts (CIMA);

(F) applicants who are designated by the American College of Financial Services as chartered financial consultants (ChFC);

(G) a person who completed the required examinations, but whose registration has lapsed for more than two years and who has been continually employed in a securities-related position with an entity which was not required to be registered; and

(H) a person who completed the required examinations and whose registration with another state securities regulator has not lapsed for more than two years.

(3) The following classes of persons are granted a partial waiver by the Board of the examination requirements of §4004.151 of the Act and subsection (a) of this section:

(A) NASAA Exam Validity Extension Program ("EVEP"). Applicants who previously took and passed the NASAA qualification examinations accepted in subsection (b) of this section whose registration with another state securities regulator has not lapsed for more than five years who have participated in the EVEP and have maintained compliance with the EVEP requirements are granted a waiver of the NASAA qualification examination requirements of this section.

(B) FINRA Maintaining Qualifications Program ("MQP"). Applicants whose registration with FINRA and with another state securities regulator have not lapsed for more than five years, who have participated in the MQP and maintained compliance with the MQP requirements are granted a waiver of the corresponding appropriate FINRA qualifying examinations requirement(s) in this section.

(C) FINRA Examination Waivers. Applicants who have received a waiver of any examination requirement(s) by FINRA, are granted a waiver of the corresponding examination requirement(s) in this section.

(D) Successful participation in the MQP shall not extend to the Series 65 or Series 66 for purposes of investment adviser representative registration.

(4) A partial waiver of the examination requirements of the Texas Securities Act, §4004.151, is granted by the Board to solicitor applicants. Such persons are required to pass only an examination on state securities law.

(5) The Securities Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151.

(d) Texas securities law examination.

(1) The fee for each filing of a request to take the Texas securities law examination is $35. An admission letter issued by the Board is required for all entrants. The examination is given at the main office of the State Securities Board in Austin and at the Agency's branch offices.

(2) While taking the examination on the Texas Securities Act, each applicant may use an unmarked copy of the Texas Securities Act as it is printed and distributed by the State Securities Board. No other reference materials are allowed to be used by applicants during the examination.

(3) The passing score for all applicants on the examination on the Texas Securities Act is 70%. An applicant who fails the examination on the Texas Securities Act may request to retake the examination no sooner than after one week from the date of the examination. The applicant must bring his or her application up to date before retaking an examination.

(4) Disability accommodations. The Texas securities law examination shall be administered to applicants with disabilities in compliance with the Americans with Disabilities Act of 1990, as amended ("ADA").

(A) Any applicant with a disability who wishes to request disability accommodations must submit to the Securities Commissioner a Form 133.3, ADA Accommodations Request Form, that has been completed and signed by the applicant and includes supporting documentation from a licensed or certified health professional appropriate for diagnosing and treating the disability, at least 60 days prior to the examination. A prior history of receiving disability accommodations, without demonstration of a current need, will not necessarily warrant approval of disability accommodations.

(B) The Securities Commissioner may request additional documentation to substantiate a request for disability accommodations.

(C) Documentation shall not be older than three years from the date of submission.

(D) All medical records provided to the Securities Commissioner are confidential under the Health Insurance Portability and Accountability Act ("HIPAA").

(E) The Securities Commissioner is not required to approve every request for disability accommodations or to provide every accommodation or service requested. The Securities Commissioner is not required to grant a request for disability accommodations if doing so would fundamentally alter the measurement of knowledge or the measurement of skill intended to be tested by the Texas securities law examination, would affect the security of the examination, or would create an undue financial or administrative burden.

(F) Once disability accommodations have been granted, they may not be altered during the examination unless prior approval of the Securities Commissioner is obtained.

(5) Information about taking the examination and how to apply to take the examination in Austin or at an Agency branch office is available on the Agency's website located at www.ssb.texas.gov or by contacting the Registration Division of the State Securities Board.

History

• Source Note: The provisions of this §116.3 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective July 14, 2005, 30 TexReg 3989; amended to be effective February 21, 2008, 33 TexReg 1319; amended to be effective December 21, 2011, 36 TexReg 8508; amended to be effective June 13, 2012, 37 TexReg 4186; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.4 Evidences of Registration

(a) Issuance. An evidence of registration or certificate of registration shall be issued for each registered investment adviser reflecting the registered officer or partner.

(b) Amendments. Any changes in the information reflected on the evidence of registration must be submitted to the Securities Commissioner within 30 days of such change. An amendment fee, in the amount set forth in the Texas Securities Act, §4006.054, is required to amend the evidence of registration.

(c) Successions.

(1) Succession by application.

(A) If a succession results in a surviving entity that is not currently registered as an investment adviser, the successor entity must file a new application, including the fees, as required in §116.2 of this chapter (relating to Application Requirements). Such a succession may include, but is not limited to, any of the following that results in either a change in control of the beneficial owners, or a change in management:

(i) a merger;

(ii) a consolidation;

(iii) an acquisition; or

(iv) a reorganization.

(B) A complete application for the successor entity should be filed far enough in advance, but no later than thirty (30) days after succession, so the application can be reviewed and approved prior to the successor entity taking over the business of the predecessor investment adviser. If a successor entity has taken over the business of a predecessor investment adviser before the application of the successor entity has been reviewed and approved, the registration of the successor entity will be automatically granted a temporary registration for 60 days from the date of succession to complete the registration for the new entity. If the successor entity fails to complete the registration requirements within the 60-day temporary registration period, it may submit a written request to the Securities Commissioner to grant an extension of the temporary registration for up to 30 additional days. If the Commissioner, in the exercise of his or her discretion, declines to grant the extension request, the registration will terminate for the investment adviser and all its investment adviser representatives on the expiration of the 60-day temporary registration. Any investment advisory services rendered by the investment adviser and/or its investment adviser representatives after termination of the temporary registration are subject to the sanctions provided by the Texas Securities Act for rendering investment advice while unregistered.

(C) Upon registration of the successor entity, the registration of the predecessor investment adviser will be terminated.

(2) Succession by amendment.

(A) When a succession does not result in a change in control of the beneficial owners or management, or does not result in any acquisition or assumption of substantially all of the assets and liabilities of the predecessor investment adviser, the successor entity may file an amendment in lieu of filing a new application. Such a succession may include, but is not limited to, any of the following:

(i) an internal corporate reorganization or restructuring;

(ii) a conversion;

(iii) a change in the form of business; or

(iv) a change in the composition of a partnership that does not result in change of control of the partnership.

(B) The provisions in subsection (b) of this section apply to successions by amendment.

(3) All procedures set forth in this subsection shall also apply to investment advisers and investment adviser representatives who have submitted a notice filing and fee to the Securities Commissioner.

(d) Termination. An investment adviser is required to notify the Securities Commissioner upon termination of any registered investment adviser representative from its employ. Upon receipt of such notification, the Securities Commissioner may terminate the registration. Investment advisers must file a Form U-5, Uniform Termination Notice for Securities Industry Registration, through the IARD to comply with this subsection.

(e) Renewal.

(1) Procedures for renewing expired and unexpired registrations are set forth in the Texas Securities Act, Chapter 4004, Subchapter F, and §4004.304.

(2) A notice of impending expiration of registration (renewal application) will be sent by IARD to a currently registered investment adviser. The renewal application should be filed through IARD, along with the appropriate fee.

(3) If a person's registration is not renewed in a timely manner because such person is a military service member, as defined in §116.18(a) of this chapter (relating to Special Provisions Relating to Military Applicants), such person may renew the registration pursuant to the provisions of §116.18(e).

History

• Source Note: The provisions of this §116.4 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective January 8, 2006, 30 TexReg 8868; amended to be effective November 8, 2012, 37 TexReg 8787; amended to be effective February 24, 2016, 41 TexReg 1224; amended to be effective November 12, 2019, 44 TexReg 6861; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.5 Minimum Records

(a) Records to be made by investment advisers. Persons registered as investment advisers whose principal place of business is located in another state shall maintain records at least in accordance with the minimum record-keeping requirements of that state. Persons registered as investment advisers whose principal place of business is located in Texas shall make and keep current the following minimum records or the equivalent thereof:

(1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.

(2) General and auxiliary ledgers, (or other comparable records) reflecting asset, liability, reserve capital, income and expense accounts.

(3) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any such order or instruction. Such memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed such order; and shall show the account for which entered, the date of entry, and the bank, broker, or dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of discretionary power shall be so designated.

(4) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to funds, securities, or transactions of any client.

(5) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommending the purchase or sale of a specific security, which the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than investment supervisory clients or persons connected with such investment adviser), and if such notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication does not state the reasons for such recommendation, a memorandum of the investment adviser indicating the reasons therefor.

(6) In the case of any client receiving investment supervisory or management service, to the extent that the information is reasonably available to or obtainable by the investment adviser, records showing separately for that client:

(A) the client's current position in any security; and

(B) all securities purchased and sold and the date, amount, and price of each purchase and sale.

(7) In the case of an investment adviser who has custody or possession of the funds or securities of any client:

(A) a journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) for such accounts and other debits and credits to such accounts;

(B) a separate ledger account for each such client showing all purchases, sales, receipts, and deliveries of securities, the date and price of each such purchase and sale, and all debits and credits;

(C) copies of confirmations of all transactions effected by or for the account of any such client; and

(D) a record for each security in which any client has a position, which record shall show the name of each such client having any interest in each security, the amount or interest of each such client, and the location of each such security.

(8) A record of every transaction in a security in which the investment adviser or any investment adviser representative has, or by reason of such transaction acquires any direct or indirect beneficial ownership, except:

(A) transactions effected in any account over which neither the investment adviser nor any investment adviser representative has any direct or indirect influence or control; and

(B) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale, or other acquisition or disposition); the price at which it was effected; and the name of the broker, dealer, or bank with or through whom the transaction was effected. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

(9) For each client, a record listing the client's:

(A) birth year;

(B) employment status, including occupation;

(C) annual income;

(D) net worth, excluding the value of the client's primary residence;

(E) investment objectives; and

(F) risk tolerance.

(10) For accounts in existence on the effective date of this section, the investment adviser must obtain the information required in paragraph (9) of this subsection within one year of January 1, 2012, and thereafter must update this information for each client at intervals not greater than 36 months.

(11) The internal control report that an investment adviser is required to obtain or receive from its related person, pursuant to §116.17(b)(6)(B).

(12) A memorandum describing the basis upon which the investment adviser has determined that the presumption that any related person is not operationally independent under §116.17(a)(7) has been overcome.

(13) a file containing all the information required to be retained pursuant to SEC Rule 204-2(a)(11) (17 CFR §275.204-2(a)(11), as amended).

(b) Records to be preserved by investment advisers.

(1) Persons registered as investment advisers in Texas shall preserve all records required pursuant to subsection (a) of this section for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an easily accessible place.

(2) Persons registered as investment advisers in Texas shall preserve for a period of not less than three years from the end of the fiscal year during which the last entry was made on such record, the first two years in an easily accessible place:

(A) all checkbooks, bank statements, cancelled checks, and cash reconciliations of the investment adviser;

(B) all bills or statements (or copies thereof) paid or unpaid, relating to the business of the investment adviser as such;

(C) all trial balances, financial statements, and internal audit working papers relating to the business of such investment adviser;

(D) originals of all written communications received and copies of all written communications sent by such investment adviser relating to:

(i) any recommendation made or proposed to be made and any advice given or proposed to be given;

(ii) any receipt, disbursement, or delivery of funds or securities; or

(iii) the placing or execution of any order to purchase or sell any security. Provided, however, that the investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser, and that if the investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent; except that if such notice, circular, or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of such notice, circular, or advertisement a memorandum describing the list and the source thereof;

(E) all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser or copies thereof;

(F) all written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such; and

(G) all complaints received from investment clients, and all documents relating to such complaints.

(3) Persons registered as investment advisers in Texas shall preserve for at least three years after the termination of the enterprise partnership articles and any amendments thereto, articles of incorporation, certificates of formation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor.

(4) If a person ceases to be registered as an investment adviser in Texas, such person shall, for the remainder of the time period specified in this section, continue to preserve the records required in this section.

(5) The records required to be maintained and preserved pursuant to this section may be immediately produced or reproduced on microfilm or other photograph and may be maintained and preserved for the required time in that form, provided that such microfilms or other photographs are arranged and indexed in such a manner as to permit the immediate location of any particular document, and that such microfilms or other photographs are at all times available for examination by representatives of the Securities Commissioner together with facilities for immediate, easily readable projection of the microfilm or other photograph and for the production of easily readable facsimile enlargements.

(c) The records required to be maintained pursuant to this section may be maintained by any electronic storage media available so long as such records are available for immediate and complete access by representatives of the Securities Commissioner. Any electronic storage media must preserve the records exclusively in a non-rewriteable, non-erasable format; verify automatically the quality and accuracy of the storage media recording process; serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media; and have the capacity to download indexes and records preserved on electronic storage media to an acceptable medium. In the event that a records retention system commingles records required to be kept under this section with records not required to be kept, representatives of the Securities Commissioner may review all commingled records.

(d) The Securities Commissioner has a right to review all records maintained by registered investment advisers regardless of whether such records are required to be maintained under any specific applicable rule provision.

History

• Source Note: The provisions of this §116.5 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective August 18, 2011, 36 TexReg 5095; amended to be effective December 21, 2011, 36 TexReg 8509; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.6 Registration of Persons with Criminal Backgrounds

(a) An application for registration may be denied, or a registration may be revoked or suspended, if the Securities Commissioner finds that the person has been convicted of any felony, or of a misdemeanor offense that directly relates to its duties and responsibilities. In determining whether a misdemeanor conviction directly relates to such duties and responsibilities, the Securities Commissioner shall consider each of the following factors:

(1) the nature and seriousness of the crime;

(2) the relationship of the crime to the purposes for requiring registration of investment advisers and investment adviser representatives;

(3) the extent to which the registration applied for might offer an opportunity to engage in further criminal activity of the same type as that in which the applicant previously had been involved;

(4) the relationship of the crime to the ability or capacity required to perform the duties and discharge the responsibilities of a registered investment adviser or investment adviser representative; and

(5) any correlation between the elements of the crime and its duties and responsibilities.

(b) After the Securities Commissioner has determined the criminal conviction directly relates to the duties and responsibilities of the license, the Securities Commissioner shall consider the following evidence in determining whether the person is eligible for a license issued by the Agency:

(1) The extent and nature of the person's past criminal activity.

(2) The age of the applicant at the time of the commission of the crime.

(3) The amount of time that has elapsed since the applicant's last criminal activity.

(4) The conduct and work activity of the applicant prior to and following the criminal activity.

(5) Evidence of the applicant's rehabilitation or rehabilitative effort while incarcerated or following release.

(6) Evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision.

(7) Other evidence of the applicant's present fitness, including letters of recommendation, may be provided and considered, including letters from prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the applicant; the sheriff and chief of police in the community where the applicant resides; and any other persons in contact with the applicant.

(8) It shall be the responsibility of the applicant to the extent possible to secure and provide to the Securities Commissioner the letters of recommendation described by paragraph (7) of this subsection.

(c) The State Securities Board considers that the following crimes directly relate to the duties and responsibilities of investment advisers and investment adviser representatives:

(1) any criminal violation of which fraud is an essential element or that involves wrongful taking or possession of property or services;

(2) any criminal violation of the securities laws or regulations of this state, or of any other state in the United States, or of the United States, or any foreign jurisdiction;

(3) any criminal violation of statutes designed to protect consumers against unlawful practices involving insurance, securities, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services; and

(4) any criminal violation involving an assault on a person.

(d) Prior to filing an application, a person may request a preliminary evaluation of license eligibility from the State Securities Board by following the procedure set out in §104.7 of this title (relating to Preliminary Evaluation of License Eligibility) and paying the requisite fee.

(e) Prior to taking any action under subsection (a) of this section to deny any application for registration, the State Securities Board shall comply with the notification requirements of Texas Occupations Code, §53.0231 Notice of Pending Denial of License, and §53.051.

(f) Prior to taking any action under subsection (a) of this section to revoke or suspend any application for registration, the State Securities Board shall comply with the notification requirements of Texas Occupations Code, §53.051.

(g) State Auditor Applicant Best Practices Guide.

(1) The State Securities Board provides a link on its website to the Applicant Best Practices Guide, which is published by the state auditor as required by Texas Occupations Code, §53.026. This guide sets forth best practices for an applicant with a prior conviction to use when applying for a license.

(2) In each notice to deny, revoke, or suspend a registration or to deny a person the opportunity be examined for a registration, the State Securities Board shall include a link to the guide as described in paragraph (1) of this subsection.

History

• Source Note: The provisions of this §116.6 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective March 28, 2010, 35 TexReg 2549; amended to be effective November 12, 2019, 44 TexReg 6864; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.7 Maintenance and Inspection of Records

(a) The Securities Commissioner, without notice, may inspect a registered investment adviser as necessary to ensure compliance with the Texas Securities Act and Board rules.

(b) The Commissioner or his or her authorized representative, during regular business hours, may:

(1) enter the business premises of a registered investment adviser; and

(2) examine and copy books and records pertinent to the inspection.

(c) During the inspection, the investment adviser shall:

(1) provide to the Commissioner or the Commissioner's authorized representative immediate and complete access to the person's office, place of business, files, safe, and any other location in which books and records pertinent to the inspection are located; and

(2) allow the Commissioner or the Commissioner's authorized representative to make photostatic or electronic copies of books or records subject to inspection.

(d) An investment adviser may not charge a fee for copying information under this section.

(e) The Commissioner or his or her authorized representative may require that all records required to be maintained pursuant to Board rules or maintained in the normal course of business of the investment adviser be made available in any office of the State Securities Board designated by the Commissioner or his or her representative within 48 hours of a request or within a greater time period as the Commissioner or his or her authorized representative deems reasonable.

History

• Source Note: The provisions of this §116.7 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582.

7 Tex. Admin. Code § 116.8 Fee Requirements

(a) Registration and notice filing fees. Information about registration and notice filing fees for original and renewal applications for investment adviser and investment adviser representatives or solicitors of an investment adviser is available on the Agency's website located at www.ssb.texas.gov or by contacting the Registration Division of the State Securities Board.

(b) Reduced fees for certain persons registered in multiple capacities.

(1) In general. A person may request reduced fees under paragraph (2) of this subsection, provided they are registered or are seeking registration in Texas:

(A) as either an agent of a securities dealer or as a sole proprietor securities dealer; and

(B) as either an investment adviser representative of an investment adviser that has less than five investment adviser representatives or as a sole proprietor investment adviser with less than five investment adviser representatives.

(2) Procedure. Persons meeting the requirements of paragraph (1) of this subsection may request reduced registration fees by filing Form 133.36, Request for Reduced Fees for Certain Persons Registered in Multiple Capacities. Form 133.36 must be filed at the time the original application for investment adviser representative or sole proprietor investment adviser registration is filed, or at least 30 days before the person's existing investment adviser representative or sole proprietor investment adviser registration will expire. On review of Form 133.36, the Securities Commissioner may, in his or her discretion, grant or deny the request for reduced fees or direct the person to supply additional information

(3) Reduced fees. If the Securities Commissioner grants a person's request, the person must pay all applicable fees for registration as a dealer or dealer's agent as specified in the Texas Securities Act, §4006.001, but is exempt from the fees specified in the Texas Securities Act, §4006.001, in connection with original and renewal applications for registration as an investment adviser representative or sole proprietor investment adviser, as applicable at the time Form 133.36 is filed. The reduction in fees granted by the Securities Commissioner under this subsection shall continue in force, without any further filings, as long as a person remains registered in a multiple capacity status.

(c) Reduced fees for sole proprietor investment advisers. A person seeking registration in multiple capacities as a sole proprietor investment adviser and as the designated officer of that sole proprietor investment adviser shall pay only the fee required in connection with the original or renewal application for registering as a sole proprietor investment adviser.

(d) Fees for concurrent registrations. Notwithstanding the Texas Securities Act, Chapter 4006, a person shall pay only one fee required under that section to engage in business in this state concurrently for the same person or company as:

(1) a dealer and an investment adviser; or

(2) an agent and an investment adviser representative.

(e) Waiver of initial application fee and examination fee for certain military applicants. A military applicant who meets the requirements in §116.18(c) of this chapter (relating to Special Provisions Relating to Military Applicants) is eligible to have his or her initial application fee in Texas and the fee to take the Texas Securities Law Examination waived or refunded by following the procedure set out in §116.18(c).

History

• Source Note: The provisions of this §116.8 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective February 24, 2004, 29 TexReg 1644; amended to be effective August 18, 2011, 36 TexReg 5095; amended to be effective February 24, 2016, 41 TexReg 1224; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.9 Post-Registration Reporting Requirements

(a) Each person registered as an investment adviser shall report to the Securities Commissioner within 30 days after its occurrence or entry against the registered person or an investment adviser representative thereof, the matters described in this subsection. Likewise, each person registered as an investment adviser representative shall report to the Commissioner within 30 days after its occurrence or entry against the investment adviser representative the matters described in this subsection. The following matters must be reported:

(1) any administrative order issued by state or federal authorities, which order:

(A) is based upon a finding that such person has engaged in fraudulent conduct; or

(B) was entered after notice and opportunity for a hearing, denying, suspending, or revoking the person's registration as an investment adviser, investment adviser representative, dealer, or agent, or the substantial equivalent of those terms;

(2) any felony criminal action or conviction;

(3) any action or conviction of a misdemeanor offense that directly relates to the person's duties and responsibilities as an investment adviser or investment adviser representative, including any criminal violation listed in §116.6(c) of this chapter (relating to Registration of Persons with Criminal Backgrounds);

(4) any order, judgment, or decree entered by any court of competent jurisdiction which temporarily or permanently restrains or enjoins such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving any false filing with any state; or which restrains or enjoins such person from activities subject to federal or state statutes designed to protect consumers against unlawful or deceptive practices involving insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;

(5) any expulsion, bar, suspension, censure, fine, or penalty imposed by a self-regulatory organization;

(6) any change in any other information previously disclosed to the Securities Commissioner on any application form or filing, including change of legal status; and

(7) the filing of any voluntary or involuntary bankruptcy petition.

(b) Upon request by the Securities Commissioner, an investment adviser or investment adviser representative is required to furnish to the Commissioner copies of the order, conviction, or decrees, or other documents which evidence events disclosable pursuant to subsection (a) of this section.

(c) For purposes of this section an "investment adviser" shall include any partners, directors, executive officers, or beneficial owners of 10% or more of any class of the equity securities of an investment adviser (beneficial ownership meaning the power to vote or direct the vote of and/or the power to dispose or direct the disposition of such securities).

(d) Each person registered as an investment adviser shall update the Form ADV Part 2 or disclosure document as part of any amendment or annual updating amendment. For purposes of this subsection, "annual updating amendment" means an amendment to an investment adviser's Form ADV filed within 90 days after an investment adviser's fiscal year end that is used to update the responses to any other item for which the information is no longer accurate.

History

• Source Note: The provisions of this §116.9 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective March 9, 2011, 36 TexReg 1473; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.10 Supervisory Requirements

Each registered investment adviser shall establish, maintain, and enforce a system to supervise the activities of its investment adviser representatives that is reasonably designed to achieve compliance with the Texas Securities Act, Board rules, and all applicable securities laws and regulations. Supervisory systems must be written and available for inspection in either print or electronic format.

History

• Source Note: The provisions of this §116.10 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective July 14, 2005, 30 TexReg 3989; amended to be effective August 16, 2010, 35 TexReg 7050.

7 Tex. Admin. Code § 116.11 Disclosure Requirement/Brochure Rule

All registered investment advisers must deliver to all clients or prospective clients a written disclosure statement that may be:

(1) either Part 2 of Form ADV, Uniform Application for Investment Adviser Registration, or another disclosure statement which contains at least the information disclosed on Part 2 of Form ADV as effective on October 12, 2010 (17 Code of Federal Regulations §279.1); or

(2) a disclosure statement containing at least the information required by Part 2A Appendix 1 and Part 2B of Form ADV, Uniform Application for Investment Adviser Registration, if the investment adviser is the sponsor, or the sponsor and the portfolio manager, of a wrap fee program that the client will enter into.

(3) The disclosure statement shall be delivered to a client or prospective client either:

(A) not less than 48 hours prior to entering into any written or oral investment advisory contract with such client or prospective client; or

(B) at the time of entering into any such contract, if the advisory client has the right to terminate the contract without penalty within five business days after entering into the contract.

(4) On an annual basis, the Part 2 of Form ADV or other disclosure statement satisfying the requirements of paragraph (1) or (2) of this section must be provided to all customers, or in the alternative, the investment adviser must offer the client the right to receive such Part 2 of Form ADV or other disclosure statement.

History

• Source Note: The provisions of this §116.11 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective March 9, 2011, 36 TexReg 1473; amended to be effective April 7, 2013, 38 TexReg 2098.

7 Tex. Admin. Code § 116.12 Advisory Contract Requirements

(a) The advisory contract must contain the following language: "Client acknowledges receipt of Part 2 of Form ADV; a disclosure statement containing the equivalent information; or a disclosure statement containing at least the information required by Part 2A Appendix 1 of Form ADV, if the client is entering into a wrap fee program sponsored by the investment adviser. If the appropriate disclosure statement was not delivered to the client at least 48 hours prior to the client entering into any written or oral advisory contract with this investment adviser, then the client has the right to terminate the contract without penalty within five business days after entering into the contract. For the purposes of this provision, a contract is considered entered into when all parties to the contract have signed the contract, or, in the case of an oral contract, otherwise signified their acceptance, any other provisions of this contract notwithstanding."

(b) Investment advisers are free to provide a time period longer than five business days for penalty-free termination by their clients. If the client chooses to terminate the contract within the five business day period, the adviser can only charge for fees incurred prior to the termination excluding administrative fees, account set-up fees, and minimum quarterly fees.

(c) The advisory contract must contain a provision that prohibits the assignment of the contract by the adviser without the written consent of the client.

(d) Nothing in this section shall relieve an investment adviser from any obligation pursuant to any provision of the Investment Advisers Act of 1940 or the rules and regulations thereunder or other federal case law, interpretative opinions, and administrative actions by the SEC (as in existence on April 8, 1997) or state law to disclose any information to its clients not specifically required by this section.

History

• Source Note: The provisions of this §116.12 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective March 9, 2011, 36 TexReg 1473.

7 Tex. Admin. Code § 116.13 Advisory Fee Requirements

(a) Any registered investment adviser who wishes to charge 3.0% or greater of the assets under management must disclose that such fee is in excess of the industry norm and that similar advisory services can be obtained for less.

(b) Any registered investment adviser who wishes to charge a fee based on a share of the capital gains or the capital appreciation of the funds or any portion of the funds of a client must comply with SEC Rule 205-3 (17 Code of Federal Regulations §275.205-3), which permits the use of such fee if the client is a "qualified client" as defined therein.

History

• Source Note: The provisions of this §116.13 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective April 3, 2012, 37 TexReg 2166.

7 Tex. Admin. Code § 116.14 Prevention of Misuse of Nonpublic Information

All investment advisers registered under the Texas Securities Act are required to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information.

History

• Source Note: The provisions of this §116.14 adopted to be effective August 12, 2001, 26 TexReg 5799.

7 Tex. Admin. Code § 116.15 Adoption by Reference of Investment Adviser Marketing Rules

The antifraud provisions of the Texas Securities Act prohibit an investment adviser from using any advertisement that contains any untrue statement of material fact or that is otherwise misleading. The prohibition would include any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio, television, Internet, the World Wide Web, or similar proprietary or common carrier electronic systems, that offers any service as an investment adviser. Specifically, a registered investment adviser shall not publish, circulate, or distribute any advertisement which does not comply with SEC Rule 206(4)-1 (17 CFR §275.206(4)-1, as amended) under the Investment Advisers Act of 1940.

History

• Source Note: The provisions of this §116.15 adopted to be effective August 12, 2001, 26 TexReg 5799; amended to be effective November 26, 2001, 26 TexReg 9582; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.16 Use of Senior-Specific Certifications and Professional Designations

(a) The use of a senior specific certification or designation by any person in connection with the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in such a way as to mislead any person shall be an inequitable practice within the meaning of the Texas Securities Act, §4007.105(a)(3). The prohibited use of such certifications or professional designation includes, but is not limited to, the following:

(1) use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use such certification or designation;

(2) use of a nonexistent or self-conferred certification or professional designation;

(3) use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification or professional designation does not have; and

(4) use of a certification or professional designation that was obtained from a designating or certifying organization that:

(A) is primarily engaged in the business of instruction in sales and/or marketing;

(B) does not have reasonable standards or procedures for assuring the competency of its designees or certificants;

(C) does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or

(D) does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.

(b) There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of subsection (a)(4) of this section when the organization has been accredited by:

(1) The American National Standards Institute;

(2) The National Commission for Certifying Agencies; or

(3) an organization that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

(c) In determining whether a combination of words (or an acronym standing for a combination of words) constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees, factors to be considered shall include:

(1) use of one or more words such as "senior," "retirement," "elder," or like words, combined with one or more words such as "certified," "registered," "chartered," "adviser," "specialist," "consultant," "planner," or like words, in the name of the certification or professional designation; and

(2) the manner in which those words are combined.

(d) For purposes of this rule, a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency, when that job title:

(1) indicates seniority or standing within the organization; or

(2) specifies an individual's area of specialization within the organization.

(e) For purposes of subsection (d) of this section, "financial services regulatory agency" includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940.

(f) Nothing in this rule shall limit the Securities Commissioner's authority to enforce existing provisions of law.

History

• Source Note: The provisions of this §116.16 adopted to be effective October 30, 2008, 33 TexReg 8762; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.17 Custody of Funds or Securities of Clients by Registered Investment Advisers

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Audit--when used in regard to financial statements, an examination of the financial statements by an independent accountant in accordance with generally accepted auditing standards, as may be modified or supplemented by the Board, for the purpose of expressing an opinion thereon.

(2) Control--the power, directly or indirectly, to direct the management or policies of a person, whether through ownership of securities, by contract, or otherwise. Control includes:

(A) each of the investment adviser's officers, partners, or directors exercising executive responsibility (or persons having similar status or functions) is presumed to control the firm;

(B) a person is presumed to control a corporation if the person:

(i) directly or indirectly has the right to vote 25% or more of a class of the corporation's voting securities; or

(ii) has the power to sell or direct the sale of 25% or more of a class of the corporation's voting securities;

(C) a person is presumed to control a partnership if the person has the right to receive upon dissolution, or has contributed, 25% or more of the capital of the partnership;

(D) a person is presumed to control a limited liability company if the person:

(i) directly or indirectly has the right to vote 25% or more of a class of the interests of the limited liability company;

(ii) has the right to receive upon dissolution, or has contributed, 25% or more of the capital of the limited liability company; or

(iii) is an elected manager of the limited liability company; or

(E) a person is presumed to control a trust if the person is a trustee or managing agent of the trust.

(3) Custody--holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them. The investment adviser has custody if a related person holds, directly or indirectly, client funds or securities, or has any authority to obtain possession of them, in connection with advisory services the investment adviser provides to clients. Custody includes:

(A) possession of client funds or securities (but not of checks drawn by clients and made payable to third parties) unless the investment adviser receives them inadvertently and returns them to the sender promptly but in any case within three business days of receiving them;

(B) any arrangement (including a general power of attorney) under which the investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the investment adviser's instruction to the custodian; and

(C) any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or its supervised person legal ownership of or access to client funds or securities.

(4) Independent public accountant--a public accountant that meets the standards of independence described in Securities and Exchange Commission, Rule 2-01(b) and (c) of Regulation S-X (17 CFR §210.2-01(b) and (c)) as existed on April 1, 2010.

(5) Independent representative--a person that:

(A) acts as agent for an advisory client, including in the case of a pooled investment vehicle, for limited partners of a limited partnership (or members of a limited liability company, or other beneficial owners of another type of pooled investment vehicle) and by law or contract is obliged to act in the best interest of the advisory client or the limited partners (or members, or other beneficial owners);

(B) does not control, is not controlled by, and is not under common control with the investment adviser; and

(C) does not have, and has not had within the past two years, a material business relationship with the investment adviser.

(6) Open-end company--a management company which is offering for sale or has outstanding any redeemable security of which it is the issuer.

(7) Operationally independent--for purposes of subsection (c)(6) of this section, a related person is presumed not to be operationally independent unless each of the following conditions is met and no other circumstances can reasonably be expected to compromise the operational independence of the related person:

(A) client assets in the custody of the related person are not subject to claims of the adviser's creditors;

(B) advisory personnel do not have custody or possession of, or direct or indirect access to client assets of which the related person has custody, or the power to control the disposition of such client assets to third parties for the benefit of the adviser or its related persons, or otherwise have the opportunity to misappropriate such client assets;

(C) advisory personnel and personnel of the related person who have access to advisory client assets are not under common supervision; and

(D) advisory personnel do not hold any position with the related person or share premises with the related person.

(8) Qualified custodian--

(A) a bank as defined in the Investment Advisers Act of 1940, §202(a)(2), or a savings association as defined in the Federal Deposit Insurance Act, §3(b)(1), that has deposits insured by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act;

(B) a broker-dealer registered under the Securities Exchange Act of 1934, §15(b)(1), holding the client assets in customer accounts;

(C) a futures commission merchant registered under the Commodity Exchange Act, §4f(a), holding the client assets in customer accounts, but only with respect to clients' funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery and options thereon; and

(D) a foreign financial institution that customarily holds financial assets for its customers, provided that the foreign financial institution keeps the advisory clients' assets in customer accounts segregated from its proprietary assets.

(9) Related person--any person, directly or indirectly, controlling or controlled by the investment adviser, and any person that is under common control with the investment adviser.

(b) Safekeeping required. No registered investment adviser may have custody of client funds or securities unless:

(1) Qualified custodian. A qualified custodian maintains those funds and securities:

(A) in a separate account for each client under that client's name; or

(B) in accounts that contain only the investment adviser's clients' funds and securities, under the investment adviser's name as agent or trustee for the clients.

(2) Notice to clients. If the investment adviser opens an account with a qualified custodian on behalf of the client, either under the client's name or under the investment adviser's name as agent, the investment adviser notifies the client in writing of the qualified custodian's name, address, and the manner in which the funds or securities are maintained, promptly when the account is opened and following any changes to this information. If the investment adviser sends account statements to a client to which the investment adviser is required to provide this notice, the investment adviser includes in the notification provided to that client and in any subsequent account statement the investment adviser sends that client, a statement urging the client to compare the account statements from the custodian with those from the investment adviser.

(3) Account statements to clients. The investment adviser has a reasonable basis, after due inquiry, for believing that the qualified custodian sends an account statement, at least quarterly, to each of the investment adviser's clients for which it maintains funds or securities, identifying the amount of funds and of each security in the account at the end of the period and setting forth all transactions in the account during that period.

(4) Independent verification. The client funds and securities of which the investment adviser has custody are verified by actual examination at least once during each calendar year, except as provided below, by an independent public accountant, pursuant to a written agreement between the investment adviser and the accountant, at a time that is chosen by the accountant without prior notice or announcement to the investment adviser and that is irregular from year to year. The written agreement must provide for the first examination to occur within six months of becoming subject to this paragraph, except that, if the investment adviser maintains client funds or securities pursuant to this section as a qualified custodian, the agreement must provide for the first examination to occur no later than six months after obtaining the internal control report. The written agreement must require the accountant to:

(A) file a certificate on Form ADV-E with the Securities Commissioner within 120 days of the time chosen by the accountant in paragraph (4) of this subsection, stating that it has examined the funds and securities and describing the nature and extent of the examination;

(B) upon finding any material discrepancies during the course of the examination, notify the Securities Commissioner within one business day of the finding, by means of a facsimile transmission or electronic mail, followed by first class mail, directed to the attention of the Director of the Inspections and Compliance Division; and

(C) upon resignation or dismissal from, or other termination of, the engagement, or upon removing itself or being removed from consideration for being reappointed, file with the Securities Commissioner within four business days Form ADV-E accompanied by a statement that includes:

(i) the date of such resignation, dismissal, removal, or other termination, and the name, address, and contact information of the accountant; and

(ii) an explanation of any problems relating to examination scope or procedure that contributed to such resignation, dismissal, removal, or other termination.

(5) Special rule for limited partnerships and limited liability companies. If the investment adviser or a related person is a general partner of a limited partnership (or managing member of a limited liability company, or holds a comparable position for another type of pooled investment vehicle), the account statements required under paragraph (3) of this subsection must be sent to each limited partner (or member or other beneficial owner).

(6) Investment advisers acting as qualified custodians. If the investment adviser maintains, or if the investment adviser has custody because a related person maintains, client funds or securities pursuant to this subsection as a qualified custodian in connection with advisory services the investment adviser provides to clients:

(A) the independent public accountant the investment adviser retains to perform the independent verification required by paragraph (4) of this subsection must be registered with, and subject to regular inspection as of the commencement of the professional engagement period, and as of each calendar year-end, by, the Public Company Accounting Oversight Board in accordance with its rules; and

(B) the investment adviser must obtain, or receive from the investment adviser's related person, within six months of becoming subject to this paragraph and thereafter no less frequently than once each calendar year a written internal control report prepared by an independent public accountant:

(i) the internal control report must include an opinion of an independent public accountant as to whether controls have been placed in operation as of a specific date, and are suitably designed and are operating effectively to meet control objectives relating to custodial services, including the safeguarding of funds and securities held by either the investment adviser or a related person on behalf of the investment adviser's clients, during the year;

(ii) the independent public accountant must verify that the funds and securities are reconciled to a custodian other than the investment adviser or the investment adviser's related person; and

(iii) the independent public accountant must be registered with, and subject to regular inspection as of the commencement of the professional engagement period, and as of each calendar year-end, by, the Public Company Accounting Oversight Board in accordance with its rules.

(7) Independent representatives. A client may designate an independent representative to receive, on his or her behalf, notices and account statements as required under paragraphs (2) and (3) of this subsection.

(c) Exceptions.

(1) Shares of an open-end company. With respect to shares of an open-end company (as defined in this section), the investment adviser may use the open-end company's transfer agent in lieu of a qualified custodian for purposes of complying with subsection (b) of this section.

(2) Certain privately offered securities.

(A) The investment adviser is not required to comply with subsection (b)(1) of this section with respect to securities that are:

(i) acquired from the issuer in a transaction or chain of transactions not involving any public offering;

(ii) uncertificated, and ownership thereof is recorded only on the books of the issuer or its transfer agent in the name of the client; and

(iii) transferable only with prior consent of the issuer or holders of the outstanding securities of the issuer.

(B) Notwithstanding subparagraph (A) of this paragraph, the provisions of this paragraph are available with respect to securities held for the account of a limited partnership (or a limited liability company, or other type of pooled investment vehicle) only if the limited partnership is audited, and the audited financial statements are distributed, as described in paragraph (4) of this subsection.

(3) Fee deduction. Notwithstanding subsection (b)(4) of this section, the investment adviser is not required to obtain an independent verification of client funds and securities maintained by a qualified custodian if:

(A) the investment adviser has custody of the funds and securities solely as a consequence of the investment adviser's authority to make withdrawals from client accounts to pay its advisory fee; and

(B) if the qualified custodian is a related person, the investment adviser can rely on paragraph (6) of this subsection.

(4) Limited partnerships subject to annual audit. The investment adviser is not required to comply with subsection (b)(2) and (b)(3) of this section and the investment adviser shall be deemed to have complied with subsection (b)(4) of this section with respect to the account of a limited partnership (or limited liability company, or another type of pooled investment vehicle) that is subject to audit (as defined in this section):

(A) at least annually and distributes its audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners) within 120 days of the end of its fiscal year;

(B) by an independent public accountant that is registered with, and subject to regular inspection as of the commencement of the professional engagement period, and as of each calendar year-end, by, the Public Company Accounting Oversight Board in accordance with its rules; and

(C) upon liquidation and distributes its audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners) promptly after the completion of such audit.

(5) Registered investment companies. The investment adviser is not required to comply with this section with respect to the account of an investment company registered under the Investment Company Act of 1940.

(6) Certain related persons. Notwithstanding subsection (b)(4) of this section, the investment adviser is not required to obtain an independent verification of client funds and securities if:

(A) the investment adviser has custody under this rule solely because a related person holds, directly or indirectly, client funds or securities, or has any authority to obtain possession of them, in connection with advisory services the investment adviser provides to clients; and

(B) the investment adviser's related person is operationally independent of the investment adviser.

(d) Delivery to related person. Sending an account statement under subsection (b)(5) of this section or distributing audited financial statements under subsection (c)(4) of this section shall not satisfy the requirements of this section if such account statements or financial statements are sent solely to limited partners (or members or other beneficial owners) that themselves are limited partnerships (or limited liability companies, or another type of pooled investment vehicle) and are the investment adviser's related persons.

History

• Source Note: The provisions of this §116.17 adopted to be effective December 21, 2011, 36 TexReg 8510.

7 Tex. Admin. Code § 116.18 Special Provisions Relating to Military Applicants

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Current registration--A registration or license that is:

(A) issued by another state, the District of Columbia, or a territory of the United States that has registration requirements that are similar in scope of practice to the requirements for a Texas registration in the same capacity;

(B) in good standing; and

(C) in the same capacity as the application for registration in Texas.

(2) Good standing--For purposes of this section, a person's registration is in good standing with another state's licensing authority if the person:

(A) has a registration that is current, has not been suspended or revoked, and has not been voluntarily surrendered during an investigation for unprofessional conduct;

(B) has not been disciplined by the licensing authority with respect to the registration or person's practice of the occupation for which the registration is granted; and

(C) is not currently under investigation by the licensing authority for unprofessional conduct related to the person's registration or profession.

(3) Military spouse--A person who is married to a military service member.

(4) Military service member--A person who is on active duty.

(5) Military veteran--A person who has served on active duty and who was discharged or released from active duty.

(6) Active duty--Current full-time military service in the armed forces of the United States or active duty military service as a member of the Texas military forces, as defined by Government Code, §437.001, or similar military service of another state.

(7) Armed forces of the United States--The Army, Navy, Air Force, Space Force, Coast Guard, or Marine Corps of the United States or a reserve unit of one of those branches of the armed forces.

(8) Military applicant--A military spouse, military service member, or military veteran.

(b) Expedited review of an application submitted by a military applicant as authorized by Occupations Code, §§55.004, 55.005, and 55.006.

(1) A military applicant may use the procedure set out in this subsection if the military applicant:

(A) holds a current registration in another jurisdiction; or

(B) has been registered in Texas in the same capacity within the five years preceding the date of the application for registration.

(2) If the military applicant is not registered within five business days of submitting an application, the military applicant may request special consideration of his or her application for registration by filing Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the Securities Commissioner. Within five business days of receipt of the completed Form 133.4, the military applicant shall be registered.

(3) In addition to the waivers of examination requirements set out in §116.3 of this title (relating to Examination), the Commissioner in his or her discretion is authorized by the Board to grant full or partial waivers of the examination requirements of the Texas Securities Act, §4004.151, on a showing of alternative demonstrations of competency to meet the requirements for obtaining the registration sought.

(4) A military applicant proceeding under this subsection may be registered despite having pending and/or deficient items ("deficiencies"). The deficiencies will be communicated to the military applicant in writing or by electronic means within five business days from approval of the registration.

(5) The deficiencies noted at the time the registration is granted must be resolved by the military applicant within a 12 month period. Failure to resolve outstanding deficiencies will cause the registration granted under this subsection or any renewal of such registration to automatically terminate 12 months after the date the registration was initially granted pursuant to this subsection.

(c) Waiver or refund of initial application fee and Texas Securities Law Examination fee for a military applicant as authorized by Occupations Code, §55.009.

(1) To qualify for a fee waiver or refund, the military applicant must submit Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the applicant's registration application.

(2) To request a waiver or refund of a fee previously paid, the applicant must submit Form 133.19, Waiver or Refund Request by a Military Applicant.

(A) If requesting a waiver of the fee to take the Texas Securities Law Examination, Form 133.19 must be submitted when filing the request to take the Texas Securities Law Examination.

(B) If requesting a waiver of the initial application fee, Form 133.19 must be submitted with the initial application.

(C) If requesting a refund of the initial application fee or Texas Securities Law Examination fee that was paid in error, Form 133.19 must be submitted within four years from the date the fee was collected or received.

(d) Registration of persons with military experience as authorized by Occupations Code, §55.007.

(1) An applicant who is a military service member or military veteran may request special consideration of verified military service, training, or education towards registration requirements, other than an examination requirement, for the registration sought by submitting Form 133.4, Request for Consideration of a Registration Application by a Military Applicant, with the applicant's registration application.

(2) The procedure authorized by this subsection is not available to a military service member or military veteran who:

(A) is registered in another jurisdiction but such registration is not in good standing; or

(B) has been convicted of a crime that could be the basis for denial of the registration pursuant to the Texas Securities Act, §4007.105.

(e) Renewals by military service members, as authorized by Occupations Code, §55.002 and §55.003. If a military service member's registration is not renewed in a timely manner, the military service member may renew the registration pursuant to this subsection.

(1) Renewal of the registration may be requested by the military service member, the military service member's spouse, or an individual having power of attorney from the military service member. The renewal application shall include a current address and telephone number for the individual requesting the renewal.

(2) Renewal may be requested before or within two years after expiration of the registration.

(3) A copy of the official orders or other official military documentation showing that the military service member is or was on active duty shall be submitted to the Securities Commissioner along with the renewal application.

(4) A copy of the power of attorney from the military service member, if any, shall be filed with the Securities Commissioner along with the renewal application if the individual having the power of attorney executes any of the documents required in this subsection.

(5) A renewal application submitted to the Securities Commissioner pursuant to this subsection shall be accompanied by the applicable renewal fee set out in §116.8 of this title (relating to Fee Requirements).

(6) The State Securities Board will not assess any increased fee or other penalty against the military service member for failure to timely renew the registration if it is established to the satisfaction of the Securities Commissioner that all requirements of this subsection have been met.

(f) Other provisions in this chapter.

(1) Unless specifically allowed in this section, an applicant must meet the requirements for registration or renewal specified in this chapter. This includes the requirement that certain filings be made electronically through the IARD.

(2) A one-year period, instead of the 90-day period contained in §116.2 of this title (relating to Application Requirements), will apply to the automatic withdrawal of an application for which a Form 133.4 is properly filed.

(g) Additional information. An applicant receiving special consideration pursuant to this section in connection with a registration application or renewal shall provide any other information deemed necessary by the Commissioner. Such information may include, but is not limited to documentation:

(1) demonstrating status as a military spouse, service member, or military veteran;

(2) to determine whether the applicant meets licensing requirements through some alternative method;

(3) relating to prior military service, training, or education that may be credited towards a registration requirement; or

(4) to determine an investment adviser's financial responsibility or an investment adviser's or investment adviser representative's business repute or qualifications.

(h) Recognition of out-of-state license or registration of an individual who is either a military service member or a military spouse as authorized by Occupations Code, §55.0041.

(1) An individual who is a resident of Texas and who is either a military service member or a military spouse may use the procedures set out in this subsection if the individual holds a current registration in another jurisdiction.

(2) The period covered by this subsection is only for the time during which the military service member is stationed at a military installation in Texas. In the case of a military spouse, the period covered by this subsection is for the time that the military spouse is a resident of Texas and is married to his or her respective military service member who is a military service member stationed at a military installation in Texas. Notwithstanding, if the individual is a military spouse, in the event of a divorce or other event that affects the individual's status as a military spouse, the recognition period covered by this subsection for such former spouse may continue until the third anniversary of the date the former spouse submitted the form and other documentation required by paragraph (4) of this subsection.

(3) Option 1: registration in Texas, or a notice filing made pursuant to §116.1(b)(2) of this chapter, with waiver or refund of the initial filing fee and renewal fees. If the individual is registered or notice filed in Texas, for all or part of the period set out in paragraph (2) of this subsection, the individual may request a waiver or refund of a fee previously paid.

(A) The initial filing fee may be waived or refunded by following the procedure set out in subsection (c) of this section, including filing Form 133.19, Waiver or Refund Request by a Military Applicant.

(B) A renewal fee may be waived by submitting Form 133.22, Waiver or Refund Request by a Military Service Member or Military Spouse for a Renewal Fee, at the time the renewal is submitted. A refund of a renewal fee that was paid in error, is requested by submitting Form 133.22 within four years from the date the fee was collected or received.

(4) Option 2: recognition of out of state registration without Texas registration, or notice filing pursuant to §116.1(b)(2) of this chapter. Upon confirmation under subparagraph (C) or (D) of this paragraph, the individual will be considered to be notice filed in Texas. Such notice filing expires at the end of the calendar year.

(A) An individual may engage in activity without a license or registration under the authority of Occupations Code, §55.0041, and this paragraph, only for the period specified in paragraph (2) of this subsection.

(B) An individual who becomes ineligible under Occupations Code, §55.0041, or paragraph (1) or (2) of this subsection must notify the Securities Commissioner of such ineligibility within 30 days and immediately cease activity until such time as the individual is registered in Texas, or makes a notice filing pursuant to §116.1(b)(2) of this chapter, in the appropriate capacity to conduct activity in Texas.

(C) Before engaging in an activity in Texas requiring registration, or a notice filing pursuant to §116.1(b)(2) of this chapter, the individual must initially:

(i) submit to the Securities Commissioner:

(I) Form 133.23, Request for Recognition of Out-Of-State License or Registration Pursuant to Occupations Code §55.0041;

(II) a copy of the member's military orders showing relocation to Texas;

(III) a copy of the individual's marriage license if the applicant is a military spouse; and

(IV) a notarized affidavit as required by Occupations Code §55.0041(b), included as part of Form 133.23, which affirms under penalty of perjury that the applicant is the person described and identified in the form; all statements in the application are true, correct, and complete; the applicant understands the scope of practice for the applicable registration in this state and will not perform outside that scope of practice; and the applicant is in good standing in each state in which the applicant holds or has held an applicable registration.

(ii) receive notification that the Registration Division has recognized the individual's license in another jurisdiction, which the Registration Division shall provide such notice no later than the 10th business day after the date the individual submits the information required by subparagraph (C)(i) of this paragraph.

(D) To continue to conduct business in Texas without registration, or a notice filing pursuant to §116.1(b)(2) of this chapter, under Option 2, the individual must renew recognition annually on the same schedule as renewals of registration. This enables the Registration Division to determine that the individual remains eligible under Occupations Code, §55.0041, to continue to conduct securities activities in Texas without being registered.

(i) A renewal is made by submitting the same documents identified in subparagraph (C)(i) of this paragraph.

(ii) A renewal is not effective until the Registration Division receives the documents identified in subparagraph (C)(i) of this paragraph.

(E) An individual proceeding under this paragraph shall be recognized despite having pending and/or deficient items ("deficiencies"). The deficiencies will be communicated to the individual in writing or by electronic means within five business days from the date of the notice of recognition under this paragraph. Such deficiencies must be resolved by the individual within a 12-month period. Failure to resolve outstanding deficiencies will cause the recognition granted under this paragraph or any renewal of such recognition to automatically terminate 12 months after the date the individual was notified of the recognition pursuant to this paragraph.

(i) The purpose of this section is to establish procedures authorized by Texas Occupations Code, Chapter 55, and is not intended to modify or alter rights that may be provided under federal law.

History

• Source Note: The provisions of this §116.18 adopted to be effective June 13, 2012, 37 TexReg 4186; amended to be effective March 1, 2014, 39 TexReg 493; amended to be effective February 24, 2016, 41 TexReg 1224; amended to be effective November 12, 2019, 44 TexReg 6865; amended to be effective November 21, 2021, 46 TexReg 7781; amended to be effective April 7, 2024, 49 TexReg 2065; amended to be effective March 26, 2026, 51 TexReg 1822.

7 Tex. Admin. Code § 116.21 System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Chapter 4004, Subchapter H

(a) System. Each investment adviser shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Chapter 4004, Subchapter H.

(b) Reporting. The report of suspected financial exploitation (complaint) required by the Texas Securities Act, §4004.352, must be made in writing to the Securities Commissioner. The complaint may be in the form of a letter or memorandum and submitted electronically, by facsimile, or any other method designed to assure its prompt receipt. A template for submitting the required information is available on the website of the Texas State Securities Board. The complaint shall include:

(1) the name, age, and address of the vulnerable adult;

(2) the name and address of any person responsible for the care of the vulnerable adult;

(3) the nature and extent of the condition of the vulnerable adult;

(4) the basis of the investment adviser's knowledge; and

(5) any other relevant information.

History

• Source Note: The provisions of this §116.21 adopted to be effective June 12, 2018, 43 TexReg 3781; amended to be effective March 13, 2025, 50 TexReg 1809.

7 Tex. Admin. Code § 116.22 Electronic Submission of Forms and Fees

(a) This section does not apply to forms or fees required by §116.2 of this chapter (relating to Application Requirements), to be submitted electronically through the IARD System or the CRD System.

(b) Documents and fees submitted by applicants for investment adviser and investment adviser representative registration or notice filing may, at the option of the filer, be submitted electronically to the Securities Commissioner.

(c) Filings made and fees paid by investment advisers or investment adviser representatives may be submitted electronically, as the Agency's system is developed to accept them.

(d) All electronic submissions of forms or fees must be made in accordance with the submission procedures set out on the Agency's website (www.ssb.texas.gov). Please check the Agency's website for a complete list of forms and fees that are currently being accepted electronically.

History

• Source Note: The provisions of this §116.22 adopted to be effective November 12, 2019, 44 TexReg 6868.

7 Tex. Admin. Code § 116.23 Notice of Cybersecurity Incident

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Cybersecurity incident--

(A) the unauthorized acquisition of computerized or electronic data that compromises the security, confidentiality, or integrity of sensitive personal information being maintained;

(B) an occurrence that otherwise jeopardizes the security of the information system or the information the system processes, stores or transmits; or

(C) violates the security policies, security procedures or acceptable use policies of the information system owner to the extent such occurrence results from unauthorized or malicious activity.

(2) Information system--a set of applications, services, information technology assets or other information-handling components organized for the collection, processing, maintenance, use, sharing, dissemination or disposition of electronic information, which is maintained by the investment adviser, an affiliate, or a third party service provider at the direction of the investment adviser.

(3) "Triggering event" means a cybersecurity incident regarding the information system maintained by or on behalf of the investment adviser, that will require:

(A) submission of a notice to a state or federal agency, law enforcement, or to a self-regulatory body; or

(B) sending a data breach notification to customers of the investment adviser under applicable state or federal law, including Business and Commerce Code, §521.053, or a similar law of another state.

(b) Notice to the Securities Commissioner. When a triggering event occurs that does or may affect customers or clients of the investment adviser located in Texas, the registered investment adviser must provide notice to the Securities Commissioner at the time the notice or notification identified in paragraph (3)(A) or (3)(B) of subsection (a) of this section occurs.

(c) Content of notice. The notice required by subsection (b) of this section is met by the registered investment adviser forwarding a copy of the notice or notification identified in paragraph (3)(A) or (3)(B) of subsection (a) of this section or other document containing substantially the same information. Additionally, if such information is available to the registered investment adviser at the time the notice is provided, the investment adviser should identify the number of customers located in Texas affected by the triggering event.

History

• Source Note: The provisions of this §116.23 adopted to be effective February 27, 2020, 45 TexReg 1219.

Chapter 123 ADMINISTRATIVE GUIDELINES FOR REGISTRATION OF OPEN-END INVESTMENT COMPANIES

7 Tex. Admin. Code § 123.3 Conditional Exemption for Money Market Funds

(a) Introduction.

(1) Certain open-end investment companies commonly known as money market funds have investment characteristics and sales patterns materially different from other types of mutual funds and other securities. These funds, defined in subsection (b) of this section, are designed to attract a large volume of comparatively short-term investments by purchasers. As early redemptions are contemplated by both purchaser and seller, and because these funds continuously offer to repurchase their own securities and issue new securities to new and repeat investors, an excessive amount of fees may be paid under the Texas Securities Act, §4006.055, for the securities issued. Therefore, pursuant to the Act, §4005.024, the State Securities Board conditionally exempts from the fee provisions of the Texas Securities Act certain investment company securities defined herein provided all the requirements of this section are satisfied.

(2) Nothing in this section shall be construed to relieve any open-end investment company from any condition or requirement of registration under the Texas Securities Act except as specifically stated herein or in Chapter 114 of this title (relating to Federal Covered Securities).

(b) Definition. In this section, a "money market fund" or "fund" is an open-end investment company which must meet all of the following conditions.

(1) The fund must engage in a continuous offering of its securities.

(2) The fund must hold itself out to be a money market fund or an equivalent to a money market fund and must be in compliance with the Investment Company Act of 1940, Rule 2a-7 (17 CFR §270.2a-7, as amended).

(3) The fund must not pay or charge sales commissions or redemption fees except nominal exchange fees which may not be used for sales expenses or in lieu of initial sales charges or redemption fees.

(4) The fund's total charges against net assets for sales distribution activities and/or the servicing of shareholder accounts must not be in excess of .25% of average net assets per annum.

(5) With the exception of mergers, consolidations, or acquisitions of assets, or as noted in paragraph (6) of this subsection, the fund's investments in other investment companies must be limited to:

(A) 10% of the fund's total assets;

(B) other investment companies with substantially similar investment objectives; and

(C) other investment companies with charges and fees substantially similar to those set forth in paragraphs (3) and (4) of this subsection.

(6) In the case of a master/feeder fund structure:

(A) feeder fund(s) must meet, or invest in a master fund which meets, paragraphs (1)-(4) of this subsection;

(B) when viewed together, the master/feeder fund(s) must meet paragraphs (3) and (4) of this subsection; and

(C) all feeder funds must have investment objectives substantially similar to those of the master fund.

(7) A currently authorized fund which has been granted money market status is not required to comply with this subsection until the fund files its Year-End Report of Sales of Federal Covered Securities by a Money Market Fund on Form 133.27, but it is required to comply with the subsection as it was in effect at the time that the fund was designated a money market fund for purposes of this section.

(c) Request for determination.

(1) At the time an applicant submits documents or fees in connection with an authorization to sell federal covered securities, or at any time thereafter, the applicant may request the Securities Commissioner determine that the issuer is a money market fund as defined in this section. The request shall be made in writing on Form 133.26 of this title (relating to Request for Determination of Money Market Fund Status for Federal Covered Securities). The Securities Commissioner shall review the request and any other information the Securities Commissioner deems relevant to the determination of whether the issuer is a money market fund for purposes of this section.

(2) If the request is made after the issuance of the fund's original authorization, an amendment fee as prescribed by the Texas Securities Act, §4006.001(1) will be required. Additional sales information will be required since only the federal covered securities authorized and sold after the date the Securities Commissioner determines that the issuer is a money market fund will be subject to the reduced fees under subsection (d) of this section.

(d) Conditional exemption. Subject to the other provisions of this section, federal covered securities issued by money market funds are exempt from the fee imposed by the Texas Securities Act, §4006.055, provided all of the following requirements are satisfied at the time of sale of the federal covered securities.

(1) An applicant has requested that the Securities Commissioner determine that the issuer is a money market fund as defined in this section.

(2) The Securities Commissioner has determined that the issuer is a money market fund as defined in this section.

(3) For each filing of an original, renewal, or amended authorization under the conditional exemption provided by this section, the applicant has paid the filing fee required by the Act, §4006.001(1), in addition to the reduced fee imposed by paragraph (5) of this subsection.

(4) During the current calendar year, the fund has an aggregate authorized amount of $10 million of federal covered securities for sale in Texas.

(5) The fund has paid the reduced authorization fee imposed by this paragraph for the aggregate amount of federal covered securities proposed to be sold during the current calendar year under this conditional exemption. The reduced authorization fee imposed by this paragraph for authorization of federal covered securities in excess of the first $10 million aggregate amount of securities sold is:

(A) for the next $10 million of federal covered securities authorized, 1/20 of 1.0% of the aggregate amount to be sold;

(B) for the next $30 million of federal covered securities authorized, 1/50 of 1.0% of the aggregate amount to be sold;

(C) for the next $50 million of federal covered securities to be authorized, 1/100 of 1.0% of the aggregate amount to be sold; and

(D) 1/200 of 1.0% of the aggregate amount on the remainder of the federal covered securities authorized to be sold.

(e) Oversales. The reduced authorization fee schedule imposed by subsection (d)(5) of this section shall not apply to any federal covered securities authorized under the Act, §4006.151. All fees paid for authorization of federal covered securities of money market funds pursuant to §4006.151 shall be computed as set forth in the Act, §§4006.001(1), 4006.055, and 4006.151.

(f) Unsold balance at end of calendar year. In any calendar year, the fees required to be paid by a fund for sales that year will be calculated under subsection (d)(4) and (5) of this section without regard to the amount of fees paid or federal covered securities sold in any other year. If, at the end of any calendar year a money market fund has a remaining unsold balance of federal covered securities authorized to be sold, the dollar amount of fees paid under subsection (d) of this section for authorization of the unsold balance may be reapplied to fees required in the next calendar year, but no unsold balance of authorized but unsold federal covered securities will be carried forward to the subsequent calendar year.

(g) Year end reports. To qualify for the reduced fees accorded to a fund granted money market fund status pursuant to this section, the fund must file a year end report of sales on Form 133.27 of this title (relating to Year-End Report of Sales of Federal Covered Securities by a Money Market Fund) in January of each year which reflects the amount of federal covered securities sold in the previous year, the balance of fees paid for authorization of any unsold balance in the previous year and the recalculated balance of authorized federal covered securities at the beginning of the current year. In calculating fees applied to sales during the previous year, fees will first be applied at the higher rates specified in the reduced fee schedule in subsection (d)(5) of this section, and then at more reduced rates as sales volume increases, and not vice versa. Funds should consult Form 133.27 in determining how to compute fees.

(h) Effect of noncompliance. If at any time the business or plan of business of any fund has been altered so that it is no longer a money market fund within subsection (b) of this section, such an issuer shall not be entitled to any reduction of fees as provided in subsection (d)(5) of this section. Such fund shall not be entitled to any reduction in fees as provided in subsection (d)(5) of this section for any sales of its securities from the time at which it ceases to comply with subsection (b) of this section until the Securities Commissioner redetermines in a subsequent calendar year that the issuer is again a money market fund as defined in subsection (b) of this section, and instead fees shall be calculated for such issuer as provided in the Act, Chapter 4006, Subchapters A, B, and D.

(i) Appeals. If any person should take exception to an action of the Securities Commissioner in making, failing to make, or revoking a determination whether that person is a money market fund, the aggrieved person may appeal the decision of the Securities Commissioner as provided in the Act, §4007.107.

(j) Effect of a prior determination. A fund offering federal covered securities, that was determined to be a money market fund prior to October 11, 1996, will continue to be considered a money market fund for purposes of this section without the necessity of submitting a new request for determination, so long as the fund continues to meet the definition of a "money market fund" in subsection (b) of this section.

History

• Source Note: The provisions of this §123.3 adopted to be effective September 1, 1979, 4 TexReg 2901; amended to be effective February 2, 1983, 8 TexReg 281; amended to be effective December 20, 1993, 18 TexReg 9093; amended to be effective June 8, 1994, 19 TexReg 4196; amended to be effective April 8, 1997, 22 TexReg 3227; amended to be effective February 24, 2004, 29 TexReg 1644; amended to be effective June 14, 2016, 41 TexReg 4251; amended to be effective April 7, 2024, 49 TexReg 2065.

Chapter 125 MINIMUM DISCLOSURES IN CHURCH AND NONPROFIT INSTITUTION BOND ISSUES

7 Tex. Admin. Code § 125.1 Introduction

In order to be fair, just, and equitable to, and not tend to work a fraud upon, purchasers of securities, those offering for sale or selling securities issued by churches and similar nonprofit institutions should comply with the following guidelines for minimum information to be communicated to each prospective investor.

History

• Source Note: The provisions of this §125.1 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.2 Name

The name of the security being offered must be disclosed.

History

• Source Note: The provisions of this §125.2 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.3 The Issuer

Background information on the issuer must be given, including the following.

(1) The name, address, state in which organized, date organized, the type of legal entity, and purposes of the issuer.

(2) A brief history of the issuer, and its denominational affiliation, if any.

(3) A description of the general area and location of the issuer.

(4) Accreditation and regulation of the issuer, if any.

(5) A brief summary of the backgrounds of the key employees and those individuals responsible for the management and control of the issuer. In the case of religious organizations, a brief summary of the background of the minister or ministers and name and occupation of other responsible church officials must be included.

(6) A description of any current or past transactions, or of any proposed transactions, between the issuer and such persons mentioned in paragraph (5) of this section, or any affiliate of such persons.

(7) A statement of all direct and indirect remuneration paid by the issuer or received by members of the issuer in connection with the offering.

(8) A statement of any affiliation between the issuer and the broker/dealer, or any officers of either, with any building contractor or supplier who has an interest in or may receive any of the proceeds of the issue.

History

• Source Note: The provisions of this §125.3 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.4 Description of Terms of Security Offered

(a) There must be a description of the indenture under which the securities are to be issued. This description should include information as to:

(1) interest and interest payment dates;

(2) default;

(3) redemption and prepayment;

(4) subordination;

(5) sinking fund;

(6) subsequent issues;

(7) modification of the indenture;

(8) paying agents and trustees including a brief statement concerning the duties of trustees;

(9) insurance coverage on properties of issuer; and

(10) any other material facts regarding the rights of bond holders.

(b) If any organization (it does not matter whether the organization is affiliated with the issuer or not) makes a guarantee of payment for the issue, information describing the ability of that organization to guarantee payment must be furnished, including financial statements. The word "guarantee" should not be used to describe the obligation of the issuer to pay, and it is appropriate only if there is a second obligation by another entity. The guarantee in and of itself may involve the offering of a second security which may require registration.

(c) If the security for the bond issue is in part real estate, the cost (if reasonably ascertainable) and appraised value of said property must be stated; likewise, a statement must be made concerning whether the sale of additional bonds may be authorized for the same underlying security.

History

• Source Note: The provisions of this §125.4 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.5 Plan of Distribution

(a) There must be a statement as to whom the offering is being made.

(b) The names and addresses of those who are compensated to engage in the sale of securities or act as fundraising adviser must be given.

(c) A brief description of the distribution must be given.

(d) A brief description must be included of any underwriting agreement between any known broker-dealer and the issuer, including whether such agreements are "best efforts" or "firm" commitment, and whether "exclusive" or "nonexclusive."

(e) A clear statement of the responsibilities of the broker-dealer, issuer, and the membership of the issuer under the terms of any underwriting agreement must be made.

(f) All past, present, and anticipated future dealings with broker-dealers must be disclosed. In the case of church bond issues, all past, present, and anticipated future dealings with or without church bond financing organizations must be disclosed.

(g) All expenses of the issue, including the amount of remuneration to be given to those who will engage in the sale of the issue, must be fully disclosed.

(h) If there is to be an escrow of funds, a brief description of the escrow agreement must be given.

(i) All disclosure documents must be dated.

(j) If the issue has not been registered with the Securities and Exchange Commission or under the Texas Securities Act, such must be clearly indicated in the disclosure document.

History

• Source Note: The provisions of this §125.5 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.6 Financial Information

(a) Complete financial (preferably audited), prepared in accordance with generally accepted accounting principles. Complete financials are to include: a statement of assets and liabilities (a balance sheet); comparative figures showing the budget, the number of families giving on a regular basis and their average annual contribution, if applicable and available, and income (revenue) and expense statements for the past three years; interim statements of church financials for the interim period between the last annual statements and 90 days just preceding the month of the offering.

(b) If any of the above information is not available, a statement to that effect must be made, along with an explanation of why it is not available.

(c) Any information necessary to explain extraordinary or nonrecurring fluctuations in the above-mentioned statements must be supplied.

(d) Obligations, if any, on existing indebtedness must be clearly stated and explained.

(e) An itemized statement showing the major uses of the proceeds of the offering by dollar amount is to be included. In stating the use of the proceeds, when construction costs are not based upon firm contracts, a statement should be made that the costs are estimates only and subject to change. If additional funds are needed to accomplish the stated purposes of the offering, this is to be disclosed, together with a statement showing how such funds will be obtained.

(f) A pay-out or maturity schedule must be included and sinking fund requirements must be indicated. If projected growth in income is used as the basis for increases in later sinking fund payments, great care must be exercised to insure that the estimates used are realistic and all assumptions fully disclosed.

(g) If refinancing is needed when the bonds mature, this needs to be clearly brought out. Unless special circumstances are shown, "balloon payments" normally would not be considered fair, just, and equitable.

(h) Anything that is known that will take place in the future, and which could have an adverse effect on the issuer's ability to pay back the bonds or the interest on the bonds, must be disclosed and explained.

(i) Schedules or charts showing the amount of return to be received when interest coupons are reinvested must be omitted unless there are specific provisions for reinvesting interest received.

(j) The person or persons preparing any appraisals must be identified and their qualifications for serving as such should be indicated along with the method of appraisal.

(k) Where part or all of the proceeds of an issue are to be used to retire outstanding indebtedness against certain property so that the property will serve as collateral for a first mortgage indebtedness, proceeds from the issue must be escrowed to insure that the indebtedness will be retired.

(l) If a legal opinion concerning the validity of the issue has not been rendered by an attorney, this fact shall be stated.

(m) In stating the use of the proceeds of the issue when construction costs are not based upon firm contracts, a statement should be made that the costs are estimates only which are subject to change.

History

• Source Note: The provisions of this §125.6 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.7 Risk Factors

Mention must be made of appropriate risk factors. Statements made concerning the risks or lack thereof in purchasing the securities must be made in the light of the financial information concerning the particular issuer. In the case of church bond offerings, it must be stated that church bonds may be offered by other issuers (of the same or other denominations) offering similar terms for greater security and less risk. Statements to the effect that little or no risk is involved in buying church bonds will be regarded as material misrepresentation. Likewise, comparisons with other investments made solely on the basis of the interest return paid will be considered misleading, unless other comparative aspects of these investments are also described. The disclosure document involved must make prominent reference to the risk factors, along with a notation as to the page number in which these risk factors may be found. The risk factors which are to be disclosed shall not be limited to the following.

(1) The issuer is primarily dependent upon contributions of the membership to meet the expenses of operation and the payment of the principal and interest on the securities. Due to population shifts or other factors, the issuer may not receive sufficient funds to meet its obligations.

(2) There has been no quoted market for the issuer's debt securities; however, the broker-dealer may effect secondary market transactions upon compliance with applicable securities laws. Neither the issuer nor the broker-dealer is obligated to repurchase the securities at the request of the holder thereof. Consequently, investors may not be able to resell any securities purchased should they need or wish to do so for emergency purposes or otherwise.

(3) (If the entity does not have a fixed price contract for the proposed construction, the following disclosure must be included.) A fixed price contract has not been obtained; consequently sufficient funds may not be available for completion of the project.

(4) If the entity has defaulted on previous issues and this issue is to refinance such a default, then such should be disclosed.

(5) If appropriate, the trust indenture permits the issuer to further encumber the property securing the bonds of this issue through the issuance and sale of additional bonds at some future date, the maximum debt-to-property valuation ratio and the debt-to-income ratio, in such event, should be set forth under section called "additional bond issues."

(6) If appropriate, issuer's financial statements as shown under "financial statements and statistical data" may be unaudited and prepared on a cash basis.

(7) Bonds of this issue will be offered to the general public and therefore must compete with other investment opportunities which may be of more or less risk by comparison and similarly provide higher or lower interest yields.

(8) The total value of the security for payment of bonds of this issue is based upon the market value appraisal of the land as shown under "security for payment of bonds" and the anticipated cost of the proposed facility to be constructed as shown under "purpose of bond issue." There is no assurance that the facility (its construction being for the most part single purpose) and land could be sold for the values stated therein in the event of a default.

History

• Source Note: The provisions of this §125.7 adopted to be effective January 1, 1976.

7 Tex. Admin. Code § 125.8 Litigation and Other Material Transactions

(a) Any pending or threatened litigation which may materially affect the issuer's ability to pay back the bonds, or the interest on them, must be mentioned.

(b) Any transactions to which the issuer is a party which may materially affect this offering, and which have not been mentioned in subsection (a) of this section, must be fully disclosed.

History

• Source Note: The provisions of this §125.8 adopted to be effective January 1, 1976.

Chapter 127 MISCELLANEOUS

7 Tex. Admin. Code § 127.1 Enforcement

(a) Complaints signed by investigators. Investigators or other members of the staff, on instructions from the Commissioner, may sign complaints before appropriate district or county attorneys where there is sufficient evidence of a violation of the penal section of the Act and where no complaint of such violation has been made by any other person.

(b) Disclosure of testimony taken during an investigation. A deposition and all information received in connection with an investigation under §4007.053 of the Securities Act and all internal notes, memoranda, reports, or communications made in connection with an investigation under that section are treated as confidential by §4007.056 of the Securities Act. The provisions in the Securities Act against disclosure of confidential investigatory information prohibit the Commissioner and staff from permitting a witness in an investigative proceeding under §4007.053 to have a copy of his or her own statement, or permitting recorders or private court reporters to be present at any hearing or investigation. The Commissioner may not disclose confidential investigatory information in the Commissioner's possession except as authorized by the Securities Act and Board rule. This section may not be interpreted to prohibit or limit the publication of rulings or decisions of the Commissioner.

History

• Source Note: The provisions of this §127.1 adopted to be effective January 1, 1976; amended to be effective April 7, 2024, 49 TexReg 2066.

7 Tex. Admin. Code § 127.2 Alternative Dispute Resolution

(a) Policy. It is the Board's policy to encourage the fair and expeditious resolution of disputed matters, internal and external, through voluntary and informal settlement negotiations. This section sets out the Agency's alternative dispute resolution (ADR) procedures to be used when proceeding under Chapter 2009 of the Government Code. However, the ADR procedures in this section are intended to supplement and do not limit the use of any other informal dispute resolution or negotiated settlement procedures available to the Agency.

(b) Resolution and costs. Any resolution reached as a result of ADR procedures is intended to be through the voluntary agreement of the parties. The allocation of the costs of ADR are subject to negotiation and agreement between the parties. The party who requests ADR may be liable for the cost of any third-party mediator, moderator, arbitrator, or ombudsman and shall otherwise bear his or her own costs arising from the use of ADR.

(c) Coordinator. The Securities Commissioner shall designate at least one employee of the Agency to serve as the Agency's ADR coordinator to:

(1) coordinate the implementation of the Agency's ADR policies;

(2) serve as a resource for any training needed to implement the procedures for ADR; and

(3) collect data concerning the effectiveness of the ADR procedures as implemented by the Agency.

(d) Statutory requirements. ADR must be consistent with the Government Code, Chapter 2009; Civil Practice and Remedies Code, Chapter 154; and the Administrative Procedure Act, Government Code, Chapter 2001. Confidentiality of records and communications related to the subject matter of an ADR proceeding shall be governed by Civil Practices and Remedies Code, §154.073.

(e) State Office of Administrative Hearings (SOAH).

(1) SOAH mediators may be assigned to disputed matters or contested cases as needed. If the mediator is a SOAH Administrative Law Judge (ALJ), that person will not also sit as the ALJ for the case if the disputed matter or contested case goes to public hearing.

(2) When ADR procedures do not result in the full settlement of a contested matter, the participants, in conjunction with the mediator, shall limit the contested issues which will be tried at SOAH through the entry of written stipulations. Such stipulations shall be forwarded or formally presented to the ALJ assigned to conduct the hearing and shall be included in the hearing record.

(f) Contract claims.

(1) In addition to the requirements of Government Code, Chapter 2009, ADR for contracting claims must also be consistent with the Government Code, Chapter 2260; and the Office of the Attorney General's rules for negotiation and mediation of certain contract disputes (1 TAC Chapter 68).

(2) Upon receipt of notice of a contract claim under Government Code Chapter 2260, the Securities Commissioner, in consultation with the ADR coordinator and the Director of Staff Services, or their designees, shall determine whether use of an ADR procedure is a required or appropriate method for resolving the contract dispute.

(3) If ADR procedures are determined to be the appropriate method for resolving a contract claim, the Securities Commissioner, or the Commissioner's designee, shall recommend to the claimant that the parties use ADR to resolve the dispute.

(4) The ADR coordinator and Director of Staff Services will collaborate with the claimant to select an appropriate procedure for ADR, and implement the agreed upon procedure consistent with the applicable statutory requirements and the guidelines established by the Office of the Attorney General and SOAH.

(g) Contested cases.

(1) A contested case pending before SOAH may be submitted for ADR if both the respondent and the Director of the Division signing the notice of hearing agree that ADR would be an appropriate means to attempt to reach a negotiated settlement of the matter.

(2) ADR will be conducted before SOAH. The parties to the contested case shall collaborate to select an appropriate procedure for ADR and implement the agreed upon procedure consistent with SOAH's model guidelines.

(3) The full resolution of a contested case reached as a result of ADR must be in writing and signed by all of the parties and submitted to the Securities Commissioner for review and approval.

(4) "Party" as used in this subsection shall have the same meaning as set forth in the Administrative Procedure Act, Government Code, Chapter 2001.

History

• Source Note: The provisions of this §127.2 adopted to be effective February 27, 2020, 45 TexReg 1219.

7 Tex. Admin. Code § 127.3 Seal of the State

The term "state seal" as used in the Securities Act, §4001.154, includes the official seal of the State Securities Board.

History

• Source Note: The provisions of this §127.3 adopted to be effective January 1, 1976; amended to be effective March 17, 1994, 19 TexReg 1543; amended to be effective April 7, 2024, 49 TexReg 2066.

7 Tex. Admin. Code § 127.4 Prosecutorial Assistance to County or District Attorneys

(a) Prior to referring a case to a county or district attorney for prosecution pursuant to the Texas Securities Act, §4007.001, the Commissioner shall make a determination of:

(1) the Agency resources, including the number and types of Agency employees, that would potentially be needed to assist in the prosecution of the case; and

(2) the availability of Agency employees and other resources necessary to carry out any request for assistance.

(b) In making the determination in subsection (a) of this section, the Commissioner must consider:

(1) whether resources are available after taking into account any ongoing Board investigations, investigations under §4007.053 of this Act, and criminal prosecutions for which assistance is being provided;

(2) the seriousness of the alleged violation or violations in the case, including the severity of the harm and number of victims involved; and

(3) the state's interest in the prosecution of a particular case and the availability of other methods of redress for the alleged violations, including the pursuit of a civil action.

(c) If a change in circumstances occurs after the time of the determination under subsection (a) of this section, the Commissioner may reconsider the determination and may increase or reduce the number of Board employees or other resources to be made available for a case using the process established in this section.

History

• Source Note: The provisions of this §127.4 adopted to be effective February 27, 2020, 45 TexReg 1221; amended to be effective April 7, 2024, 49 TexReg 2066.

Chapter 131 GUIDELINES FOR CONFIDENTIALITY OF INFORMATION

7 Tex. Admin. Code § 131.1 Information Sharing

(a) The Board recognizes the need for cooperative law enforcement among agencies responsible for the prevention, detection, and prosecution of white collar crime, for the regulation and policing of persons who offer and sell securities, and for the regulation of offerings of securities. Pursuant to the authority given the Board under the Texas Securities Act, §4002.161 and §4007.056, the Board authorizes the Securities Commissioner in his or her discretion to supply any confidential information in the Commissioner's possession to:

(1) any governmental or regulatory authority, including any bankruptcy trustee, receiver, or other official appointed by a state or federal court in a proceeding involving a governmental or regulatory authority; or

(2) any association of governmental or regulatory authorities.

(b) Disclosure for limited purposes. Disclosure of the confidential information referred to in subsection (a) of this section will be made only for the purpose(s) of assisting in the detection or prevention of violations of law or to further administrative, civil, or criminal action.

History

• Source Note: The provisions of this §131.1 adopted to be effective September 18, 1977, 2 TexReg 3401; amended to be effective February 23, 1993, 18 TexReg 835; amended to be effective September 22, 1995, 20 TexReg 7189; amended to be effective June 12, 2002, 27 TexReg 4935; amended to be effective August 18, 2011, 36 TexReg 5096; amended to be effective April 7, 2024, 49 TexReg 2066.

Chapter 133 FORMS

7 Tex. Admin. Code § 133.2 Public Information Charges - Billing Detail

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.2 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.3 ADA Accommodations Request

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.3 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.4 Request for Consideration of a Registration Application by a Military Applicant

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.4 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.5 Secondary Trading Exemption Notice

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.5 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.6 Secondary Trading Exemption Renewal Notice

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.6 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.7 Securities Application

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.7 adopted to be effective November 14, 2024, 49 TexReg 8875.

7 Tex. Admin. Code § 133.9 Notice Filing for Third Party Brokerage Arrangements on Financial Entity Premises

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.9 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.10 Investment Company Report of Sales in the State of Texas

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.10 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.11 Sales Report for Non-continuous Offerings

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.11 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.12 Renewal Application for Mutual Funds and Other Continuous Offerings

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.12 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.13 Application for Renewal Permit

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.13 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.14 Consent of Independent Accountants

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.14 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.15 Texas Crowdfunding Portal Registration

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.15 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.16 Texas Crowdfunding Portal Withdrawal of Registration

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.16 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.18 Certification of Balance Sheet by Principal Financial Officer

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.18 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.19 Waiver or Refund Request by a Military Applicant

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.19 adopted to be effective March 26, 2026, 51 TexReg 1823.

7 Tex. Admin. Code § 133.20 Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.20 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.21 Crowdfunding Exemption Notice

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.21 adopted to be effective April 16, 2023, 48 TexReg 1821.

7 Tex. Admin. Code § 133.22 Waiver or Refund Request by a Military Service Member or Military Spouse for a Renewal Fee

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.22 adopted to be effective April 7, 2024, 49 TexReg 2067.

7 Tex. Admin. Code § 133.23 Request for Recognition of Out-Of-State License or Registration Pursuant to Occupations Code §55.0041

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.23 adopted to be effective March 26, 2026, 51 TexReg 1823.

7 Tex. Admin. Code § 133.26 Request for Determination of Money Market Fund Status for Federal Covered Securities

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.26 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.27 Year-End Report of Sales of Federal Covered Securities by a Money Market Fund

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.27 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.29 Intrastate Exemption Notice

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.29 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.30 Information Concerning Projected Market Prices and Related Market Information

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.30 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.33 Uniform Forms Accepted, Required, or Recommended

(a) Assuming the appropriate exhibits and supplements are filed, the State Securities Board will accept for filing the following "Uniform Forms" in lieu of the requisite Texas form, if any.

(1) U-1. Uniform Application to Register Securities.

(2) U-2. Uniform Consent to Service of Process.

(3) U-4. Uniform Application for Securities Industry Registration or Transfer.

(4) U-5. Uniform Termination Notice for Securities Industry Registration.

(5) ADV. Uniform Application for Investment Adviser Registration.

(6) BD. Uniform Application for Broker-Dealer Registration.

(7) USR-1. Investment Company Report of Sales.

(8) U-7. Small Company Offerings Registration Form may be used as a disclosure guide when making a small company offering of securities pursuant to an exemption under the Act or when making small public offerings pursuant to the Act, Chapter 4003, Subchapter A.

(9) NF. Uniform Investment Company Notice Filing.

(10) Model Accredited Investor Exemption Uniform Notice of Transaction.

(11) BR. Uniform Branch Office Registration Form.

(12) Regulation A - Tier 2 form.

(13) Uniform Notice of Federal Crowdfunding Offering (Form U-CF) form.

(14) U-6. Regulator Form U6 Filing.

(b) The following "Uniform Forms" may be filed with this agency as appropriate.

(1) ADV-W. Notice of Withdrawal from Registration as Investment Adviser.

(2) BDW. Uniform Request for Withdrawal from Registration as a Broker-Dealer.

(3) ADV-E. Certificate of Accounting of Client Securities and Funds in the Possession or Custody of an Investment Adviser.

(c) Section 109.13(k) of this title (relating to Limited Offering Exemptions) and §114.4(b)(1) of this title (relating to Filings and Fees) require the filing of a Form D, "Notice of Exempt Offering of Securities."

History

• Source Note: The provisions of this §133.33 adopted to be effective November 29, 1989, 14 TexReg 6079; amended to be effective April 21, 1995, 20 TexReg 2621; amended to be effective April 8, 1997, 22 TexReg 3228; amended to be effective December 2, 1997, 22 TexReg 11668; amended to be effective August 10, 2003, 28 TexReg 5992; amended to be effective January 8, 2006, 30 TexReg 8869; amended to be effective December 21, 2011, 36 TexReg 8513; amended to be effective December 23, 2018, 43 TexReg 8090; amended to be effective November 12, 2019, 44 TexReg 6870; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 133.34 Undertaking Regarding Non-issuer Sales

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.34 adopted to be effective October 30, 2022, 47 TexReg 6982.

7 Tex. Admin. Code § 133.36 Request for Reduced Fees for Certain Persons Registered in Multiple Capacities

This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.

History

• Source Note: The provisions of this §133.36 adopted to be effective October 30, 2022, 47 TexReg 6982.

Chapter 135 INDUSTRIAL DEVELOPMENT CORPORATIONS AND AUTHORITIES

7 Tex. Admin. Code § 135.1 Exemption

The State Securities Board, pursuant to the Texas Securities Act, §4005.024, exempts from the securities registration requirements of the Act, securities issued pursuant to the Development Corporation Act, Texas Local Government Code, Title 12, Subtitle C1.

History

• Source Note: The provisions of this §135.1 adopted to be effective November 7, 1999, 24 TexReg 9609; amended to be effective April 3, 2012, 37 TexReg 2167; amended to be effective April 7, 2024, 49 TexReg2067.

7 Tex. Admin. Code § 135.2 Dealer and Agent Registration

Any person who acts as an agent of the issuer in connection with a sale to any prospective purchaser in a transaction exempt from securities registration by virtue of this section shall be registered as either a dealer or agent under the Texas Securities Act, as applicable.

History

• Source Note: The provisions of this §135.2 adopted to be effective November 7, 1999, 24 TexReg 9609.

7 Tex. Admin. Code § 135.3 Anti-fraud Provisions

Nothing in this section relieves issuers or persons acting on their behalf from the duty to disclose to prospective investors information to satisfy the anti-fraud provisions of the Texas Securities Act.

History

• Source Note: The provisions of this §135.3 adopted to be effective November 7, 1999, 24 TexReg 9609.

Chapter 137 ADMINISTRATIVE GUIDELINES FOR REGULATION OF OFFERS

7 Tex. Admin. Code § 137.1 Application

(a) This chapter relates to offers to sell securities which must be filed with the Commissioner under the Texas Securities Act, Chapter 4003, Subchapter E.

(b) This chapter does not apply to advertising for sales made in reliance upon exemptions contained in the Act, Chapter 4005, Subchapters A or B, including exemptions by rule adopted by the State Securities Board pursuant to the Texas Securities Act, §4005.024.

(c) This chapter does not require the filing of any offering documents, prepared by or on behalf of the issuer, in connection with the offer of federal covered securities, as that term is defined in §107.2 of this title (relating to Definitions).

(d) The Texas Securities Act prohibits fraud or fraudulent practices in connection with the purchase or sale of any security, whether exempt or not. The Agency has jurisdiction to investigate and bring enforcement actions with respect to fraud or deceit, or unlawful conduct by a dealer or agent, in connection with any securities subject to the Texas Securities Act, including federal covered securities or transactions involving federal covered securities.

History

• Source Note: The provisions of this §137.1 adopted to be effective August 12, 1980, 5 TexReg 3043; amended to be effective May 16, 1991, 16 TexReg 2472; amended to be effective April 8, 1997, 22 TexReg 3229; amended to be effective April 7, 2024, 49 TexReg 2068.

7 Tex. Admin. Code § 137.2 Filing Requirements

(a) Written or printed offers required to be filed with the Commissioner pursuant to the Securities Act, §4003.203(1), must be received by the Commissioner within 10 days after the date of their first use in Texas, including distribution of the offers to dealers; provided this shall not apply to offers by preliminary or final prospectus or to tombstone ads. Material filed under this section may be used unless expressly prohibited by the Commissioner.

(b) Draft copies of material, galley proofs, and scripts of film or slide presentations may be submitted to the Commissioner to satisfy the filing requirement of §4003.203(1), but true, final copies of any such material or filmed presentation must be provided to the Commissioner, and adequate equipment or facilities made available to actually view the material or presentation, within 10 days after the date of their first use in Texas.

(c) "Generic" advertisements, which under SEC Rule 135a (17 CFR §230.135a, as amended) are not deemed to offer any security for sale, need not be filed pursuant to this section.

(d) If with respect to any issues of securities which are part of a series of offerings of similar nature, an advertisement is proposed to be used in substantially the same form for more than one issue of securities in the series, the offeror or sponsor may file within 10 days after the date of its first use in Texas a final copy of each such advertisement with the Commissioner.

History

• Source Note: The provisions of this §137.2 adopted to be effective August 12, 1980, 5 TexReg 3043; amended to be effective January 7, 1985, 9 TexReg 6475; amended to be effective December 23, 1988, 13 TexReg 6075; amended to be effective April 7, 2024, 49 TexReg 2068.

7 Tex. Admin. Code § 137.3 Preliminary Prospectus

The language adopted by the SEC in paragraph (b)(10) of Item 501 of Regulation S-K (17 CFR §229.501, as amended) meets the requirements of the Texas Securities Act, §4003.203(4)(B), and is approved for use on preliminary prospectuses in Texas.

History

• Source Note: The provisions of this §137.3 adopted to be effective August 12, 1980, 5 TexReg 3043; amended to be effective June 8, 1994, 19 TexReg 4196; amended to be effective November 7, 1999, 24 TexReg 9609; amended to be effective April 7, 2024, 49 TexReg 2068.

7 Tex. Admin. Code § 137.4 Tombstone Advertisements

"Tombstone" advertisements need not be filed pursuant to §137.2(a) of this title (relating to Filing Requirements) and are not subject to the requirements of §137.6(a) of this title (relating to Standards for Supplemental Advertising) if they contain no more than one or more of the following:

(1) date of issuance or release;

(2) name and address of issuer;

(3) identity or title of securities;

(4) per unit offering price;

(5) amount of offering;

(6) brief statement of character or business taken from summary in the preliminary or final prospectus;

(7) names of the underwriters;

(8) address where prospectus or offering circular may be obtained; or

(9) any statement or legend required by state law or administrative authority.

History

• Source Note: The provisions of this §137.4 adopted to be effective August 12, 1980, 5 TexReg 3043.

7 Tex. Admin. Code § 137.5 Materials for Dealer Use

Materials intended for dissemination to dealers only must bear a legend stating that the materials are not for public dissemination and are intended only for the use of dealers.

History

• Source Note: The provisions of this §137.5 adopted to be effective August 12, 1980, 5 TexReg 3043.

7 Tex. Admin. Code § 137.6 Standards for Supplemental Advertising

(a) Advertising or sales material, other than tombstone ads, must be consistent with and conform to disclosures contained in the prospectus. Advertising and sales materials which depict predominately the positive elements of an offering and exclude such negative elements as are required to be disclosed in the offering prospectus may be found by the Commissioner to be false, misleading, and likely to deceive a reader thereof. Sales materials which refer to specific issuers of securities by name must be accompanied by or preceded by a prospectus. Sales materials that include comparisons to other investment vehicles or indexes which are unwarranted or not fully explained may be considered misleading.

(b) References in advertising or sales materials to an exemption from or reduction in taxation under any laws should be consistent with the information or summaries of information which are contained in the prospectus.

(c) Projections, generalizations, conclusions, and opinions which tend to be misleading or likely to deceive a reader thereof shall not be permitted.

(d) All advertisements of and oral invitations to group sales meetings or "seminars" at which specific issue(s) of securities are to be offered or sold shall clearly indicate that the purpose of the meeting is to offer such securities for sale and shall disclose the name of the sponsor, underwriter, or selling agent.

(e) Any bonus, prize, gift, or similar consideration which is offered to investors as an inducement to buy securities or offered to dealers or agents as an inducement to sell a specific offering or issue of securities (but not as an inducement in connection with general public relations or goodwill-building activities unrelated to the sale of a specific issue) must be fully disclosed to investors and to the Commissioner.

History

• Source Note: The provisions of this §137.6 adopted to be effective August 12, 1980, 5 TexReg 3043; amended to be effective April 7, 2024, 49 TexReg 2068.

7 Tex. Admin. Code § 137.7 Advertisements in Texas Publications

Advertisements in newspapers or periodicals whose circulation is directed primarily to residents of Texas or placed solely in a local edition of an otherwise nationally distributed newspaper or periodical which offer securities which may not be legally offered to Texas residents should indicate in the text of the advertisement that the securities are not offered for sale to Texas residents.

History

• Source Note: The provisions of this §137.7 adopted to be effective August 12, 1980, 5 TexReg 3043.

Chapter 139 EXEMPTIONS BY RULE OR ORDER

7 Tex. Admin. Code § 139.1 Policies

(a) It is the policy of the State Securities Board to refuse to grant any exemptions by order under §4005.024 of the Securities Act for specific individual transactions or issuers.

(b) The company or person engaged in a transaction exempt under a rule adopted pursuant to the Securities Act, §4005.024, shall not be deemed a dealer within the meaning of the Act unless the rule by its terms indicates otherwise.

History

• Source Note: The provisions of this §139.1 adopted to be effective April 15, 1980, 5 TexReg 1285; amended to be effective October 4, 1984, 9 TexReg 4974; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.2 Professional Associations

The sale, issuance, or offering of any securities of a professional association organized pursuant to Texas Business Organizations Code, §301.011, to persons permitted by the provisions of such article to own such securities are hereby exempted from the securities registration and dealer registration requirements of the Act; and the sale, issuance, or offering of any such securities to such persons shall be legal without any action or approval whatsoever on the part of the Board or the Commissioner.

History

• Source Note: The provisions of this §139.2 adopted to effective April 15, 1980, 5 TexReg 1285; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.3 Blue Chip Exemption

The sale of any security by the issuer itself or by a registered dealer is exempt from the registration requirements of the Securities Act if all of the following conditions are met:

(1) If the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in the United States for service of process, and has set forth the name and address of such agent in its prospectus, offering memorandum or similar disclosure document.

(2) The security is senior to or on a parity with a class of the issuer's securities registered under section 12 of the Securities Exchange Act of 1934, and the class of securities has been so registered for the three years immediately preceding the offering date.

(3) Neither the issuer nor a subsidiary, which accounts for more than 15% of assets or revenues on a consolidated basis, has had a default that exceeded 5.0% of total assets on a consolidated basis during the last seven years (or the issuer's existence if less than seven years) in the payment of:

(A) principal, interest, dividend, or sinking fund installment on preferred stock or indebtedness for borrowed money; or

(B) rentals under leases with terms of three years or more.

(4) The issuer has had consolidated net income after taxes (but before extraordinary items and the cumulative effect of accounting changes) of at least $1 million in each of four of its last five fiscal years including its last fiscal year. In addition, if the offering is of interest-bearing securities, the issuer must have had net income for its last fiscal year (but before deduction for income taxes and depreciation) of at least 1-1/2 times the issuer's annual interest expense, giving effect to the proposed offering and the intended use of the proceeds. "Last fiscal year" means the most recent year for which audited financial statements are available, provided that such statements cover a fiscal period ended not more than 12 months from the commencement of the offering.

(5) If the offering is of stock or shares, other than preferred stock or shares, such securities have voting rights and such rights include:

(A) the right to have at least as many votes per share; and

(B) the right to vote on at least as many general corporate decisions, as each of the issuer's outstanding classes of stock or shares, except as otherwise required by law.

(6) If the offering is of stock or shares, other than preferred stock or shares, such securities are owned beneficially or of record, on any date within six months prior to the commencement of the offering, by at least 1,200 persons, and on such date there are at least 750,000 such shares outstanding with an aggregate market value, based on the average bid price for that day, of at least $3,750,000. In connection with the determination of the number of persons who are beneficial owners of the stock or shares of an issuer, the issuer or broker dealer may rely in good faith for the purposes of this section upon written information furnished by the record owners.

(7) Any security issued or guaranteed as to both principal and interest by an international bank of which the United States is a member is exempted without regard to the conditions in this section.

(8) If the offering is of interest-bearing securities of a finance company with liquid assets of at least 105% of its liabilities (other than deferred income taxes, deferred investment tax credits, capital stock, and retained earnings) at the end of each of its last five fiscal years, the applicable net income requirements of paragraph (4) of this section, but before deduction for interest expense, shall be 1-1/4 times the issuer's annual interest expense. "Finance company" means a company engaged primarily in the business of wholesale, retail, installment, mortgage, commercial, industrial, and consumer financing, banking, or factoring. "Liquid assets" means cash, receivables payable on demand or not more than 12 years following the close of the company's last fiscal year, and readily marketable securities; in each case, less applicable reserves and unearned income.

(9) The issuer is not in bankruptcy.

History

• Source Note: The provisions of this §139.3 adopted to be effective October 29, 1980, 5 TexReg 4146.

7 Tex. Admin. Code § 139.4 Mexican Securities

Any security either issued or guaranteed by the federal government of Mexico shall be exempt from the securities registration requirements of the Act when offered for sale, sold, or dealt in by a registered dealer.

History

• Source Note: The provisions of this §139.4 adopted to be effective May 24, 1993, 18 TexReg 3047.

7 Tex. Admin. Code § 139.5 Canadian Securities

Any security, issued or guaranteed by Canada or any Canadian province or political subdivision thereof whose power of taxation or assessment will underlie the obligations evidenced by such securities, shall be exempt from the securities registration requirements of the Act when offered for sale, sold, or dealt in by a registered dealer.

History

• Source Note: The provisions of this §139.5 adopted to be effective January 20, 1981, 6 TexReg 48.

7 Tex. Admin. Code § 139.6 Distributions by Liquidating Trustees

The distribution to security holders of record at the time of the corporation's dissolution or liquidation of securities held by the liquidating trustee shall be exempt from the securities registration and dealer registration requirements of the Act. The distribution of such securities, as part of their pro rata share of assets, to the security holders of record shall be exempt, provided that either articles of dissolution of the dissolving corporation have been or will be filed pursuant to a plan of complete liquidation or dissolution approved by the shareholders or a court of competent jurisdiction orders the dissolution and no security holder is obligated to pay or give any consideration other than the surrender of his shares of the dissolved corporation.

History

• Source Note: The provisions of this §139.6 adopted to be effective January 20, 1981, 6 TexReg 48; amended to be effective June 23, 1992, 17 TexReg 4173.

7 Tex. Admin. Code § 139.7 Sale of Securities to Nonresidents

(a) The offer and sale of securities by an issuer or its selling agent to a non-Texas resident not present in Texas when the offer is made is exempt from the securities registration provisions of the Securities Act. (The Securities Act provides exemptions from the securities registration requirements which might be available to some issuers or selling agents offering or selling to non-Texas residents present in the state.)

(b) An issuer or selling agent who makes an offer or sale from Texas, by any means, including use of the mail, telephone, or internet, is a dealer and must comply with the dealer registration requirements of the Securities Act. (The Securities Act provides exemptions from the dealer registration requirements which might be available to some issuers or selling agents.) An offer is not deemed to be made from Texas merely because offering material is prepared in Texas, if such material is still in the possession of the issuer or its selling agent when it leaves the state. A sale is not deemed to be made in Texas merely because a purchaser sends his or her purchase money to Texas, or because clerical functions connected with the closing of a sale are performed in Texas.

History

• Source Note: The provisions of this §139.7 adopted to be effective July 22, 1981, 6 TexReg 2383; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.8 Sales to Underwriters

Any transaction between the issuer, or other person on whose behalf the offering is made, and an underwriter, or among underwriters, is hereby exempted from the securities registration requirements of the Securities Act, Chapter 4003, Subchapters A, B, and C.

History

• Source Note: The provisions of this §139.8 adopted to be effective March 19, 1984, 9 TexReg 1440; amended to be effective October 4, 1984, 9 TexReg 4975; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.9 Bank Holding Companies

A bank holding company with fewer than 500 shareholders that owns the majority of the voting shares of a bank domiciled in Texas is hereby exempted from the dealer registration requirements of the Securities Act, §4004.051, with respect to its participation in a sale or other transaction involving its own securities or the securities of a bank where the bank holding company owns a majority of the voting shares of such bank.

History

• Source Note: The provisions of this §139.9 adopted to be effective January 12, 1984, 8 TexReg 5532; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.10 Exchange Offers

The offer or sale by the issuer of common stock in exchange for units of limited partnership or interests in oil, gas, or mineral leases, fees, or titles is hereby exempted from the securities registration requirements of the Securities Act, Chapter 4003, Subchapters A, B, and C, if all of the following conditions are met:

(1) the units of limited partnership or interests in oil, gas, or mineral leases, fees, or titles for which the offer is made have been issued and outstanding for more than 36 months;

(2) the shares of common stock to be exchanged are registered for sale with the SEC;

(3) all sales to exchanging Texas residents are made by or through a registered dealer, who may be the issuer;

(4) the exchanging unit holders are not obligated to pay any consideration for the common stock issued to them other than the units of limited partnership or interests in oil, gas, or mineral leases, fees, or titles held by them;

(5) the shares of common stock received pursuant to the exchange are fully tradeable without restrictions; and

(6) at the close of the offering, the securities meet all of the criteria for trading on The National Association of Securities Dealers Automatic Quotations (NASDAQ).

History

• Source Note: The provisions of this §139.10 adopted to be effective March 9, 1984, 9 TexReg 1441; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.11 Transactions in United States Savings Bonds

The State Securities Board, pursuant to the Securities Act, §4004.001 and §4005.024, exempts from the securities and dealer registration requirements of the Act, the sale of any United States Series EE Savings Bond if no commission or other remuneration is paid or given or is to be paid or given, directly or indirectly, in connection with the sale. For purposes of this section, "commission or other remuneration" does not include a fee paid by the United States Treasury.

History

• Source Note: The provisions of this §139.11 adopted to be effective December 27, 1995, 20 TexReg 10593; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.12 Oil and Gas Auction Exemption

For purposes of this rule only, the term "mineral interest" means an interest in or under an oil, gas, or mining lease, fee, or title, including real property from which the minerals have not been severed, or contracts relating thereto. The offer and sale of a mineral interest, at an auction, by the seller itself, or a registered dealer or agent acting on behalf of the seller, is exempt from the securities registration requirements of the Texas Securities Act, Chapter 4003, Subchapters A, B, and C, if all of the following conditions are met.

(1) Auctioneer. The auctioneer or associate auctioneer through which the mineral interest is offered or sold must be licensed as a dealer under the Texas Securities Act and licensed by the Texas Department of Licensing and Regulation in accordance with Texas Occupations Code, §1802.001 et. seq.

(2) Seller.

(A) Intent. The seller did not acquire the mineral interest with a view to resale, unless the seller was forced to acquire the mineral interest in a package in order to obtain other properties in the package.

(B) No fractionalization of mineral interests.

(i) The seller has the full right and authority to sell the mineral interest, and is selling 100% of its mineral interest, except that retention by the seller of a royalty or overriding royalty or the horizontal severance of the property is permissible as indicated in clause (ii) of this subparagraph.

(ii) The seller must not be creating undivided interests out of its mineral interest for the purpose of resale. Where all the seller owns is a partial interest (such as a royalty, overriding royalty, or undivided fractional working interest), this requirement is met if the seller sells all of that interest. However, the seller shall not be considered to be fractionalizing its interest in sales where the seller retains only a royalty or overriding royalty, or where the seller horizontally severs the property by retaining all of its existing rights in certain formations or depths under the whole property.

(3) Not applicable to investment contracts. The mineral interest offered or sold does not constitute an investment contract.

(4) Purchaser.

(A) Knowledge and experience. The purchaser or its representative is engaged in the business of exploring for or producing oil or gas or other minerals as an ongoing business. By reason of this knowledge and experience, the purchaser or its representative has evaluated the merits and risks of the mineral interest to be purchased at auction and has formed an opinion based solely upon his knowledge and experience and not upon any statement, representation, or printed material provided or made by auctioneer or seller. If a purchaser representative is used, such purchaser representative:

(i) has no business relationship with the seller;

(ii) represents only the purchaser and not the seller; and

(iii) is compensated only by the purchaser.

(B) Financial ability. The purchaser has sufficient financial resources in order to bear the risk of loss attendant to the purchase of the property.

(C) Suitability. In all sales to purchasers in this state, the seller or any person acting on its behalf shall have reasonable grounds to believe and after making reasonable inquiry shall believe that the purchaser satisfies the requirements set forth in subparagraphs (A) and (B) of this paragraph. This requirement could be met by obtaining a document signed by the purchaser to the effect that the purchaser meets these conditions.

(5) Auction. For purposes of this rule only, auction shall mean the sale of the seller's mineral interest by public outcry.

(6) Information not prohibited. The use of statistical information in trade journals and data bases as well as auction pamphlets concerning the mineral interests to be offered pursuant to this rule is not prohibited.

History

• Source Note: The provisions of this §139.12 adopted to be effective August 23, 1991, 16 TexReg 4352; amended to be effective June 12, 2002, 27 TexReg 4936; amended to be effective February 24, 2016, 41 TexReg 1225; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.13 Resales under SEC Rule 144 and Rule 145(d)

(a) Exemption from securities registration. Offers to resell and resales of any security by the owner thereof, or any person acting on behalf of the owner, shall be exempt from the securities registration requirements of the Texas Securities Act, Chapter 4003, Subchapters A, B, and C, pursuant to §4005.024, if the offers to resell and resales of securities are made in compliance with either:

(1) Rule 144 promulgated by the SEC under the Securities Act of 1933, as amended (1933 Act), as made effective in SEC Release Number 33-5223, as amended in Release Numbers 33-5307, 33-5452, 33-5452A, 33-5560, 33-5613, 33-5717, 33-5979, 33-5995, 33-6032, 33-6180, 34-16589, 33-6286, 33-6389, 33-6488, 33-6768, 33-6862, 33-7285, and 33-7390; or

(2) Rule 145(d) promulgated by the SEC under the 1933 Act as made effective in SEC Release Number 33-5316, as amended in Release Numbers 33-5932, 33-6508, 33-6578, 33-6579, 33-6611, 33-6862, and 33-7390.

(b) Dealer and agent registration. Any person (other than the owner) who acts as an agent of the owner in connection with a sale to any prospective purchaser in a transaction exempt from securities registration by virtue of this section shall be registered as either a dealer or agent under the Act, as applicable.

History

• Source Note: The provisions of this §139.13 adopted to be effective August 28, 1992, 17 TexReg 5681; amended to be effective August 24, 1998, 23 TexReg 8672; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.14 Non-Issuer Sales

The State Securities Board, pursuant to the Securities Act, §4005.024, exempts from the securities registration requirements of the Securities Act, Chapter 4003, Subchapters A, B, and C, the offer and sale of any securities, provided the following conditions are met.

(1) Who may sell. Offers or sales may be made by an owner of the securities, or any person acting on the owner's behalf, so long as the owner is not the issuer of the securities.

(2) Dealer and agent registration. Any person (other than the owner) who acts as an agent of the owner in connection with a sale to any prospective purchaser in a transaction exempt from securities registration by virtue of this section shall be registered as either a dealer or agent under the Act, as applicable.

(3) Use of proceeds. The proceeds of the sale shall be for the benefit of the owner and not directly or indirectly for the benefit of the issuer of the securities.

(4) Number of sales.

(A) Except as the allowable number of sales may be increased as provided in subparagraph (B) of this paragraph, the owner, together with any persons acting in concert with the owner, may make no more than 15 sales in any 12-month period under and in reliance on this section, exclusive of sales made:

(i) to the issuer;

(ii) in compliance with the Act, Chapter 4005, Subchapters A and B; or

(iii) in compliance with the following:

(I) §109.4 of this title (relating to Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors);

(II) §139.7 of this title (relating to Sales of Securities to Nonresidents); or

(III) §139.13 of this title (relating to Resales under SEC Rule 144 and Rule 145(d)).

(B) The number of sales that may be made under subparagraph (A) of this paragraph may be increased to a higher number as approved by the Securities Commissioner in response to a written request based on the particular circumstances of a specific transaction. If the Securities Commissioner approves a higher number of sales in accordance with the provisions of this subparagraph, then in the particular case addressed by the written request, the higher number of approved sales will be allowed.

(C) The exemption provided by this section may not be combined with sales made pursuant to the Act, §4005.004, to exceed sales otherwise allowable under this section.

(5) Filing requirement for certain persons. Any person who is a director, executive officer, or owner of 15% or more of a class of voting securities or other ownership interests of the issuer who wishes to make sales under and in reliance on this section must file a Form 133.34 with the Securities Commissioner no later than 15 days after the first receipt of any portion of the consideration for the securities being sold.

(6) Anti-fraud provisions. Nothing in this section relieves owners or persons acting on behalf of owners from the duty to disclose to prospective investors information adequate to satisfy the anti-fraud provisions of the Act.

History

• Source Note: The provisions of this §139.14 adopted to be effective August 28, 1992, 17 TexReg 5681; amended to be effective June 8, 1994, 19 TexReg 4196; amended to be effective January 8, 2006, 30 TexReg 8869; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.15 Credit Enhancements

(a) Any "qualified credit enhancement" need not be registered as a separate security when no additional consideration is required to receive the enhancement and the enhancement is offered and sold in conjunction with, and is not tradeable separately from, securities that are:

(1) registered pursuant to the Securities Act, Chapter 4003, Subchapters A, B, or C;

(2) exempt under the Securities Act, Chapter 4005, Subchapter B; or

(3) included within a transaction exempt under the Securities Act, Chapter 4005, Subchapter A.

(b) For purposes of this section, the term "qualified credit enhancement" means:

(1) a letter of credit issued by a domestic branch or agency of a foreign bank if the nature and extent of the regulation and supervision of the particular branch or agency is substantially equivalent to that applicable to federal or state chartered domestic banks doing business in the same domestic jurisdiction; or

(2) a municipal bond insurance policy or guarantee issued by an insurance company licensed or supervised by the Texas Department of Insurance.

History

• Source Note: The provisions of this §139.15 adopted to be effective September 14, 1994, 19 TexReg 6842; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.16 Sales to Individual Accredited Investors

(a) In general. The State Securities Board, pursuant to the Securities Act, §4005.024, exempts from the securities registration requirements of the Securities Act, Chapter 4003, Subchapters A, B, and C, the offer and sale by the issuer or a registered dealer without advertising of any security to an individual accredited investor, or to any purchaser who the issuer has reasonable grounds to believe and after making reasonable inquiry shall believe to be an individual accredited investor, provided that such security is not part of the same distribution or offering as securities of the same issuer which have been registered or are proposed to be registered by pending application under the Securities Act, Chapter 4003. "Advertising," as used in this subsection, does not include the use of limited use advertisements under subsection (e) of this section or the use of the type of printed material as permitted by §109.13(b) of this title (relating to Limited Offering Exemptions) in connection with an offering under §4005.012 or §4005.013 of the Act.

(b) Who may purchase; who constitutes the issuer for purposes of selling securities.

(1) Individual accredited investors. The term "individual accredited investor" is defined in §107.2 of this title (relating to Definitions). For purposes of this section, the term "individual accredited investor" also includes any self-directed employee benefit plan with investment decisions made solely by persons that are "individual accredited investors" as defined in §107.2 of this title and the individual retirement account of any such individual accredited investor.

(2) Issuer. For the purposes of subsection (a), the term "issuer" includes any director, officer, or employee of the issuer provided all the following conditions are satisfied:

(A) the director, officer, or employee was not hired for the purpose of offering or selling such securities;

(B) the director's, officer's, or employee's activity involving the offer and sale of such securities is strictly incidental to his or her bona fide primary non-securities related work duties; and

(C) the director's, officer's, or employee's compensation is based solely on the performance of other such duties, i.e., the director, officer, or employee does not receive any compensation for offering for sale, selling, or otherwise aiding in the sale of securities.

(c) Disqualifications.

(1) No exemption under this section shall be available for the securities of any issuer if the issuer or registered dealer:

(A) within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by the SEC or any state securities administrator;

(B) within the last five years, has been convicted of any felony in connection with the offer, purchase, or sale of any security or any felony involving fraud or deceit;

(C) is currently subject to any state or federal administrative enforcement order, entered within the last five years, finding fraud or deceit in connection with the purchase and sale of any security; or

(D) is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase and sale of any security.

(2) For purposes of this subsection and subsection (d) of this section only, the term "issuer" includes:

(A) any of the issuer's predecessors or any affiliated issuer;

(B) any of the issuer's directors, officers, general partners, or beneficial owners of 10% or more of any class of its equity securities (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities);

(C) any of the issuer's promoters presently connected with the issuer in any capacity, including:

(i) any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer; or

(ii) any person who, in connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10% or more of any class of securities of the issuer or 10% or more of the proceeds from the sale of any class of such securities; however, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this clause if such person does not otherwise take part in founding and organizing the enterprise; or

(D) any underwriter of the issuer.

(3) For purposes of this subsection and subsection (d) of this section only, the term "registered dealer" includes any of the registered dealer's partners, directors, executive directors, or beneficial owners of 10% or more of any class of its equity securities (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities).

(d) Exceptions from disqualifications. The prohibitions of subsection (c) of this section shall not apply if:

(1) the party subject to the disqualification is duly licensed or registered to conduct securities related business in the state in which the order, judgment, or decree creating the disqualification was entered against such party; or

(2) before the first offer under this section, the Securities Commissioner, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification upon a showing of good cause.

(e) Limited use advertisements. Any limited use advertisement used in connection with an offering under this section must be filed with the Securities Commissioner ten days prior to use in this state. A limited use advertisement may be disseminated by any means, direct or indirect. A limited use advertisement shall contain only the statements required or permitted to be included therein by this subsection.

(1) A limited use advertisement shall contain the following items of information:

(A) a brief description of the securities to be offered (e.g., description of class, size of offering, price, percentage of commission);

(B) the name, address, and telephone number of the person to contact for additional information concerning the offering;

(C) the address where offering material may be obtained; and

(D) the following statement: "The securities have not been registered with or approved by the Texas Securities Commissioner and are being offered and sold pursuant to the exemption provided by §139.16 of the Rules and Regulations of the State Securities Board. This advertisement was filed with the Texas Securities Commissioner on or about (fill in date). The securities are being offered to, and may be purchased by, only those natural persons who are accredited investors as described in Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act of 1933 (17 CFR §230.501, as amended)."

(2) A limited use advertisement may include any one or more of the following items of information:

(A) the name and address of the issuer of the securities;

(B) a brief description of the business of the issuer; and

(C) the name and address of the registered dealer(s) acting on the issuer's behalf in connection with the offering.

(f) Any issuer relying on this exemption shall, upon written request, furnish to the Securities Commissioner the information furnished by the issuer or registered dealer to offerees. Any issuer relying on this exemption must maintain, for a period of at least three years, evidence of the basis for its belief that all purchasers were accredited investors at the time of purchase.

(g) Transactions exempt under this section may be combined with offers and sales exempt under the Securities Act, §4005.011, and §109.4 of this title (relating to Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors). In this event, the statement required by subsection (e)(1)(D) of this section may be modified to indicate that the securities are also being offered to eligible purchasers under §4005.011 and §109.4 of this title.

(h) Because this exemption permits limited use advertisements, use of this exemption under certain circumstances could result in other exemptions not being available for other sales due to prohibitions in such exemptions against public solicitation and advertisements. Therefore, issuers or registered dealers who use this exemption should take all necessary steps to document that any sales to persons who are not individual accredited investors, as defined, were not made in response to a limited use advertisement. Users of this section should consult with experienced securities counsel, especially if they anticipate selling, within six months of the last sale made under this section, to any persons who are not individual accredited investors.

(i) The use of a limited use advertisement in compliance with this section and in connection with sales under this section will not render exemptions that prohibit public solicitation or advertisements unavailable to sales that are made more than six months after the use of the limited use advertisement.

(j) Should the offer and sale of securities fail, for any reason, to comply with all the terms and conditions for use of this section, the issuer may claim the availability of any other applicable exemption. A limited use advertisement that results in an offer to a person who is not an individual accredited investor within the meaning of this section does not alone result in loss of the exemption.

(k) Investment intent; resales. The issuer and any person acting on its behalf shall exercise reasonable care to assure that the purchasers are acquiring the securities as an investment. Such reasonable care should include, but not be limited to, the following:

(1) having reasonable grounds to believe and, after making reasonable inquiry, believe that the purchaser is acquiring the securities with investment intent for his or her own account or on behalf of other persons and not for resale or with a view toward distribution;

(2) placing a legend on the certificate or other document evidencing the securities to the effect that the securities have not been registered under any securities law and setting forth or referring to the restrictions on transferability and sale of the securities;

(3) issuing stop transfer instructions to the issuer's transfer agent, if any, with respect to the securities, or, if the issuer transfers its own securities, making a notation in the appropriate records of the issuer; and

(4) obtaining from the purchaser a signed written agreement to the effect that the securities will not be sold without registration under applicable securities laws or exemptions therefrom.

History

• Source Note: The provisions of this §139.16 adopted to be effective April 21, 1995, 20 TexReg 2622; amended to be effective December 27, 1995, 20 TexReg 10593; amended to be effective July 14, 2005, 30 TexReg 3990; amended to be effective January 8, 2006, 30 TexReg 8869; amended to be effective June 21, 2011, 36 TexReg 3715; amended to be effective November 8, 2012, 37 TexReg 8787; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.17 Offers Disseminated Through the Internet

(a) An offer of securities not made from Texas is exempt from the securities and dealer registration requirements of The Securities Act when that offer is disseminated through the Internet and:

(1) the offer indicates, directly or indirectly, that the securities are not being offered for sale to any person in Texas;

(2) an offer is not otherwise specifically directed to any person in Texas by, or on behalf of, the issuer; and

(3) no sales of the issuer's securities are made to any person in Texas as a result of the offer.

(b) An offer of securities made from Texas is exempt from the securities registration requirements of The Securities Act, but not from the dealer registration requirements of The Securities Act, when that offer is disseminated through the Internet and:

(1) the offer indicates, directly or indirectly, that the securities are not being offered for sale to any person in Texas;

(2) an offer is not otherwise specifically directed to any person in Texas by, or on behalf of, the issuer; and

(3) no sales of the issuer's securities are made to any person in Texas as a result of the offer.

(c) Subsection (a)(1) or (b)(1) of this section is met by inclusion of any of the following statements, or a substantially similar one, in an offer disseminated through the Internet.

(1) "These securities are not being offered or sold in Texas."

(2) "These securities are being offered and sold in (fill in names of states other than Texas)."

(3) "This is neither a solicitation to buy nor an offer to sell to persons in Texas."

History

• Source Note: The provisions of this §139.17 adopted to be effective March 27, 1996, 21 TexReg 2226.

7 Tex. Admin. Code § 139.18 Dealer and Investment Adviser Use of the Internet To Disseminate Information on Products and Services

(a) Dealers, investment advisers, agents, and investment adviser representatives who use the Internet, the World Wide Web, and similar proprietary or common carrier electronic systems (collectively, the "Internet") to distribute information on available products and services through certain communications made on the Internet directed generally to anyone having access to the Internet, and transmitted through postings on Bulletin Boards, displays on "Home Pages" or similar methods ("Internet Communications") shall not be deemed to be a "dealer" in this state for purposes of the Act, §4001.056, based solely on that fact if the following conditions are observed:

(1) The Internet Communication contains a legend in which it is clearly stated that:

(A) the dealer, investment adviser, agent, or investment adviser representative in question may only transact business in this state if first registered, excluded, or exempted from Texas dealer, investment adviser, agent, or investment adviser representative registration requirements, as may be; and

(B) follow-up, individualized responses to persons in Texas by such dealer, investment adviser, agent, or investment adviser representative that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, as may be, will not be made absent compliance with Texas dealer, investment adviser, agent, or investment adviser representative registration requirements, or an applicable exemption or exclusion;

(2) The Internet Communication contains a mechanism, including and without limitation, technical "firewalls" or other implemented policies and procedures, designed reasonably to ensure that prior to any subsequent, direct communication with prospective customers or clients in Texas, said dealer, investment adviser, agent, or investment adviser representative is first registered in Texas or qualifies for an exemption or exclusion from such requirement. Nothing in this section shall be construed to relieve a Texas registered dealer, investment adviser, agent, or investment adviser representative from any applicable securities registration requirement in Texas;

(3) The Internet Communication does not involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, as may be, in Texas over the Internet, but is limited to the dissemination of general information on products and services; and

(4) In the case of an agent or investment adviser representative:

(A) the affiliation with the dealer or investment adviser of the agent or investment adviser representative is prominently disclosed within the Internet Communication;

(B) the dealer or investment adviser with whom the agent or investment adviser representative is associated retains responsibility for reviewing and approving the content of any Internet Communication by an agent or investment adviser representative;

(C) the dealer or investment adviser with whom the agent or investment adviser representative is associated first authorizes the distribution of information on the particular products and services through the Internet Communication; and

(D) in disseminating information through the Internet Communication, the agent or investment adviser representative acts within the scope of the authority granted by the dealer or investment adviser.

(b) The position expressed in this section extends to state dealer, investment adviser, agent, and investment adviser representative registration requirements only, and does not excuse compliance with applicable securities registration, antifraud, or related provisions.

(c) Nothing in this section shall be construed to affect the activities of any dealer, investment adviser, agent, or investment adviser representative engaged in business in this state that is not subject to the jurisdiction of the Securities Commissioner as a result of the National Securities Markets Improvement Act of 1996, as amended.

History

• Source Note: The provisions of this §139.18 adopted to be effective December 2, 1997, 22 TexReg 11668; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.19 Accredited Investor Exemption

Any offer or sale of a security by an issuer in a transaction that meets the requirements of this section is exempted from the securities registration requirements of the Texas Securities Act and exempted from the filing requirements contained in the Texas Securities Act, §4003.203, and Chapter 137 of this title (relating to Administrative Guidelines for Regulation of Offers).

(1) Who may purchase. Sales of securities shall be made only to persons who are or the issuer reasonably believes are accredited investors. "Accredited investor" is defined in §107.2 of this title (relating to Definitions).

(2) Unavailable for certain issuers. The exemption is not available to an issuer that is in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.

(3) Investment intent; resales. The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within 12 months of sale shall be presumed to be with a view to distribution and not for investment, except a resale pursuant to a registration statement effective under the Texas Securities Act, Chapter 4003, or to an accredited investor pursuant to an exemption available under the Texas Securities Act or Board rules.

(4) Disqualifications.

(A) The exemption is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:

(i) within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the SEC;

(ii) within the last five years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;

(iii) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or

(iv) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.

(B) Subparagraph (A) of this paragraph shall not apply if:

(i) the party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment, or decree creating the disqualification was entered against such party;

(ii) before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or

(iii) the issuer establishes that it did not know and in the exercise of reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this paragraph.

(5) General announcement.

(A) A general announcement of the proposed offering may be made by any means.

(B) The general announcement shall include only the following information, unless additional information is specifically permitted by the Securities Commissioner:

(i) the name, address, and telephone number of the issuer of the securities;

(ii) the name, a brief description, and price (if known) of any security to be issued;

(iii) a brief description of the business of the issuer in 25 words or less;

(iv) the type, number, and aggregate amount of securities being offered;

(v) the name, address, and telephone number of the person to contact for additional information; and

(vi) a statement that:

(I) sales will only be made to accredited investors;

(II) no money or other consideration is being solicited or will be accepted by way of this general announcement; and

(III) the securities have not been registered with or approved by any state securities agency or the SEC and are being offered and sold pursuant to an exemption from registration.

(6) Provision of additional information. The issuer, in connection with an offer, may provide information in addition to the general announcement under paragraph (5) of this section, if such information:

(A) is delivered through an electronic database that is restricted to persons who have been prequalified as accredited investors; or

(B) is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor.

(7) Telephone solicitation. No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor.

(8) Loss of exemption. Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not disqualify the issuer from claiming the exemption under this section.

(9) Filing. The issuer shall file with the Securities Commissioner a notice of transaction on the Model Accredited Investor Exemption Uniform Notice of Transaction form, a consent to service of process, and a copy of the general announcement within 15 days after the first sale in this state.

(10) Dealer and agent registration. Although the issuer is not required to register as a dealer to conduct sales pursuant to this section, third parties must comply with the dealer and agent registration requirements of the Texas Securities Act and Board rules. For the purposes of this section, the term "issuer" includes any director, officer, or employee of the issuer provided all the following conditions are satisfied:

(A) the director, officer, or employee was not hired for the purpose of offering or selling such securities;

(B) the director's, officer's, or employee's activity involving the offer and sale of such securities is strictly incidental to his or her bona fide primary non-securities related work duties; and

(C) the director's, officer's, or employee's compensation is based solely on the performance of other such duties, i.e., the director, officer, or employee does not receive any compensation for offering for sale, selling, or otherwise aiding in the sale of securities.

History

• Source Note: The provisions of this §139.19 adopted to be effective December 2, 1997, 22 TexReg 11668; amended to be effective December 6, 1998, 23 TexReg 12295; amended to be effective June 21, 2011, 36 TexReg 3715; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.20 Third Party Brokerage Arrangements on Financial Entity Premises

(a) The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts a financial entity from the dealer registration requirements of the Texas Securities Act, when such financial entity is engaging in securities-related activity consisting solely of acting as a correspondent in a third party brokerage arrangement coordinated with a registered dealer on the premises of the financial entity. A financial entity may receive compensation for such an arrangement based on a percentage of commissions generated by the arrangement or on the basis of leased space of the premises; officers and employees of the financial entity may receive compensation as set forth in subsection (b) of this section. For purposes of this section, the following words and terms shall have the following meanings:

(1) "financial entity" shall include any state or national bank, any federal savings and loan association or savings and loan association organized and subject to the laws and regulation of this State as defined in §109.17 of this title (relating to Banks under the Securities Act, §4005.016), or any credit union, insurance company, bank holding company, or financial holding company organized and subject to functional regulation under the laws of the United States or under the laws of any State or territory of the United States;

(2) "acting as a correspondent in a third party brokerage arrangement" means that the activity of the financial entity is limited to providing an area on the financial entity premises for the dealer's brokerage activities, advertising the brokerage service, referring customers to a representative of the dealer, and performing clerical or ministerial functions in connection with brokerage transactions including scheduling appointments with agents of the dealer and transferring customer funds or securities;

(3) "premises" shall include the physical location of the financial entity, including all of its branches, as well as the financial entity's web site. Thus, a financial entity may engage in linking arrangements with third party brokerages within this exemption.

(b) The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts officers and employees of a financial entity from the agent registration requirements of the Texas Securities Act, when such employee or officer is engaging in securities-related activity consisting solely of referring customers to a representative of the registered dealer. For the purposes of this subsection, the officers and employees of a financial entity may receive a referral fee for this activity provided that:

(1) the fee is a nominal, one time fee of a fixed dollar amount per referral;

(2) the payment of such referral fee is not contingent on whether the referral results in a transaction; and

(3) such payment is made directly by the registered dealer to the financial entity which, as a condition of this exemption, upon request agrees to provide the Securities Commissioner, or representative of the Commissioner, a statement or internal records itemizing such payments including, but not limited to, the date, amount of payment, the name of each person for whom a referral payment was made and the name of the person receiving the payment.

(c) The filing and fee requirements for dealers and agents exempted from registration pursuant to this section are preserved.

(1) Initially, the exemptions provided by subsections (a) and (b) of this section are available after the filing of:

(A) a Form 133.9;

(B) a consent to service of process (if the financial entity is domiciled outside of Texas);

(C) a copy of the agreement with the third party dealer; and

(D) an initial fee equal to the amount that would have been paid had the financial entity and designated officer of the financial entity filed for registration in Texas.

(2) Upon amendment to its Form 133.9, the financial entity files an amended Form 133.9 and an amendment fee as provided in the Texas Securities Act, §4006.054.

(3) Annually, the financial entity files renewal fees which would have been paid had the financial entity been registered in Texas.

(d) Any financial entity relying on this exemption shall, upon written request, furnish to the Securities Commissioner any information relative to the third party brokerage arrangement that the Commissioner deems relevant, including, but not limited to, records regarding referral fee payments to employees and officers of the financial entity, agreements between the financial entity and the registered dealer, and customer complaints regarding the brokerage activities. Standard compensation records are sufficient "records regarding referral fee payments to employees and officers." All records required by this subsection shall be kept for the life of the third party brokerage arrangement plus an additional five years and may be retained electronically, in hard copy form, microfilm, or microfiche.

History

• Source Note: The provisions of this §139.20 adopted to be effective December 3, 2000, 25 TexReg 11647; amended to be effective August 12, 2001, 26 TexReg 5806; amended to be effective February 24, 2004, 29 TexReg 1645; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.21 Dealer, Agent, and Securities Exemptions for Canadian Accounts

(a) The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts Canadian dealers and agents from the registration requirements of the Texas Securities Act, when such dealers and agents comply with subsections (b) and (c) of this section and are conducting a transaction in a Canadian self-directed tax advantaged retirement plan of which the holder or contributor is a person from Canada who is present in this state or when conducting a transaction in the Canadian securities account of a Canadian citizen who is temporarily present in this state and with whom the dealer or agent has a preexisting client relationship.

(b) A Canadian dealer must be a member of a self-regulatory organization, a stock exchange in Canada, or the bureau "des services financiers" of Quebec, and maintain provincial or territorial registration and membership in a Canadian self-regulatory organization or stock exchange in good standing. An agent must be registered and in good standing in the jurisdiction from which he or she is effecting transactions into this state and maintain registration in such jurisdiction in good standing.

(c) Any Canadian dealer or agent relying on this exemption shall, upon written request, furnish to the Securities Commissioner any information relative to a transaction covered by this section that the Commissioner deems relevant.

(d) The State Securities Board, pursuant to the Texas Securities Act, §4005.024, exempts from the securities registration requirements of the Texas Securities Act, Chapter 4003, Subchapters A, B, and C, the offer and sale of any securities effected by a Canadian dealer pursuant to this section.

(e) The Texas Securities Act prohibits fraud or fraudulent practices in connection with the sale or offer for sale of securities covered by this exemption.

History

• Source Note: The provisions of this §139.21 adopted to be effective November 26, 2001, 26 TexReg 9585; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.22 Exemption for Investment Adviser to a High Net Worth Family Entity

(a) The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts an investment adviser and its investment adviser representatives from the registration requirements of the Act, §4004.052 and §4004.102, when such adviser:

(1) renders services as an investment adviser to a high net worth family entity or related family entities, and

(2) does not hold itself out to the public as one who renders services as an investment adviser.

(b) For purposes of this section, a "high net worth family entity" is a corporation, limited partnership, limited liability company, or other entity, with all of its owners, partners, or members belonging to a single family who are all related by blood, adoption or marriage; with a combined net worth of not less than $5 million; and with ownership by an individual family member being direct or indirect pursuant to a trust or other similar arrangement where the investment is made by or on behalf of, or for the benefit of, the individual. An individual shall not constitute a "family entity" for purposes of this exemption regardless of the net worth of the individual.

(c) For purposes of determining "net worth" under this section, an investment adviser may rely on the entity's most recent annual balance sheet or other financial statement which shall have been audited by an independent accountant or which shall have been verified under oath by a principal of the entity.

History

• Source Note: The provisions of this §139.22 adopted to be effective October 25, 2004, 29 TexReg 9825; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.23 Registration Exemption for Investment Advisers to Private Funds

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Private Fund Adviser--An investment adviser who provides advice:

(A) solely to one or more Private Funds; or

(B) solely to one or more Private Funds and other clients, who are not Private Funds, to whom advice may be provided pursuant to another exemption from investment adviser registration provided under the Texas Securities Act or Board rules.

(2) Private Fund--An issuer that would be an investment company as defined in the Investment Company Act of 1940, §3, but for an exclusion from the definition of an investment company in §3(c)(1) or §3(c)(7) of that Act, 15 U.S.C. §80a.

(3) 3(c)(1) Fund--A Private Fund that relies solely on the exclusion from the definition of an investment company under §3(c)(1) of the Investment Company Act of 1940, 15 U.S.C. §80a-3(c)(l).

(4) Private Equity Fund--A Private Fund that meets the definition of a private equity fund in the Instructions to Part 1A of Form ADV.

(5) Real Estate Fund--A Private Fund that meets the definition of a real estate fund in the Instructions to Part 1A of Form ADV.

(6) Venture Capital Fund--A Private Fund that meets the definition of a venture capital fund in SEC Rule 203(l)-1 (17 CFR §275.203(l)-1, as amended).

(b) Exemption for Private Fund Advisers. Subject to the additional requirements of this section, the State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts from the investment adviser registration requirements of the Texas Securities Act, §4004.052, a Private Fund Adviser satisfying each of the following conditions and limitations:

(1) The Private Fund Adviser files with the Securities Commissioner each report and amendment thereto that an exempt reporting adviser is required to file with the SEC pursuant to SEC Rule 204-4 (17 CFR §275.204-4, as amended). These filings are to be made electronically through the Investment Adviser Registration Depository (IARD). A report shall be deemed filed when the report required by subsection (b) of this section is filed and accepted by the IARD on the state's behalf.

(2) Except as provided in paragraph (3) of this subsection, neither the Private Fund Adviser, nor any of its advisory affiliates, as that term is defined in the Instructions to Part 1A of Form ADV, are subject to the following disqualifications:

(A) any of those described in Rule 262 of SEC Regulation A (17 CFR §230.262, as amended);

(B) has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor involving the offer, purchase, or sale of any security or the rendering of investment advice, or any felony involving embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;

(C) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;

(D) is the subject of a United States Postal Service fraud order that is currently effective and was issued within the last five years;

(E) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;

(F) is subject to an order issued by a state or federal authority that bars the person from association with an entity regulated by the authority that issued the order, or from engaging in the business of securities, insurance, or banking, or savings association or credit union activities; or

(G) is the subject of a suspension or expulsion from membership in or association with a member of a self-regulatory organization that is currently effective and was issued within the last five years.

(3) Exceptions from disqualifications. The prohibitions of paragraph (2) of this subsection shall not apply if:

(A) the party subject to the disqualification is duly licensed or registered to conduct securities related business or render investment advisory services in the state in which the order, judgment, or decree creating the disqualification was entered against such party; or

(B) before investment advisory services are rendered under this section, the Securities Commissioner, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification upon a showing of good cause.

(c) Additional requirements for Private Fund Advisers to certain 3(c)(1) Funds. In order to qualify for an exemption pursuant to this section, a Private Fund Adviser who advises at least one 3(c)(l) Fund that is not a Private Equity Fund, Real Estate Fund, or Venture Capital Fund shall comply with the following additional requirements:

(1) the Private Fund Adviser shall advise only those 3(c)(1) Funds (other than Private Equity Funds, Real Estate Funds, and Venture Capital Funds) whose outstanding securities (other than short-term paper) are beneficially owned entirely by persons who would each meet the definition of a qualified client in SEC Rule 205-3 (17 CFR §275.205-3, as amended), at the time the securities are purchased from the issuer; provided that if an entity was organized and exists only for the purpose of acquiring an interest in the 3(c)(1) Fund, each beneficial owner of such entity must be a qualified client; and

(2) the Private Fund Adviser shall comply with §116.17 of this title (relating to Custody of Funds or Securities of Clients by Registered Investment Advisers) as if registered.

(d) Federal covered investment advisers. If a Private Fund Adviser is registered with the SEC, the adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to federal covered investment advisers in the Texas Securities Act, Chapter 4004, Subchapter G.

(e) Investment adviser representatives. An investment adviser representative is exempt from the registration requirements of the Texas Securities Act, §4004.102, if he or she is employed by or associated with an investment adviser that is exempt from investment adviser registration in this state pursuant to this section and does not otherwise act as an investment adviser representative.

(f) Requests for records.

(1) Upon a written request from the Securities Commissioner or the Commissioner's authorized representative, an investment adviser relying on an exemption provided by this section shall make available to the Commissioner all records subject to the custody or control of the investment adviser related to any private fund to which the investment adviser provides investment advice.

(2) Failure to comply with this subsection will result in the loss of the exemption provided by this section.

History

• Source Note: The provisions of this §139.23 adopted to be effective March 31, 2014, 39 TexReg 495; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.24 Charitable Organizations Assisting Economically Disadvantaged Clients with Texas Qualified Tuition Program Plans

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise.

(1) Charitable organization--A 501(c)(3) nonprofit organization located in Texas that provides services to economically disadvantaged individuals and families.

(2) Client--An individual receiving services from a financial coach or counselor of a charitable organization relating to a Texas qualified tuition program plan.

(3) Economically disadvantaged--Eligible for services based on criteria established by a charitable organization using the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. 9902(2).

(4) Financial coach or counselor--An individual acting on behalf of a charitable organization in counseling or providing services to economically disadvantaged clients of the charitable organization.

(5) Texas qualified tuition program plan--A fund or plan established under the Texas Education Code, Chapter 54, Subchapter G, H, or I, as amended.

(b) Exemption from dealer, agent, investment adviser, and investment adviser representative registration. The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts a charitable organization and its financial coaches and counselors from the dealer, agent, investment adviser, and investment adviser representative registration requirements of the Texas Securities Act, when their securities-related activities are limited to:

(1) assisting economically disadvantaged clients with completing documentation necessary to enroll or make a contribution to a Texas qualified tuition program plan; and

(2) providing materials relating to a Texas qualified tuition program plan that have been prepared on behalf of or approved by the plan manager or administrator of a Texas qualified tuition program plan, Texas Prepaid Higher Education Tuition Board, Office of the Comptroller of Public Accounts, Texas State Securities Board, Texas Match the Promise Foundation, or a tax-exempt charitable organization established by law to implement the Texas Save and Match Program.

(c) Prohibited activities. A charitable organization and its financial coaches and counselors are prohibited from the following activities in connection with a client's enrollment in or contribution to a Texas qualified tuition program plan:

(1) selecting or recommending a particular investment option; or

(2) receiving a commission or other remuneration.

History

• Source Note: The provisions of this §139.24 adopted to be effective February 5, 2014, 39 TexReg 495; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.26 Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings

(a) General. The State Securities Board, pursuant to the Texas Securities Act (Act), §4005.024, exempts from the securities registration requirements of the Act, any offer or sale of securities of an issuer made in compliance with SEC Rule 147A (17 CFR §230.147A, as amended), through a registered general dealer or a registered Texas crowdfunding portal, provided that all the requirements of this section are satisfied.

(b) Issuer. The issuer is not, either before or because of the offering:

(1) A company, that engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities;

(2) Subject to the reporting requirements of the Securities and Exchange Act of 1934, Section 13 or Section 15(d), 15 U.S.C. §78m and §78o(d); or

(3) A company that has not yet defined its business operations, has no business plan, has no stated investment goal for the funds being raised, or that plans to engage in a merger or acquisition with an unspecified business entity.

(c) Offering. The offering must be made exclusively through an Internet website operated by a registered general dealer or registered Texas crowdfunding portal. All consideration received for all sales of the securities in reliance on this exemption shall not exceed $1 million in a 12-month period. This amount is reduced by the aggregate amount received for all sales of securities by the issuer in another offering that does not take place prior to the six-month period immediately preceding or after the six-month period immediately following any offers or sales made in reliance upon this section.

(d) Individual investments. The issuer will not accept more than $5,000 from any single purchaser unless the purchaser is an accredited investor as defined in §107.2 of this title (relating to Definitions). The issuer must have a reasonable basis for believing that the purchaser of a security under this section is a Texas resident and, if applicable, an accredited investor.

(e) Escrow or segregated account to safeguard investor and issuer funds.

(1) All payments for purchases of securities offered under this section are directed to and deposited in an escrow account or a segregated account, if a segregated account is permitted under paragraph (2) of this subsection. The payments must be held in an escrow account or a segregated account until the aggregate capital raised from all purchasers is equal to or greater than the minimum target offering amount specified in the disclosure statement as necessary to implement the business plan. Investors will receive a return of all their subscription funds if the target offering amount is not raised by the time stated in the disclosure statement.

(2) A segregated account may be used in lieu of an escrow account if the maximum offering amount is $1 million or less.

(3) For purposes of this subsection:

(A) An "escrow account" is one administered by an independent escrow agent who is a bank or other depository institution.

(B) A "segregated account" is one established by a registered general dealer or a Texas crowdfunding portal pursuant to a written agreement ("Account Agreement") with the issuer and provides that the registered general dealer or portal will act on behalf of the issuer and investors to hold funds raised from investors in a specific securities offering until such time as those funds can be disbursed in accordance with paragraph (1) of this subsection. The Account Agreement must identify the bank or other depository institution and account number where the funds will be held. All signatories on the segregated account must be persons registered with the Securities Commissioner.

(4) The escrow account or segregated account must be in a bank or other depository institution located in Texas and organized and subject to regulation under the laws of the United States or under the laws of Texas.

(5) A separate account must be set up for each securities offering in which a segregated account is used in lieu of an escrow account. The Account Agreement entered into in connection with a segregated account, shall include requirements that the dealer or portal must, and the account shall be, administered in accordance with the following principles requiring the dealer or portal to:

(A) be responsible for prudent processing, safeguarding, and accounting for funds entrusted to it by investors and the issuer;

(B) act to the advantage of and in the best interests of the investors and the issuer; and

(C) ensure that all requirements of the Account Agreement between the portal and issuer are met before funds are disbursed from the segregated account.

(6) The issuer shall inform all prospective purchasers and investors if a segregated account is to be used to hold investor payments. Additionally, a portal must make the disclosures mandated by §115.19(c)(3) of this title (relating to Texas Crowdfunding Portal Registration and Activities).

(f) Communications.

(1) All communications between the issuer, prospective purchasers, or investors taking place during the offer of securities pursuant to this section must occur through the Internet website of the registered general dealer or Texas crowdfunding portal. During the time the offering appears on the Internet website, the website must provide channels through which potential purchasers and investors can communicate with one another and with representatives of the issuer about the offering. These communications must be visible to all those with access to the offering materials on the Internet website.

(2) Notwithstanding the foregoing, the issuer may distribute a notice limited to a statement that the issuer is conducting an offering, the name of the registered general dealer or portal through which the offering is being conducted, and a link directing the potential investor to the dealer or portal's Internet website.

(g) Internet website.

(1) The registered general dealer or registered portal shall give the Securities Commissioner access to the Internet website operated by the dealer or portal prior to offering an investment opportunity to residents of Texas and the website must remain accessible to the Commissioner throughout the term of the offering.

(2) Information about the issuer and the offering posted on the Internet website operated by the registered general dealer or registered portal consists of:

(A) a copy of the disclosure statement required by subsection (h) of this section;

(B) a summary of the offering, including:

(i) a description of the entity, its form of business, principal office, history, business plan, and the intended use of the offering proceeds, including compensation paid to any owner, executive officer, director, or manager;

(ii) the identity of the executive officers, directors, and managers, including their titles and their prior experience and the identity of all persons owning more than 20% of the ownership interests of any class of securities of the company; and

(iii) a description of the securities being offered and of any outstanding securities of the company, the amount of the offering, and the percentage ownership of the company represented by the offered securities.

(3) The information on the Internet website required by paragraph (2) of this subsection must be made available to the Commissioner and potential investors for a minimum of 21 days before any securities are sold in the offering.

(h) Disclosure statement. A disclosure statement must be made readily available and accessible to each prospective purchaser at the time the offer of securities is made to the prospective purchaser on the Internet website. The disclosure statement must contain all of the following:

(1) Material information and risk factors. All information material to the offering, including, where appropriate, a discussion of significant factors that make the offering speculative or risky. Guidance on the categories of information to include can be found by reviewing the small business offering information provided by the Texas State Securities Board on its Internet website. Topics to be addressed include, but are not limited to:

(A) general description of the issuer's business;

(B) history of the issuer's operations and organization;

(C) management of the company and principal stockholders;

(D) how the proceeds from the offering will be used;

(E) financial information about the issuer;

(F) description of the securities being offered; and

(G) litigation and legal proceedings.

(2) Disclosures. The issuer shall inform all prospective purchasers and investors of the following:

(A) There is no ready market for the sale of the securities acquired from this offering; it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely;

(B) The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law;

(C) In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and

(D) No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the disclosure statement or any other information on this Internet website.

(3) Financial statements. Issuers must provide current financial statements certified by the principal executive officer to be true and complete in all material respects. If the issuer has audited or reviewed financial statements, prepared within the last three years, such financial statements must also be provided to investors.

(i) Notice filing. Before using any publicly available Internet website in an offering of securities in reliance on this section, the issuer shall file with the Securities Commissioner:

(1) Form 133.21, Crowdfunding Exemption Notice;

(2) the disclosure statement, required by subsection (h) of this section;

(3) the summary of the offering, required by subsection (g)(2)(B) of this section; and

(4) if investor funds are to be deposited into a segregated account as permitted by subsection (e) of this section, a copy of the written Account Agreement entered into between the issuer and the registered general dealer or Texas crowdfunding portal that will hold investor funds in the securities offering.

(j) Commissions and remuneration. A commission or other remuneration shall not be paid or given, directly or indirectly, for the offer or sale of the securities unless the person receiving such compensation is registered in Texas as a dealer or agent or as a Texas crowdfunding portal. The issuer may not list its securities on the Internet website of a general dealer or portal that holds an interest in the issuer. The issuer may not compensate a general dealer or a portal by providing a financial interest in the issuer as compensation for services provided to or on behalf of the issuer. A general dealer or portal may not be affiliated with or under common control with an issuer whose securities appear on its Internet website. Nothwithstanding the foregoing, a Registered Small Business Development Entity, as defined in §115.20 of this title (relating to Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities), may have a financial interest in an issuer listed on its Crowdfunding Web Portal, as defined in §115.20.

(k) Disqualifications.

(1) For purposes of this subsection, "control person" means an officer; director; other person having the power, directly or indirectly, to direct the management or policies of the issuer, whether by contract or otherwise; or a person that owns 20% or more of any class of the outstanding securities of the issuer.

(2) This exemption is not available if the issuer, the issuer's predecessors, any affiliated issuer, or any control person of the issuer:

(A) within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the SEC;

(B) within the last five years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;

(C) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or

(D) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.

(3) Paragraph (2) of this subsection shall not apply if:

(A) the party subject to the disqualification is licensed or registered to conduct securities-related business in the state in which the order, judgment, or decree creating the disqualification was entered against such party;

(B) before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or

(C) the issuer establishes it did not know and exercising reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this subsection.

(4) This exemption is not available to an issuer if:

(A) a control person of the issuer is also a control person of another issuer that has made a securities offering in Texas within the previous 12-month period;

(B) a control person of the issuer is also a control person of another issuer that is concurrently conducting a securities offering in Texas; or

(C) the proceeds of the offering will be combined with the proceeds of a securities offering by another issuer as part of a single plan of financing.

History

• Source Note: The provisions of this §139.26 adopted to be effective June 12, 2018, 43 TexReg 3782; amended to be effective November 14, 2024, 49 TexReg 8876.

7 Tex. Admin. Code § 139.27 Mergers and Acquisitions Dealer Exemption

(a) Dealer and agent exemption. The State Securities Board, pursuant to the Texas Securities Act, §4004.001, exempts a Mergers and Acquisitions (M&A) Dealer from registration as a dealer provided the conditions set forth in this section are met. The agents for the M&A Dealer are also exempt from registration provided the conditions set forth in this section are met.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) M&A Dealer--A person engaged in the business of effecting securities transactions solely in connection with a Qualifying M&A Transaction, as identified in subsection (c) of this section.

(2) Actively Operate--The power to elect executive officers and approve the annual budget or serving as an executive or other executive manager.

(3) Privately-Held Company--A company that does not have any class of securities registered or required to be registered with a securities regulator and is not required to file periodic information, documents, or reports under §15(d) of the Exchange Act. The company must be an operating company that is a going concern and not a shell company. For purposes of this definition, a "going concern" need not be profitable so long as it has actually been conducting business, including soliciting or effecting business transactions or engaging in research and development activities.

(4) Shell Company--A company that has no or nominal operations, and has:

(A) no or nominal assets;

(B) assets consisting solely of any amount of cash or cash equivalents; or

(C) assets consisting of any amount of cash and cash equivalents and nominal other assets.

(5) Business Combination Related Shell Company--a Shell Company (as defined in SEC Rule 405) (17 CFR §230.405, as amended) that is:

(A) formed by an entity that is not a shell company solely for the purpose of changing the corporate domicile of that entity solely within the United States; or

(B) formed by an entity that is not a Shell Company solely for the purpose of completing a business combination transaction (as defined in SEC Rule 165(f)) (17 CFR §230.165(f), as amended) among one or more entities other than the Shell Company, none of which is a Shell Company.

(c) Qualifying M&A Transactions. To be a Qualifying M&A Transaction, the transaction must meet all the following requirements.

(1) A Qualifying M&A Transaction is a transfer of ownership and control of a Privately-Held Company to a buyer through the purchase, sale, exchange, issuance, repurchase, or redemption of securities, or a business combination involving securities or assets of the company.

(2) Upon completion of the transaction, the buyer or group of buyers must actively operate the company or the business conducted with the assets of the company.

(3) No Qualifying M&A Transaction can involve a public offering of securities. Any offering or sale of securities will be conducted in compliance with an applicable exemption from registration under the Texas Securities Act.

(4) No party to any Qualifying M&A Transaction can be a Shell Company, other than a Business Combination Related Shell Company.

(5) The buyer, or group of buyers, in any Qualifying M&A Transaction must, upon completion of the transaction, control the company. A buyer, or group of buyers collectively, would have the necessary control if it has the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. The necessary control will be presumed to exist if, upon completion of the transaction, the buyer or group of buyers has the right to vote 25% or more of a class of voting securities; has the power to sell or direct the sale of 25% or more of a class of voting securities; or in the case of a partnership or limited liability company, has the right to receive upon dissolution or has contributed 25% or more of the capital.

(6) No Qualifying M&A Transaction can result in the transfer of securities to a passive buyer or group of passive buyers.

(7) Any securities received by the buyer or M&A Dealer in a Qualifying M&A Transaction are restricted securities within the meaning of the Securities Act of 1933, Rule 144(a)(3) (17 CFR §230.144(a)(3), as amended).

(d) Permitted activities. An M&A Dealer may:

(1) advertise a Privately-Held Company for sale with information such as the description of the business, general location, and price range, so long as the dealer does not include an offer for sale of securities; or

(2) facilitate a Qualifying M&A Transaction with a group of buyers only if the group is formed without the assistance of the M&A Dealer.

(e) Prohibited activities. An M&A Dealer may not:

(1) have the ability to bind a party to a Qualifying M&A Transaction;

(2) directly, or indirectly through any of its affiliates, provide financing for a Qualifying M&A Transaction; or

(3) have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with a Qualifying M&A Transaction or other securities transaction for the account of others.

(f) Disclosures.

(1) To the extent an M&A Dealer represents both buyers and sellers, it must provide clear written disclosure as to the parties it represents and obtain written consent from both parties to the joint representation.

(2) An M&A Dealer that assists buyers to obtain financing from unaffiliated third parties must comply with all applicable legal requirements and must disclose any compensation in writing to the buyer.

(g) Disqualifications.

(1) Except as provided in paragraph (2) of this subsection, the exemption in this section is not available if the M&A Dealer, or an officer, director, or employee of the M&A Dealer are subject to any of the following disqualifications:

(A) any of those described in Rule 262 of SEC Regulation A (17 CFR §230.262, as amended);

(B) has been convicted within five years prior to the filing of the notice required under this exemption of any felony or misdemeanor involving the offer, purchase, or sale of any security or the rendering of investment advice, or any felony involving embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;

(C) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;

(D) is the subject of a United States Postal Service fraud order that is currently effective and was issued within the last five years;

(E) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of a security or the rendering of investment advice;

(F) is subject to an order issued by a state or federal authority that bars the person from association with an entity regulated by the authority that issued the order, or from engaging in the business of securities, insurance, or banking, or savings association or credit union activities; or

(G) is the subject of a suspension or expulsion from membership in or association with a member of a self-regulatory organization that is currently effective and was issued within the last five years.

(2) The prohibitions of paragraph (1) of this subsection shall not apply if:

(A) the party subject to the disqualification is duly licensed or registered to conduct securities-related business or render investment advisory services in the state in which the order, judgment, or decree creating the disqualification was entered against such party; or

(B) before services are rendered under this section, the Securities Commissioner, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification upon a showing of good cause.

(h) Recordkeeping and requests for records.

(1) An M&A Dealer shall maintain and preserve for a period of three (3) years records of all compensation received and communications, agreements, or contracts with buyers and/or sellers in connection with any transaction or transactions in which the dealer received compensation.

(2) Upon a written request from the Securities Commissioner or the Commissioner's authorized representative, an M&A Dealer relying on the exemption provided by this section shall make available to the Commissioner all records required to be maintained and preserved under this subsection. Failure to comply with this subsection will result in the loss of the exemption provided by this section.

History

• Source Note: The provisions of this §139.27 adopted to be effective February 16, 2015, 40 TexReg 700; amended to be effective November 14, 2024, 49 TexReg 8876.

Part 8 JOINT FINANCIAL REGULATORY AGENCIES

Chapter 151 HOME EQUITY LENDING PROCEDURES

7 Tex. Admin. Code § 151.1 Interpretation Procedures

(a) Issuing interpretations. The Finance Commission and Credit Union Commission may on their own motion issue interpretations of Section 50(a)(5) - (7), (e) - (p), and (t), Article XVI of the Texas Constitution. The commissions will propose and adopt interpretations in accordance with the rulemaking requirements of Texas Government Code, Chapter 2001, Subchapter B.

(b) Agency recommendations. The Office of Consumer Credit Commissioner, Department of Banking, or Department of Savings and Mortgage Lending may recommend proposed interpretations to the Finance Commission. The Credit Union Department may recommend proposed interpretations to the Credit Union Commission. The four agencies may seek informal input from stakeholders and the other agencies before recommending a proposed interpretation to the commissions.

(c) Informal request for interpretation. A person may submit an informal request for an interpretation of Section 50(a)(5) - (7), (e) - (p), or (t), Article XVI of the Texas Constitution. An informal request may be submitted to the Office of Consumer Credit Commissioner, Department of Banking, Department of Savings and Mortgage Lending, or Credit Union Department. A request should:

(1) cite the specific provision of the Texas Constitution to be interpreted;

(2) explain the factual and legal context for the request; and

(3) explain the requestor's opinion of how the request should be resolved.

(d) Petition for rulemaking. An interested person may formally request an interpretation of Section 50(a)(5) - (7), (e) - (p), or (t), Article XVI of the Texas Constitution by submitting a petition to initiate rulemaking.

(1) Any petition for the Finance Commission to issue an interpretation must be submitted to the Department of Savings and Mortgage Lending and must include the information required by §9.82 of this title (relating to Petitions to Initiate Rulemaking Proceedings).

(2) Any petition for the Credit Union Commission to issue an interpretation must be submitted to the Credit Union Department and must include the information required by §97.500 of this title (relating to Petitions to Initiate Rulemaking Proceedings).

History

• Source Note: The provisions of this §151.1 adopted to be effective January 7, 2004, 29 TexReg 83; amended to be effective November 13, 2008, 33 TexReg 9073; amended to be effective November 26, 2020, 45 TexReg 8306; amended to be effective November 28, 2024, 49 TexReg 9745.

7 Tex. Admin. Code § 151.8 Savings Clause and Severability

The Finance Commission and Credit Union Commission intend that each provision of any interpretation adopted under Chapters 151, 152, and 153 of this title is consistent with Chapter 2001, Government Code. The provisions of any interpretation adopted under Chapters 151, 152, and 153 of this title are severable. If any provision of any interpretation adopted under Chapters 151, 152, and 153 of this title is determined to be inconsistent with Chapter 2001, Government Code or otherwise invalid, all valid provisions are severable from the invalid part.

History

• Source Note: The provisions of this §151.8 adopted to be effective January 7, 2004, 29 TexReg 83; amended to be effective November 13, 2008, 33 TexReg 9073.

Chapter 152 REPAIR, RENOVATION, AND NEW CONSTRUCTION ON HOMESTEAD PROPERTY

7 Tex. Admin. Code § 152.1 Definitions

Any reference to Section 50 in this interpretation refers to Article XVI, Texas Constitution, Section 50. Words and terms have these meanings when used in this chapter, unless the context indicates otherwise:

(1) Contract--A contract for work and material, that complies with the Texas Constitution and the Texas Property Code, used to:

(A) construct new improvements;

(B) repair or renovate existing improvements; or

(C) both subparagraphs (A) and (B) of this paragraph.

(2) Existing improvements--A pre-existing addition to a homestead that is physically attached to the homestead.

(3) New improvements--An addition physically attached to a homestead:

(A) that does not exist on the homestead prior to the commencement of the use of work and material to physically attach the new improvements to the homestead under Section 50(a)(5); and

(B) the construction of which will not involve:

(i) work on existing improvements

(ii) the use of material on existing improvements; or

(iii) physically attaching material to existing improvements.

(4) Material--Material used in constructing new improvements or repairing or renovating existing improvements. Material alone is not improvements. Material used to construct new improvements becomes a part of the new improvements once physically attached to the new improvements. Likewise, material used to repair or renovate existing improvements becomes a part of the existing improvements once physically attached to the existing improvements.

(5) Owner--A person who has the right to possess, use, and convey, individually or with the joinder of another person, all or part of the homestead.

(6) Physically attach--To permanently attach, affix, add to, or fasten onto.

(7) Repair or Renovate--Work and material used to:

(A) replace material physically attached to existing improvements whether or not the new material is similar to or the same as the material being replaced (examples include replacing flooring, roofing, built-in appliances, siding, windows, or other material that is attached to existing improvements);

(B) physically attach material to existing improvements where there is no previously attached material being replaced that is the same as or similar to the material being attached (examples include attaching to existing improvements a new room, a built-in cabinet, or a second story); and

(C) mend, remedy or upgrade all or a portion of existing improvements without adding or replacing material to the existing improvements (examples include restoring wood flooring or woodwork of an existing improvement where the work does not include physically attaching material to the existing improvements, and removing flooring to expose flooring underneath).

(8) Title company--A title insurance company or an agent of a title insurance company.

History

• Source Note: The provisions of this §152.1 adopted to be effective July 7, 2005, 30 TexReg 3863.

7 Tex. Admin. Code § 152.3 Requirements for Construction of New Improvements: Section 50(a)(5)

(a) Except as provided in §152.5(c) of this chapter, Section 50(a)(5)(A) - (D) does not apply to the construction of new improvements on a homestead.

(b) A valid lien, under Section 50(a)(5), may be created on a homestead if the debt for the work and material used for new improvements is contracted for in writing. Once the lien is created, the homestead is not protected by Section 50 from forced sale for the payment of the debt.

History

• Source Note: The provisions of this §152.3 adopted to be effective July 7, 2005, 30 TexReg 3863.

7 Tex. Admin. Code § 152.5 Requirements for Work and Material Used to Repair or Renovate: Section 50(a)(5)(A) - (D)

(a) Section 50(a)(5)(A) - (D) applies only to contracts and applications for work and material used to repair or renovate existing improvements.

(b) If debt is incurred for work and material used to repair or renovate existing improvements and the requirements of Section 50(a)(5)(A) - (D) have been met, a lien is established on the homestead of a family, or of a single adult person, and it is not protected by Section 50 from forced sale for the payment of the debt.

(c) If the application and contract are for both work and material used to repair or renovate existing improvements and for work and material used in constructing new improvements, the entire transaction is considered a contract to repair and renovate existing improvements and compliance with the constitutional requirements of Section 50(a)(5)(A) - (D) is required to establish a lien on the homestead.

History

• Source Note: The provisions of this §152.5 adopted to be effective July 7, 2005, 30 TexReg 3863.

7 Tex. Admin. Code § 152.7 Consent of Spouses in the Case of Family Homestead: Section 50(a)(5)(A)

(a) In the case of a family homestead, both spouses must consent in writing to the contract for repair or renovation of existing improvements, regardless of whether the spouse has a community property interest or other ownership interest in the homestead.

(b) In addition to the consent of both spouses of a family homestead, the lender or contractor, at its option, may also require all other owners and their spouses to consent to the contract.

History

• Source Note: The provisions of this §152.7 adopted to be effective July 7, 2005, 30 TexReg 3863.

7 Tex. Admin. Code § 152.9 Five Day Waiting Period for a Contract Before Executing Work and Materials for Repairs or Renovation: Section 50(a)(5)(C)

The contract for work and materials may not be executed before the fifth calendar day after the owner makes written application for any extension of credit for the work and materials except as provided in §152.13. To count the five days, the day after the application for extension of credit is made is day one. If the fifth calendar day falls on a Sunday or federal legal public holiday, then the contract for work and materials may not be executed until the next calendar day that is not a Sunday or federal legal public holiday.

History

• Source Note: The provisions of this §152.9 adopted to be effective March 3, 2005, 30 TexReg 1065.

7 Tex. Admin. Code § 152.11 Three Day Right to Rescind Contract for Work and Materials for Repairs or Renovation: Section 50(a)(5)(C)

The owner and owner's spouse may rescind the contract for work and materials within three calendar days after execution by all parties of the contract for work and materials. To count the three days, the day after the contract is executed is day one. The rescission period ends at midnight of the third calendar day following the execution of the contract. If the third calendar day falls on a Sunday or federal legal public holiday, then the right of rescission is extended to midnight of the next calendar day that is not a Sunday or federal legal public holiday.

History

• Source Note: The provisions of this §152.11 adopted to be effective March 3, 2005, 30 TexReg 1065.

7 Tex. Admin. Code § 152.13 Health or Safety Reasons for Waiving the Five Day Waiting Period and the Three Day Right to Rescind: Section 50(a)(5)(B) and (C)

(a) If the owner wants to waive the 5-day waiting period in §50(a)(5)(B) or the 3-day right of rescission in §50(a)(5)(C), the owner must sign a statement that, at a minimum:

(1) describes how the conditions of the homestead property require immediate repair;

(2) describes how the conditions of the homestead property materially affect the health and safety of the owner or the person residing in the homestead; and

(3) states that the owner is waiving the 5-day waiting period under §50(a)(5)(B), the 3-day period to rescind the contract for work and materials under §50(a)(5)(C), or both;

(b) Printed forms for this purpose are prohibited.

History

• Source Note: The provisions of this §152.13 adopted to be effective March 3, 2005, 30 TexReg 1065.

7 Tex. Admin. Code § 152.15 Place for Execution of Contract for Work and Material: Section 50(a)(5)(D)

(a) The persons granting or acknowledging the encumberance of their homestead interest must execute the contract for work and material used to repair or renovate existing improvements at the permanent physical address of:

(1) the office or branch office of a third-party lender making an extension of credit for the work and material;

(2) an attorney at law; or

(3) a title company.

(b) Execution of the contract may not occur at a mobile office located at:

(1) the homestead; or

(2) any other place not permitted by subsection (a) of this section.

History

• Source Note: The provisions of this §152.15 adopted to be effective July 7, 2005, 30 TexReg 3863.

Chapter 153 HOME EQUITY LENDING

7 Tex. Admin. Code § 153.1 Definitions

Any reference to Section 50 in this interpretation refers to Article XVI, Texas Constitution, unless otherwise noted. These words and terms have the following meanings when used in this chapter, unless the context indicates otherwise:

(1) Balloon--An installment that is more than an amount equal to twice the average of all installments scheduled before that installment.

(2) Business day.

(A) As used in Section 50(a)(6)(M)(ii) and §153.13 of this title (relating to Preclosing Disclosures: Section 50(a)(6)(M)(ii)), "business day" means all calendar days except Sundays and the following legal public holidays: New Year's Day, Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and any other legal public holiday specified in 5 U.S.C. § 6103 (a). When a holiday falls on a Saturday or Sunday, entities might observe the holiday on the preceding Friday or following Monday (e.g., when July 4 falls on a Saturday, entities might observe the holiday on Friday, July 3). For purposes of this subparagraph, these observed holidays (in the example, July 3) are business days.

(B) As used in Section 50(f)(2)(D) and §153.45 of this title (relating to Refinance of an Equity Loan: Section 50(f)), "business day" means a day on which the lender's offices are open to the public for carrying on substantially all of its business functions. Activities that indicate that the lender is open for substantially all of its business functions include the availability of personnel to make loan disbursements, to open new accounts, and to handle loan inquiries. Activities that indicate that the lender is not open for substantially all of its business functions include a bank's having its customer-service windows open only for limited purposes such as deposits and withdrawals, bill paying, and related services.

(C) As used in §153.25 of this title (relating to Right of Rescission: Section 50(a)(6)(Q)(viii)), "business day" has the meaning provided by Regulation Z, 12 C.F.R. §1026.2(a)(6) that applies for purposes of rescission.

(3) Closed or closing--The date when each owner and the spouse of each owner signs the equity loan agreement or the act of signing the equity loan agreement by each owner and the spouse of each owner.

(4) Consumer disclosure--The written notice contained in Section 50(g) that must be provided to the owner at least 12 days before the date the extension of credit is made.

(5) Cross-default provision--A provision in a loan agreement that puts the borrower in default if the borrower defaults on another obligation.

(6) Date the extension of credit is made--The date on which the closing of the equity loan occurs.

(7) E-Sign Act--The federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §§7001-7006.

(8) Equity loan--An extension of credit as defined and authorized under the provisions of Section 50(a)(6).

(9) Equity loan agreement--The documents evidencing the agreement between the parties of an equity loan.

(10) Fair market value--The fair market value of the homestead as determined on the date that the loan is closed.

(11) Force-placed insurance--Insurance purchased by the lender on the homestead when required insurance on the homestead is not maintained in accordance with the equity loan agreement.

(12) Interest--As used in Section 50(a)(6)(E), "interest" means the amount determined by multiplying the loan principal by the interest rate over a period of time.

(13) Lockout provision--A provision in a loan agreement that prohibits a borrower from paying the loan early.

(14) Owner--A person who has the right to possess, use, and convey, individually or with the joinder of another person, all or part of the homestead.

(15) Preclosing disclosure--The written itemized disclosure required by Section 50(a)(6)(M)(ii).

(16) Two percent limitation--The limitation on fees in Section 50(a)(6)(E).

(17) UETA--The Texas Uniform Electronic Transactions Act, Texas Business & Commerce Code, Chapter 322.

History

• Source Note: The provisions of this §153.1 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective January 1, 2015, 39 TexReg 10407; amended to be effective March 29, 2018, 43 TexReg 1839; amended to be effective January 6, 2022, 46 TexReg 9240; amended to be effective July 14, 2022, 47 TexReg 3969.

7 Tex. Admin. Code § 153.2 Voluntary Lien: Section 50(a)(6)(A)

An equity loan must be secured by a voluntary lien on the homestead created under a written agreement with the consent of each owner and each owner's spouse.

(1) The consent of each owner and each owner's spouse must be obtained, regardless of whether any owner's spouse has a community property interest or other interest in the homestead.

(2) An owner or an owner's spouse who is not a maker of the note may consent to the lien by signing a written consent to the mortgage instrument. The consent may be included in the mortgage instrument or a separate document.

(3) The lender, at its option, may require each owner and each owner's spouse to consent to the equity loan. This option is in addition to the consent required for the lien.

History

• Source Note: The provisions of this §153.2 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.3 Limitation on Equity Loan Amount: Section 50(a)(6)(B)

An equity loan must be of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made. For example, on a property with a fair market value of $100,000, the maximum amount of debt against the property permitted by Section 50(a)(6)(B) is $80,000. Assuming existing debt of $30,000, the maximum amount of the equity loan debt is $50,000.

(1) The principal amount of an equity loan is the sum of:

(A) the amount of the cash advanced; and

(B) the charges at the inception of an equity loan to the extent these charges are financed in the principal amount of the loan.

(2) The principal balance of all outstanding debt secured by the homestead on the date the extension of credit is made determines the maximum principal amount of an equity loan.

(3) The principal amount of an equity loan does not include interest accrued after the date the extension of credit is made (other than any interest capitalized and added to the principal balance on the date the extension of credit is made), or other amounts advanced by the lender after closing as a result of default, including for example, ad valorem taxes, hazard insurance premiums, and authorized collection costs, including reasonable attorney's fees.

(4) On a closed-end multiple advance equity loan, the principal balance also includes contractually obligated future advances not yet disbursed.

History

• Source Note: The provisions of this §153.3 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.4 Nonrecourse: Section 50(a)(6)(C)

An equity loan must be without recourse for personal liability against each owner and the spouse of each owner, unless the owner or spouse obtained the extension of credit by actual fraud.

(1) If an owner or the spouse of an owner cosigns an equity loan agreement or consents to a security interest, the equity loan must not give the lender personal liability against an owner or an owner's spouse.

(2) A lender is prohibited from pursuing a deficiency except when the owner or owner's spouse has committed actual fraud in obtaining an equity loan.

(3) To determine whether a lender may pursue personal liability, the borrower or owner must have committed "actual fraud." To obtain personal liability under this section, the deceptive conduct must constitute the legal standard of "actual fraud." Texas case law distinguishes "actual fraud" from "constructive fraud." "Actual fraud" encompasses dishonesty of purpose or intentional breaches of duty that are designed to injure another or to gain an undue and unconscientious advantage.

History

• Source Note: The provisions of this §153.4 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.5 Two Percent Fee Limitation: Section 50(a)(6)(E)

An equity loan must not require the owner or the owner's spouse to pay, in addition to any interest or any bona fide discount points used to buy down the interest rate, any fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, two percent of the original principal amount of the extension of credit, excluding fees for an appraisal performed by a third party appraiser, a property survey performed by a state registered or licensed surveyor, a state base premium for a mortgagee policy of title insurance with endorsements established in accordance with state law, or a title examination report if its cost is less than the state base premium for a mortgagee policy of title insurance without endorsements established in accordance with state law.

(1) Optional Charges. Charges paid by an owner or an owner's spouse at their sole discretion are not fees subject to the two percent limitation. Charges that are not imposed or required by the lender, but that are optional, are not fees subject to the two percent limitation. The use of the word "require" in Section 50(a)(6)(E) means that optional charges are not fees subject to the two percent limitation.

(2) Optional Insurance. Insurance coverage premiums paid by an owner or an owner's spouse that are at their sole discretion are not fees subject to the two percent limitation. Examples of these charges may include credit life and credit accident and health insurance that are voluntarily purchased by the owner or the owner's spouse.

(3) Charges that are Interest. Charges an owner or an owner's spouse is required to pay that constitute interest under §153.1(12) of this title (relating to Definitions) are not fees subject to the two percent limitation.

(A) Per diem interest is interest and is not subject to the two percent limitation.

(B) Bona fide discount points are interest and are not subject to the two percent limitation. Discount points are bona fide if the discount points truly correspond to a reduced interest rate and are not necessary to originate, evaluate, maintain, record, insure, or service the equity loan. A lender may rely on an established system of verifiable procedures to evidence that the discount points it offers are bona fide. This system may include documentation of options that the owner is offered in the course of negotiation, including a contract rate without discount points and a lower contract rate based on discount points.

(4) Charges that are not Interest. Charges an owner or an owner's spouse is required to pay that are not interest under §153.1(12) of this title are fees subject to the two percent limitation.

(5) Charges Absorbed by Lender. Charges a lender absorbs, and does not charge an owner or an owner's spouse that the owner or owner's spouse might otherwise be required to pay are unrestricted and not fees subject to the two percent limitation.

(6) Charges to Originate. Charges an owner or an owner's spouse is required to pay to originate an equity loan that are not interest under §153.1(12) of this title are fees subject to the two percent limitation.

(7) Charges Paid to Third Parties. Charges an owner or an owner's spouse is required to pay to third parties for separate and additional consideration for activities relating to originating an equity loan are fees subject to the two percent limitation. For example, these charges include attorneys' fees for document preparation to the extent authorized by applicable law. Charges that third parties absorb, and do not charge an owner or an owner's spouse that the owner or owner's spouse might otherwise be required to pay are unrestricted and not fees subject to the two percent limitation.

(8) Charges to Evaluate. Charges an owner or an owner's spouse is required to pay to evaluate the credit decision for an equity loan, that are not interest under §153.1(12) of this title, are fees subject to the two percent limitation. Examples of these charges include fees collected to cover the expenses of a credit report, flood zone determination, tax certificate, inspection, or appraisal management services.

(9) Charges to Maintain. Charges paid by an owner or an owner's spouse to maintain an equity loan that are not interest under §153.1(12) of this title are fees subject to the two percent limitation if the charges are paid at the inception of the loan, or if the charges are customarily paid at the inception of an equity loan but are deferred for later payment after closing.

(10) Charges to Record. Charges an owner or an owner's spouse is required to pay for the purpose of recording equity loan documents in the official public record by public officials are fees subject to the two percent limitation.

(11) Charges to Insure an Equity Loan. Premiums an owner or an owner's spouse is required to pay to insure an equity loan are fees subject to the two percent limitation. Examples of these charges include title insurance and mortgage insurance protection, unless the premiums are otherwise excluded under paragraph (15) of this section.

(12) Charges to Service. Charges paid by an owner or an owner's spouse for a party to service an equity loan that are not interest under §153.1(12) of this title are fees subject to the two percent limitation if the charges are paid at the inception of the loan, or if the charges are customarily paid at the inception of an equity loan but are deferred for later payment after closing.

(13) Exclusion for Appraisal Fee. A fee for an appraisal performed by a third party appraiser is not a fee subject to the two percent limitation. The appraisal must be performed by a person who is not an employee of the lender. The excludable appraisal fee is limited to the amount paid to the appraiser for the completion of the appraisal, and does not include an appraisal management services fee described by Texas Occupations Code, §1104.158(a)(2).

(14) Exclusion for Property Survey Fee. A fee for a property survey performed by a state registered or licensed surveyor is not a fee subject to the two percent limitation. The property survey must be performed by a person who is licensed or registered under Texas Occupations Code, Chapter 1071.

(15) Exclusion for Title Insurance Premium. A state base premium for a mortgagee policy of title insurance with endorsements established in accordance with state law is not a fee subject to the two percent limitation.

(A) The excludable premium is limited to the applicable basic premium rate for title insurance published by the Texas Department of Insurance, plus authorized premiums for applicable endorsements.

(B) Any mortgagee policy for the equity loan must be provided by a company authorized to do business in this state.

(C) If additional premiums for endorsements are charged, the endorsements must be applicable to the mortgagee policy for the equity loan. Rules adopted by the Texas Department of Insurance govern the applicability of endorsements and the authorized amount of the premium for each endorsement.

(16) Exclusion for Title Examination Report Fee. A fee for a title examination report is not a fee subject to the two percent limitation if its cost is less than the state base premium for a mortgagee policy of title insurance without endorsements established in accordance with state law.

(A) The excludable fee must be less than the applicable basic premium rate for title insurance published by the Texas Department of Insurance, not including any additional premiums for endorsements.

(B) The fee for a title examination report may not be excluded from the two percent limitation if the equity loan is covered by a mortgagee policy of title insurance.

(C) The fee must comply with applicable law. If the equity loan is a secondary mortgage loan under Texas Finance Code, Chapter 342, then the fee is limited to a reasonable fee for a title examination and preparation of an abstract of title by an attorney who is not an employee of the lender, or a title company or property search company authorized to do business in this state, as provided by Texas Finance Code, §342.308(a)(1).

(17) Secondary Mortgage Loans. A lender making an equity loan that is a secondary mortgage loan under Texas Finance Code, Chapter 342 may charge only those fees permitted in Texas Finance Code, §§342.307, 342.308, and 342.502. A lender must comply with the provisions of Texas Finance Code, Chapter 342 and the constitutional restrictions on fees in connection with a secondary mortgage loan made under Texas Finance Code, Chapter 342.

(18) Escrow Funds. A lender may provide escrow services for an equity loan. Because funds tendered by an owner or an owner's spouse into an escrow account remain the property of the owner or the owner's spouse those funds are not fees subject to the two percent limitation. Examples of escrow funds include account funds collected to pay taxes, insurance premiums, maintenance fees, or homeowner's association assessments. A lender must not contract for a right of offset against escrow funds pursuant to Section 50(a)(6)(H).

(19) Subsequent Events. The two percent limitation pertains to fees paid or contracted for by an owner or owner's spouse at the inception or at the closing of an equity loan. On the date the equity loan is closed an owner or an owner's spouse may agree to perform certain promises during the term of the equity loan. Failure to perform an obligation of an equity loan may trigger the assessment of costs to the owner or owner's spouse. The assessment of costs is a subsequent event triggered by the failure of the owner's or owner's spouse to perform under the equity loan agreement and is not a fee subject to the two percent limitation. Examples of subsequent event costs include contractually permitted charges for force-placed homeowner's insurance costs, returned check fees, debt collection costs, late fees, and costs associated with foreclosure.

(20) Property Insurance Premiums. Premiums an owner or an owner's spouse is required to pay to purchase homeowner's insurance coverage are not fees subject to the two percent limitation. Examples of property insurance premiums include fire and extended coverage insurance and flood insurance. Failure to maintain this insurance is generally a default provision of the equity loan agreement and not a condition of the extension of credit. The lender may collect and escrow premiums for this insurance and include the premium in the periodic payment amount or principal amount. If the lender sells insurance to the owner, the lender must comply with applicable law concerning the sale of insurance in connection with a mortgage loan.

History

• Source Note: The provisions of this §153.5 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective January 1, 2015, 39 TexReg 10407; amended to be effective November 24, 2016, 41 TexReg 9106; amended to be effective March 29, 2018, 43 TexReg 1839; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.7 Prohibition on Prepayment Penalties: Section 50(a)(6)(G)

An equity loan may be paid in advance without penalty or other charge.

(1) A lender may not charge a penalty to a borrower for paying all or a portion of an equity loan early.

(2) A lockout provision is not permitted in an equity loan agreement because it is considered a prepayment penalty.

History

• Source Note: The provisions of this §153.7 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.8 Security of the Equity Loan: Section 50(a)(6)(H)

An equity loan must not be secured by any additional real or personal property other than the homestead. The definition of "homestead" is located at Section 51 of Article XVI, Texas Constitution, and Chapter 41 of the Texas Property Code.

(1) A lender and an owner or an owner's spouse may enter into an agreement whereby a lender may acquire an interest in items incidental to the homestead. An equity loan secured by the following items is not considered to be secured by additional real or personal property:

(A) escrow reserves for the payment of taxes and insurance;

(B) an undivided interest in a condominium unit, a planned unit development, or the right to the use and enjoyment of certain property owned by an association;

(C) insurance proceeds related to the homestead;

(D) condemnation proceeds;

(E) fixtures; or

(F) easements necessary or beneficial to the use of the homestead, including access easements for ingress and egress.

(2) A guaranty or surety of an equity loan is not permitted. A guaranty or surety is considered additional property for purposes of Section 50(a)(6)(H). Prohibiting a guaranty or surety is consistent with the prohibition against personal liability in Section 50(a)(6)(C). An equity loan with a guaranty or surety would create indirect liability against the owner. The constitutional home equity lending provisions clearly provide that the homestead is the only allowable collateral for an equity loan. The constitutional home equity provisions prohibit the lender from contracting for recourse of any kind against the owner or owner's spouse, except for provisions providing for recourse against the owner or spouse when the extension of credit is obtained by actual fraud.

(3) A contractual right of offset in an equity loan agreement is prohibited.

(4) A contractual cross-collateralization clause in an equity loan agreement is prohibited.

(5) Any equity loan on an urban homestead that is secured by more than ten acres is secured by additional real property in violation of Section 50(a)(6)(H).

History

• Source Note: The provisions of this §153.8 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 24, 2016, 41 TexReg 9106; amended to be effective November 26, 2020, 45 TexReg 8307.

7 Tex. Admin. Code § 153.9 Acceleration: Section 50(a)(6)(J)

An equity loan may not be accelerated because of a decrease in the market value of the homestead or because of the owner's default under other indebtedness not secured by a prior valid encumbrance against the homestead.

(1) An equity loan agreement may contain a provision that allows the lender to accelerate the loan because of a default under the covenants of the loan agreement. Examples of these provisions include a promise to maintain the property or not remove improvements to the property that indirectly affects the market value of the homestead.

(2) A contractual cross-default clause is permitted only if the lien associated with the equity loan agreement is subordinate to the lien that is referenced by the cross default clause .

History

• Source Note: The provisions of this §153.9 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.10 Number of Loans: Section 50(a)(6)(K)

An equity loan must be the only debt secured by the homestead at the time the extension of credit is made unless the other debt was made for a purpose described by Section 50(a)(1)-(a)(5) or (a)(8).

(1) Number of Equity Loans. An owner may have only one equity loan at a time, regardless of the aggregate total outstanding debt against the homestead.

(2) Loss of Homestead Designation. If under Texas law the property ceases to be the homestead of the owner, then the lender, for purposes of Section 50(a)(6)(K), may treat what was previously a home equity mortgage as a non-homestead mortgage.

History

• Source Note: The provisions of this §153.10 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.11 Repayment Schedule: Section 50(a)(6)(L)(i)

Unless an equity loan is a home equity line of credit under Section 50(t), the loan must be scheduled at closing to be repaid in substantially equal successive periodic installments, not more often than every 14 days and not less often than monthly, beginning no later than two months from the date the extension of credit is made, each of which equals or exceeds the amount of accrued interest as of the date of the scheduled installment.

(1) Section 50(a)(6)(L)(i) does not prohibit a lender from agreeing with a borrower to modify an equity loan if the modification does not satisfy and replace the original equity loan and does not create a new extension of credit. The modification may include a deferment of the borrower's original obligation, and may include amounts that are past due under the equity loan (e.g., accrued but unpaid interest, taxes and insurance).

(2) The two month time period contained in Section 50(a)(6)(L)(i) begins on the date of closing. A modification described by paragraph (1) of this subsection does not affect the two month time period.

(3) For purposes of Section 50(a)(6)(L)(i), a month is the period from a date in a month to the corresponding date in the succeeding month. For example, if a home equity loan closes on March 1, the first installment must be due no later than May 1. If the succeeding month does not have a corresponding date, the period ends on the last day of the succeeding month. For example, if a home equity loan closes on July 31, the first installment must be due no later than September 30.

(4) For a closed-end equity loan to have substantially equal successive periodic installments, some amount of principal must be reduced with each installment. This requirement prohibits balloon payments.

(5) Section 50(a)(6)(L)(i) does not preclude a lender's recovery of payments as necessary for other amounts such as taxes, adverse liens, insurance premiums, collection costs, and similar items.

History

• Source Note: The provisions of this §153.11 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 13, 2008, 33 TexReg 9074; amended to be effective November 26, 2020, 45 TexReg 8307.

7 Tex. Admin. Code § 153.12 Closing Date: Section 50(a)(6)(M)(i)

An equity loan may not be closed before the 12th calendar day after the later of the date that the owner submits an application for the loan to the lender or the date that the lender provides the owner a copy of the required consumer disclosure. One copy of the required consumer disclosure may be provided to married owners. For purposes of determining the earliest permitted closing date, the next succeeding calendar day after the later of the date that the owner submits an application for the loan to the lender or the date that the lender provides the owner a copy of the required consumer disclosure is the first day of the 12-day waiting period. The equity loan may be closed at any time on or after the 12th calendar day after the later of the date that the owner submits an application for the loan to the lender or the date that the lender provides the owner a copy of the required consumer disclosure.

(1) Submission of a loan application to an agent acting on behalf of the lender is submission to the lender.

(2) A loan application may be submitted orally.

(3) A loan application may be submitted electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §153.12 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 13, 2008, 33 TexReg 9074; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.13 Preclosing Disclosures: Section 50(a)(6)(M)(ii)

An equity loan may not be closed before one business day after the date that the owner of the homestead receives a copy of the loan application, if not previously provided, and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. If a bona fide emergency or another good cause exists and the lender obtains the written consent of the owner, the lender may provide the preclosing disclosure to the owner or the lender may modify the previously provided preclosing disclosure on the date of closing.

(1) For purposes of this section, the "preclosing disclosure" consists of a copy of the loan application, if not previously provided, and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing.

(2) The copy of the loan application submitted to the owner in satisfaction of the preclosing disclosure requirement must be the most current version at the time the document is delivered. The lender is not obligated to provide another copy of the loan application if the only difference from the version previously provided to the owner is formatting. The lender is not obligated to give another copy of the loan application if the information contained on the more recent application is the same as that contained on the application of which the owner has a copy.

(3) The lender must deliver to the owner a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing.

(A) For a closed-end equity loan, the lender may satisfy this requirement by delivering a properly completed closing disclosure under Regulation Z, 12 C.F.R. §1026.19(f) and §1026.38.

(B) For a home equity line of credit, the lender may satisfy this requirement by delivering properly completed account-opening disclosures under Regulation Z, 12 C.F.R. §1026.6(a).

(4) The lender may provide the preclosing disclosure electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

(5) Bona fide emergency.

(A) An owner may consent to receive the preclosing disclosure or a modification of the preclosing disclosure on the date of closing in the case of a bona fide emergency occurring before the date of the extension of credit. An equity loan secured by a homestead in an area designated by Federal Emergency Management Agency (FEMA) as a disaster area is an example of a bona fide emergency if the homestead was damaged during FEMA's declared incident period.

(B) To document a bona fide emergency modification, the lender should obtain a written statement from the owner that:

(i) describes the emergency;

(ii) specifically states that the owner consents to receive the preclosing disclosure or a modification of the preclosing disclosure on the date of closing;

(iii) bears the signature of all of the owners entitled to receive the preclosing disclosure; and

(iv) affirms the owner has received notice of the owner's right to receive a final itemized disclosure containing all actual fees, points, costs, and charges one day prior to closing.

(6) Good cause. An owner may consent to receive the preclosing disclosure or a modification of the preclosing disclosure on the date of closing if another good cause exists.

(A) Good cause to modify the preclosing disclosure or to receive a subsequent disclosure modifying the preclosing disclosure on the date of closing may only be established by the owner.

(i) The term "good cause" as used in this section means a legitimate or justifiable reason, such as financial impact or an adverse consequence.

(ii) At the owner's election, a good cause to modify the preclosing disclosure may be established if:

(I) the modification does not create a material adverse financial consequence to the owner; or

(II) a delay in the closing would create an adverse consequence to the owner.

(iii) The term "de minimis" as used in this section means a very small or insignificant amount.

(B) At the owner's election, a de minimis good cause standard may be presumed if:

(i) the total actual disclosed fees, costs, points, and charges on the date of closing do not exceed in the aggregate more than the greater of $100 or 0.125 percent of the principal amount of the loan (e.g. 0.125 percent on a $80,000 principal loan amount equals $100) from the initial preclosing disclosure; and

(ii) no itemized fee, cost, point, or charge exceeds more than the greater of $100 or 0.125 percent of the principal amount of the loan than the amount disclosed in the initial preclosing disclosure.

(C) To document a good cause modification of the disclosure, the lender should obtain a written statement from the owner that:

(i) describes the good cause;

(ii) specifically states that the owner consents to receive the preclosing disclosure on the date of closing;

(iii) bears the signature of all of the owners entitled to receive the preclosing disclosure; and

(iv) affirms the owner has received notice of the owner's right to receive a final itemized disclosure containing all fees, costs, points, or charges one day prior to closing.

(7) An equity loan may be closed at any time during normal business hours on the next business day following the calendar day on which the owner receives the preclosing disclosure or any calendar day thereafter.

(8) The owner maintains the right of rescission under Section 50(a)(6)(Q)(viii) even if the owner exercises an emergency or good cause modification of the preclosing disclosure.

History

• Source Note: The provisions of this §153.13 adopted to be effective June 29, 2006, 31 TexReg 5080; amended to be effective November 9, 2006, 31 TexReg 9022; amended to be effective November 13, 2008, 33 TexReg 9074; amended to be effective November 24, 2016, 41 TexReg 9106; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.14 One Year Prohibition: Section 50(a)(6)(M)(iii)

An equity loan may not be closed before the first anniversary of the closing date of any other equity loan secured by the same homestead property, unless the owner on oath requests an earlier closing due to a state of emergency that has been declared by the president of the United States or the governor as provided by law, and applies to the area where the homestead is located.

(1) Section 50(a)(6)(M)(iii) prohibits an owner who has obtained an equity loan from:

(A) refinancing the equity loan before one year has elapsed since the loan's closing date; or

(B) obtaining a new equity loan on the same homestead property before one year has elapsed since the previous equity loan's closing date, regardless of whether the previous equity loan has been paid in full.

(2) Section 50(a)(6)(M)(iii) does not prohibit modification of an equity loan before one year has elapsed since the loan's closing date. A modification of a home equity loan occurs when one or more terms of an existing equity loan is modified, but the note is not satisfied and replaced. A home equity loan and a subsequent modification will be considered a single transaction. The home equity requirements of Section 50(a)(6) will be applied to the original loan and the subsequent modification as a single transaction.

(A) A modification of an equity loan must be agreed to in writing by the borrower and lender, unless otherwise required by law. An example of a modification that is not required to be in writing is the modification required under the Servicemembers Civil Relief Act, 50 U.S.C. app. §§501-597b.

(B) The advance of additional funds to a borrower is not permitted by modification of an equity loan.

(C) A modification of an equity loan may not provide for new terms that would not have been permitted by applicable law at the date of closing of the extension of credit.

(D) The two percent limitation required by Section 50(a)(6)(E) applies to the original home equity loan and any subsequent modification as a single transaction.

(3) For purposes of Section 50(a)(6)(M)(iii), a state of emergency includes:

(A) a national emergency declared by the president of the United States under the National Emergencies Act, 50 U.S.C. §§1601-1651; and

(B) a state of disaster declared by the governor of Texas under Texas Government Code, Chapter 418.

History

• Source Note: The provisions of this §153.14 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 13, 2008, 33 TexReg 9074; amended to be effective November 24, 2016, 41 TexReg 9106; amended to be effective March 29, 2018, 43 TexReg 1839; amended to be effective November 26, 2020, 45 TexReg 8307.

7 Tex. Admin. Code § 153.15 Location of Closing: Section 50(a)(6)(N)

An equity loan may be closed only at an office of the lender, an attorney at law, or a title company. The lender is anyone authorized under Section 50(a)(6)(P) that advances funds directly to the owner or is identified as the payee on the note.

(1) An equity loan must be closed at the permanent physical address of the office or branch office of the lender, attorney, or title company. The closing office must be a permanent physical address so that the closing occurs at an authorized physical location other than the homestead. The closing may occur in any area located at the permanent physical address of the lender, attorney, or title company (e.g., indoor office, parking lot).

(2) Any power of attorney allowing an attorney-in-fact to execute closing documents on behalf of the owner or the owner's spouse must be signed by the owner or the owner's spouse at the permanent physical address of an office of the lender, an attorney at law, or a title company. A lender may rely on an established system of verifiable procedures to evidence compliance with this paragraph. For example, this system may include one or more of the following:

(A) a written statement in the power of attorney acknowledging the date and place at which the power of attorney was executed;

(B) an affidavit or written certification of a person who was present when the power of attorney was executed, acknowledging the date and place at which the power of attorney was executed; or

(C) a certificate of acknowledgement signed by a notary public under Chapter 121, Civil Practice and Remedies Code, acknowledging the date and place at which the power of attorney was executed.

(3) The consent required under Section 50(a)(6)(A) must be signed by the owner and the owner's spouse, or an attorney-in-fact described by paragraph (2) of this subsection, at the permanent physical address of an office of the lender, an attorney at law, or a title company.

History

• Source Note: The provisions of this §153.15 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective January 1, 2015, 39 TexReg 10407; amended to be effective November 26, 2020, 45 TexReg 8307.

7 Tex. Admin. Code § 153.16 Rate of Interest: Section 50(a)(6)(O)

A lender may contract for and receive any fixed or variable rate of interest authorized under statute.

(1) An equity loan that provides for interest must comply with constitutional and applicable law. Interest rates on certain first mortgages are not limited on loans subject to the federal Depository Institutions Deregulation and Monetary Control Act of 1980 and the Alternative Mortgage Transaction Parity Act. Chapter 342 of the Texas Finance Code provides for a maximum rate on certain secondary mortgage loans. Chapter 124 of the Texas Finance Code and federal law provide for maximum rates on certain mortgage loans made by credit unions. These statutes operate in conjunction with Section 50(a) and other constitutional sections.

(2) An equity loan must amortize and contribute to amortization of principal.

(3) The lender may contract to vary the scheduled installment amount when the interest rate adjusts on a variable rate equity loan. A variable-rate loan is a mortgage in which the lender, by contract, can adjust the mortgage's interest rate after closing in accordance with an external index.

(4) The scheduled installment amounts of a variable rate equity loan must be:

(A) substantially equal between each interest rate adjustment; and

(B) sufficient to cover at least the amount of interest scheduled to accrue between each payment date and a portion of the principal.

(5) An equity loan agreement may contain an adjustable rate of interest that provides a maximum fixed rate of interest pursuant to a schedule of steps or tiered rates or provides a lower initial interest rate through the use of a discounted rate at the beginning of the loan.

History

• Source Note: The provisions of this §153.16 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.17 Authorized Lenders: Section 50(a)(6)(P)

An equity loan must be made by one of the following that has not been found by a federal regulatory agency to have engaged in the practice of refusing to make loans because the applicants for the loans reside or the property proposed to secure the loans is located in a certain area: a bank, savings and loan association, savings bank, or credit union doing business under the laws of this state or the United States, including a subsidiary of a bank, savings and loan association, savings bank, or credit union described by this section; a federally chartered lending instrumentality or a person approved as a mortgagee by the United States government to make federally insured loans; a person licensed to make regulated loans, as provided by statute of this state; a person who sold the homestead property to the current owner and who provided all or part of the financing for the purchase; a person who is related to the homestead owner within the second degree of affinity and consanguinity; or a person regulated by this state as a mortgage banker or mortgage company.

(1) An authorized lender under Texas Finance Code, Chapter 341 must meet both constitutional and statutory qualifications to make an equity loan.

(2) For purposes of Section 50(a)(6)(P), a "bank, savings and loan association, savings bank, or credit union doing business under the laws of this state or the United States" includes a state-chartered financial institution described by Texas Finance Code, §201.101(1)(A) - (D) that:

(A) is chartered under the laws of another state; and

(B) does business in Texas in accordance with applicable state law, including the requirements of Texas Finance Code, §201.102.

(3) A HUD-approved mortgagee is a person approved as a mortgagee by the United States government to make federally insured loans for purposes of Section 50(a)(6)(P)(ii). Loan correspondents to a HUD-approved mortgagee are not authorized lenders of equity loans unless qualifying under another provision of Section 50(a)(6)(P).

(4) A person who is licensed under Texas Finance Code, Chapter 156 is a person regulated by this state as a mortgage company for purposes of Section 50(a)(6)(P)(vi). A person who is registered under Texas Finance Code, Chapter 157 is a person regulated by this state as a mortgage banker for purposes of Section 50(a)(6)(P)(vi).

(5) A person who is licensed under Texas Finance Code, Chapter 342 is a person licensed to make regulated loans for purposes of Section 50(a)(6)(P)(iii). If a person is not described by Section 50(a)(6)(P)(i), (ii), (iv), (v), or (vi), then the person must obtain a license under Texas Finance Code, Chapter 342 in order to be authorized to make an equity loan under Section 50(a)(6)(P)(iii).

History

• Source Note: The provisions of this §153.17 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 24, 2016, 41 TexReg 9106; amended to be effective March 29, 2018, 43 TexReg 1839; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.18 Limitation on Application of Proceeds: Section 50(a)(6)(Q)(i)

An equity loan must be made on the condition that the owner of the homestead is not required to apply the proceeds of the extension of credit to repay another debt except debt secured by the homestead or debt to another lender.

(1) The lender may not require an owner to repay a debt owed to the lender, unless it is a debt secured by the homestead. The lender may require debt secured by the homestead or debt to another lender or creditor be paid out of the proceeds of an equity loan.

(2) An owner may apply for an equity loan for any purpose. An owner is not precluded from voluntarily using the proceeds of an equity loan to pay on a debt owed to the lender making the equity loan.

History

• Source Note: The provisions of this §153.18 adopted to be effective June 29, 2006, 31 TexReg 5080.

7 Tex. Admin. Code § 153.20 No Blanks in Any Instrument: Section 50(a)(6)(Q)(iii)

A home equity loan must be made on the condition that the owner of the homestead not sign any instrument in which blanks are left to be filled in.

(1) This Section of the Constitution prohibits the owner of the homestead from signing any instrument in which blanks are "left to be filled in". This Section is intended to prohibit a person other than the owner from completing one or more blanks in an instrument after the owner has signed the instrument and delivered it to the lender, thereby altering a party's obligation created in the instrument. Not all documents or records executed in connection with an equity loan are instruments, and not all blanks contained in an instrument are "blanks that are left to be filled in" as contemplated by this Section.

(2) As used in this Section, the term instrument means a document or record that creates or alters a legal obligation of a party. A disclosure required under state or federal law is not an instrument if the disclosure does not create or alter the obligation of a party.

(3) If at the time the owner signs an instrument, a blank is completed or box checked which indicates the owner's election to select one of multiple options offered (such as an election to select a fixed rate instead of an adjustable rate) and the owner therefore by implication has excluded the non-selected options, the instrument does not contain "blanks left to be filled in" when the non-selected option is left blank.

History

• Source Note: The provisions of this §153.20 adopted to be effective June 29, 2006, 31 TexReg 5080.

7 Tex. Admin. Code § 153.22 Copies of Documents: Section 50(a)(6)(Q)(v)

At closing, the lender must provide the owner with a copy of the final loan application and all executed documents that are signed by the owner at closing in connection with the equity loan.

(1) One copy of these documents may be provided to married owners.

(2) This requirement does not obligate the lender to give the owner copies of documents that were signed by the owner prior to or after closing.

(3) A lender may provide documents electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §153.22 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective July 10, 2008, 33 TexReg 5295; amended to be effective November 26, 2020, 45 TexReg 8307; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.24 Release of Lien: Section 50(a)(6)(Q)(vii)

The lender must cancel and return the note to the owner and give the owner a release of lien or a copy of an endorsement and assignment of the lien to another lender refinancing the loan within a reasonable time after termination and full payment of the loan. The lender or holder, at its option, may provide the owner a release of lien or an endorsement and assignment of the lien to another lender refinancing the loan.

(1) The lender will perform these services and provide the documents required in 50(a)(6)(Q)(vii) without charge.

(2) This section does not require the lender to record or pay for the recordation of the release of lien.

(3) Thirty days is a reasonable time for the lender to perform the duties required under this section.

(4) An affidavit of lost or imaged note, or equivalent, may be returned to the owner in lieu of the original note, if the original note has been lost or imaged.

History

• Source Note: The provisions of this §153.24 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.25 Right of Rescission: Section 50(a)(6)(Q)(viii)

The owner of the homestead and any spouse of the owner may, within three days after the extension of credit is made, rescind the extension of credit without penalty or charge.

(1) This provision gives the owner's spouse, who may not be in record title or have community property ownership, the right to rescind the transaction.

(2) The owner and owner's spouse may rescind the extension of credit within three calendar days. If the third calendar day falls on a Sunday or federal legal public holiday then the right of rescission is extended to the next calendar day that is not a Sunday or federal legal public holiday.

(3) A lender must comply with the provisions of the Truth-in-Lending Act permitting the borrower three business days to rescind a mortgage loan in applicable transactions. Lender compliance with the right of rescission procedures in the Truth-in-Lending Act and Regulation Z, satisfies the requirements of this section if the notices required by Truth-in-Lending and Regulation Z are given to each owner and to each owner's spouse.

History

• Source Note: The provisions of this §153.25 adopted to be effective January 8, 2004, 29 TexReg 84.

7 Tex. Admin. Code § 153.26 Acknowledgment of Fair Market Value: Section 50(a)(6)(Q)(ix)

The owner of the homestead and the lender must sign a written acknowledgment as to the fair market value of the homestead property on the date the extension of credit is made.

(1) For purposes of Section 50(a)(6)(Q)(ix), the phrase "on the date the extension of credit is made" modifies only the immediately preceding phrase "the fair market value of the homestead property," in accordance with the doctrine of last antecedent.

(2) A lender may sign the written acknowledgment before or at closing.

(3) An authorized agent may sign the written acknowledgment on behalf of the lender

(4) The owner and lender may sign the written acknowledgment electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

History

• Source Note: The provisions of this §153.26 adopted to be effective November 26, 2020, 45 TexReg 8307; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.41 Refinance of a Debt Secured by a Homestead: Section 50(e)

A refinance of debt secured by a homestead and described by any subsection under Subsections (a)(1)-(a)(5) of Section 50 of the Texas Constitution that includes the advance of additional funds may not be secured by a valid lien against the homestead unless the refinance of the debt is an extension of credit described by Subsection (a)(6) of Section 50 of the Texas Constitution, or the advance of all the additional funds is for reasonable costs necessary to refinance such debt or for a purpose described by Subsection (a)(2), (a)(3), or (a)(5) of Section 50 of the Texas Constitution.

(1) Reasonableness and necessity of costs relate to the type and amount of the costs.

(2) In a secondary mortgage loan, reasonable costs are those costs which are lawful in light of the governing or applicable law that authorizes the assessment of particular costs. In the context of other mortgage loans, reasonable costs are those costs which are lawful in light of other governing or applicable law.

(3) Reasonable and necessary costs to refinance may include reserves or impounds (escrow trust accounts) for taxes and insurance, if the reserves comply with applicable law.

History

• Source Note: The provisions of this §153.41 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 26, 2020, 45 TexReg 8307.

7 Tex. Admin. Code § 153.45 Refinance of an Equity Loan: Section 50(f)

A refinance of debt secured by the homestead, any portion of which is an extension of credit described by Subsection (a)(6) of Section 50, may not be secured by a valid lien against the homestead unless either the refinance of the debt is an extension of credit described by Subsection (a)(6) or (a)(7) of Section 50, or all of the conditions in Section 50(f)(2) are met.

(1) One Year Prohibition. To meet the condition in Section 50(f)(2)(A), the refinance may not be closed before the first anniversary of the closing date of the equity loan. For purposes of this section, the closing date of the refinance is the date on which the owner signs the loan agreement for the refinance.

(2) Advance of Additional Funds. To meet the condition in Section 50(f)(2)(B), the refinance may not include the advance of any additional funds other than funds advanced to refinance a debt described by Subsections (a)(1) through (a)(7) of Section 50, or actual costs and reserves required by the lender to refinance the debt.

(A) In order to be included in the funds advanced for the refinance, actual costs must be identifiable, must be actually required by the lender to refinance the debt, and must comply with any applicable limitations on costs.

(B) In order to be included in the funds advanced for the refinance, reserves (e.g., an escrow account for taxes and insurance) must be actually required by the lender to refinance the debt, and must comply with applicable law.

(C) Amounts that the owner pays before or at closing (e.g., through cash, check, or electronic funds transfer) are not advanced by the lender, and are not subject to the limitation on the advance of additional funds.

(3) 80 Percent Limitation on Loan Amount. To meet the condition in Section 50(f)(2)(C), the refinance of the extension of credit must be of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80 percent of the fair market value of the homestead on the date the refinance of the extension of credit is made.

(A) The principal amount of the refinance is the sum of the amount advanced and any charges at the inception of the refinance, to the extent these charges are financed in the principal amount of the refinance.

(B) The principal balance of all outstanding debt secured by the homestead on the date the refinance is made determines the maximum principal amount of the refinance.

(C) The principal amount of the refinance does not include interest accrued after the date the refinance is made (other than any interest capitalized and added to the principal balance on the date the refinance is made), or other amounts advanced by the lender after closing as a result of default, including for example, ad valorem taxes, hazard insurance premiums, and authorized collection costs, including reasonable attorney's fees.

(4) Refinance Disclosure. To meet the condition in Section 50(f)(2)(D), the lender must provide the refinance disclosure described in Section 50(f)(2)(D) to the owner on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the date the refinance of the extension of credit is closed.

(A) Submission of a loan application to an agent acting on behalf of the lender is submission to the lender. A loan application may be given orally or electronically.

(B) For purposes of Section 50(f)(2)(D), the application is submitted on the date the owner submits a loan application specifically for a refinance of a home equity loan to a non-home-equity loan. If the owner initially applies for another type of loan, then the application is considered submitted on the earliest of:

(i) the date the owner modifies the application, orally or in writing, to specify that it is for a refinance of a home equity loan to a non-home-equity loan; or

(ii) the date the owner submits a new application specifically for a refinance of a home equity loan to a non-home-equity loan.

(C) For purposes of determining the earliest permitted closing date, the next succeeding calendar day after the date that the lender provides the owner a copy of the required refinance disclosure is the first day of the 12-day waiting period. The refinance may be closed at any time on or after the 12th calendar day after the lender provides the owner a copy of the required refinance disclosure.

(D) The lender must deliver the refinance disclosure or place it in the mail no later than the third business day after the owner submits the loan application. The refinance disclosure must be delivered to the owner at least 12 days before the refinance is closed. If a lender mails the refinance disclosure to the owner, the lender must allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.

(E) The lender may provide the refinance disclosure electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

(F) One copy of the required refinance disclosure may be provided to married owners.

(G) The refinance disclosure is only a summary of the owner's rights, which are governed by the substantive terms of the constitution. The substantive requirements prevail regarding a lender's responsibilities in an equity loan or refinance. A lender may supplement the refinance disclosure to clarify any discrepancies or inconsistencies.

(H) A lender may rely on an established system of verifiable procedures to evidence compliance with this paragraph.

(I) The Finance Commission will publish a Spanish translation of the refinance disclosure on its website. A lender whose discussions with the owner are conducted primarily in Spanish may provide the Finance Commission's Spanish translation to the owner, although the Spanish translation is not required by Section 50(f)(2).

History

• Source Note: The provisions of this §153.45 adopted to be effective March 29, 2018, 43 TexReg 1839; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.51 Consumer Disclosure: Section 50(g)

An equity loan may not be closed before the 12th day after the lender provides the owner with the consumer disclosure on a separate instrument.

(1) If a lender mails the consumer disclosure to the owner, the lender shall allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.

(2) The lender may provide the consumer disclosure electronically in accordance with state and federal law governing electronic signatures and delivery of electronic documents. The UETA and the E-Sign Act include requirements for electronic signatures and delivery.

(3) Certain provisions of the consumer disclosure do not contain the exact identical language concerning requirements of the equity loan that have been used to create the substantive requirements of the loan. The consumer notice is only a summary of the owner's rights, which are governed by the substantive terms of the constitution. The substantive requirements prevail regarding a lender's responsibilities in an equity loan transaction. A lender may supplement the consumer disclosure to clarify any discrepancies or inconsistencies.

(4) A lender may rely on an established system of verifiable procedures to evidence compliance with this section.

(5) A lender whose discussions with the borrower are conducted primarily in Spanish for a closed-end loan may rely on the translation of the consumer notice developed under the requirements of Texas Finance Code, §341.502. Such notice shall be made available to the public through publication on the Finance Commission's webpage.

(6) If the owner has executed a power of attorney described by §153.15(2) of this title (relating to Location of Closing: Section 50(a)(6)(N)), then the lender may provide the consumer disclosure to the attorney-in-fact instead of providing it to the owner.

History

• Source Note: The provisions of this §153.51 adopted to be effective January 8, 2004, 29 TexReg 84; amended to be effective November 13, 2008, 33 TexReg 9074; amended to be effective January 1, 2015, 39 TexReg 10407; amended to be effective January 6, 2022, 46 TexReg 9240.

7 Tex. Admin. Code § 153.82 Owner Requests for HELOC Advance: Section 50(t)(1)

A home equity line of credit (HELOC) is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which the owner requests advances, repays money, and reborrows money. Any owner who is also a named borrower on the HELOC may request an advance. A HELOC agreement may contain provisions that restrict which borrowers may request an advance or require all borrowers to consent to the request.

History

• Source Note: The provisions of this §153.82 adopted to be effective March 11, 2004, 29 TexReg 2306.

7 Tex. Admin. Code § 153.84 Restrictions on Devices and Methods to Obtain a HELOC Advance: Section 50(t)(3)

A HELOC is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which an owner is prohibited from using a credit card, debit card, or similar device, or preprinted check unsolicited by the borrower to obtain a HELOC advance.

(1) A lender may offer one or more non-prohibited devices or methods for use by the owner to request an advance. Permissible methods include contacting the lender directly for an advance, telephonic fund transfers, and electronic fund transfers. Examples of devices that are not prohibited include prearranged drafts, preprinted checks requested by the borrower, or written transfer instructions. Regardless of the permissible method or device used to obtain a HELOC advance, the amount of the advance must comply with:

(A) the advance requirements in Section 50(t)(2); and

(B) the loan to value limits in Section 50(t)(5).

(2) A borrower may from time to time specifically request preprinted checks for use in obtaining a HELOC advance but may not request the lender to periodically send preprinted checks to the borrower. A borrower may use a check reorder form, which may be included with preprinted checks, as a means of requesting a specific number of preprinted checks.

(3) An owner may, but is not required to, make in-person contact with the lender to request preprinted checks or to obtain a HELOC advance.

History

• Source Note: The provisions of this §153.84 adopted to be effective March 11, 2004, 29 TexReg 2306; amended to be effective July 10, 2008, 33 TexReg 5295; amended to be effective March 29, 2018, 43 TexReg 1839.

7 Tex. Admin. Code § 153.85 Time the Extension of Credit is Established: Section 50(t)(4)

(a) A HELOC is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which fees described in Section 50(a)(6)(E) are charged and collected only at the time the extension of credit is established and no fee is charged or collected in connection with any debit or advance.

(b) For the purpose of this section, the time the extension of credit is established for a HELOC refers to the date of closing.

History

• Source Note: The provisions of this §153.85 adopted to be effective March 11, 2004, 29 TexReg 2306.

7 Tex. Admin. Code § 153.86 Maximum Principal Amount Extended under a HELOC: Section 50(t)(5)

A HELOC is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which the maximum principal amount that may be extended under the account, when added to the aggregated total of the outstanding principal balances of all indebtedness secured by the homestead on the date the extension of credit is established, cannot exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made.

(1) At the time the initial or subsequent advance is made, the principal amount of the advance must comply with Section 50(t)(5). The following amounts when added together must be equal to or less than 80 percent of the fair market value:

(A) the amount of the advance;

(B) the amount of the principal balance of the HELOC at the time of the advance; and

(C) the principal balance outstanding of all other debts secured by the homestead on the date of the closing of the HELOC.

(2) An advance under Section 50(t)(5) must meet the requirements of Section 50(t)(2).

(3) The maximum principal balance of the HELOC that may be outstanding at any time must be determined on the date of closing and will not change through the term of the HELOC.

(4) For purposes of calculating the maximum principal balance under Section 50(t)(5), the outstanding principal balance of all other debts secured by the homestead is the principal balance outstanding of all other debts secured by the homestead on the date of the closing of the HELOC.

History

• Source Note: The provisions of this §153.86 adopted to be effective March 11, 2004, 29 TexReg 2306; amended to be effective March 29, 2018, 43 TexReg 1839.

7 Tex. Admin. Code § 153.88 Repayment Terms of a HELOC: Section 50(t)(8)

(a) A HELOC is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which repayment is to be made in regular periodic installments, not more often than every 14 days and not less often than monthly, beginning not later than two months from the date the extension of credit is established, and during the period during which the owner may request advances, each installment equals or exceeds the amount of accrued interest; and after the period during which the owner may request advances, installments are substantially equal.

(b) Repayment of a HELOC is not required to begin until two months after the initial advance. For example, if an advance is not made at the time of closing, the repayment period is not required to begin until after the first advance. If there is no outstanding balance, then a payment is not required.

(c) Nothing in this section prohibits a borrower from voluntarily making payments on a schedule that is more frequent or earlier than is required by a lender.

History

• Source Note: The provisions of this §153.88 adopted to be effective March 11, 2004, 29 TexReg 2306.

7 Tex. Admin. Code § 153.91 Adequate Notice of Failure to Comply

(a) A borrower notifies a lender or holder of its alleged failure to comply with an obligation by taking reasonable steps to notify the lender or holder of the alleged failure to comply. The notification must include a reasonable:

(1) identification of the borrower;

(2) identification of the loan; and

(3) description of the alleged failure to comply.

(b) A borrower is not required to cite in the notification the section of the Constitution that the lender or holder allegedly violated.

History

• Source Note: The provisions of this §153.91 adopted to be effective November 11, 2004, 29 TexReg 10257.

7 Tex. Admin. Code § 153.92 Counting the 60-Day Cure Period

(a) For purposes of Section 50(a)(6)(Q)(x), the day after the lender or holder receives the borrower's notification is day one of the 60-day period. All calendar days thereafter are counted up to day 60. If day 60 is a Sunday or federal legal public holiday, the period is extended to include the next day that is not a Sunday or federal legal public holiday.

(b) If the borrower provides the lender or holder inadequate notice, the 60-day period does not begin to run.

History

• Source Note: The provisions of this §153.92 adopted to be effective November 11, 2004, 29 TexReg 10257.

7 Tex. Admin. Code § 153.93 Methods of Notification

(a) At closing, the lender or holder may make a reasonably conspicuous designation in writing of the location where the borrower may deliver a written or oral notice of a violation under 50(a)(6)(Q)(x). The designation may include a mailing address, physical address, and telephone number. In addition, the lender or holder may designate an email address or other point of contact for delivery of a notice.

(b) If the lender or holder chooses to change the designated delivery location as provided in subsection (a) of this section, the address change does not become effective until the lender or holder sends conspicuous written notice of the address change to the borrower.

(c) The borrower may always deliver written notice to the registered agent of the lender or holder even if the lender or holder has named a delivery location.

(d) If the lender or holder does not designate a location where the borrower may deliver a notice of violation, the borrower may deliver the notice to any physical address or mailing address of the lender or holder.

(e) Delivery of the notice by borrower to lender or holder's designated delivery location or registered agent by certified mail return receipt or other carrier delivery receipt, signed by the lender or holder, constitutes a rebuttable presumption of receipt by the lender or holder.

(f) If the borrower opts for a location or method of delivery other than set out in subsection (e), the borrower has the burden of proving that the location and method of delivery were reasonably calculated to put the lender or holder on notice of the default.

History

• Source Note: The provisions of this §153.93 adopted to be effective March 3, 2005, 30 TexReg 1068.

7 Tex. Admin. Code § 153.94 Methods of Curing a Violation Under Section 50(a)(6)(Q)(x)(a) - (e)

(a) The lender or holder may correct a failure to comply under Section 50(a)(6)(Q)(x)(a) - (e), on or before the 60th day after the lender or holder receives the notice from an owner, if the lender or holder delivers required documents, notices, acknowledgements, or pays funds by:

(1) placing in the mail, placing with other delivery carrier, or delivering in person the required documents, notices, acknowledgements, or funds;

(2) crediting the amount to borrower's account; or

(3) using any other delivery method that the borrower agrees to in writing after the lender or holder receives the notice.

(b) The lender or holder has the burden of proving compliance with this section.

History

• Source Note: The provisions of this §153.94 adopted to be effective November 11, 2004, 29 TexReg 10257.

7 Tex. Admin. Code § 153.95 Cure a Violation Under Section 50(a)(6)(Q)(x)

(a) If the lender or holder timely corrects a violation of Section 50(a)(6) as provided in Section 50(a)(6)(Q)(x), then the violation does not invalidate the lien.

(b) A lender or holder who complies with Section 50(a)(6)(Q)(x) to cure a violation before receiving notice of the violation from the borrower receives the same protection as if the lender had timely cured after receiving notice.

(c) A borrower's refusal to cooperate fully with an offer that complies with Section 50(a)(6)(Q)(x) to modify or refinance an equity loan does not invalidate the lender's protection for correcting a failure to comply.

History

• Source Note: The provisions of this §153.95 adopted to be effective November 11, 2004, 29 TexReg 10257; amended to be effective November 13, 2008, 33 TexReg 9074.

7 Tex. Admin. Code § 153.96 Correcting Failures Under Section 50(a)(6)(Q)(x)(f)

(a) To correct a failure to comply under Section 50(a)(6)(Q)(x)(f), on or before the 60th day after the lender or holder receives the notice from the borrower the lender or holder may:

(1) refund or credit the $1,000 to the account of the borrower; and

(2) make an offer to modify or an offer to refinance the extension of credit on the terms provided in Section 50(a)(6)(Q)(x)(f) by placing the offer in the mail, other delivery carrier, or delivering the offer in person to the owner.

(b) To correct a failure to comply under Section 50(a)(6)(Q)(x)(f):

(1) the lender or holder has the option to either refund or credit $1,000; and

(2) the lender or holder and borrower may:

(A) modify the equity loan without completing the requirements of a refinance; or

(B) refinance with an extension of credit that complies with Section 50(a)(6).

(c) The lender or holder has the burden of proving compliance with this section.

(d) After the borrower accepts an offer to modify or refinance, the lender must make a good faith attempt to modify or refinance within a reasonable time not to exceed 90 days.

History

• Source Note: The provisions of this §153.96 adopted to be effective November 11, 2004, 29 TexReg 10257.

Chapter 155 PAYOFF STATEMENTS

Subchapter A FORM AND DELIVERY

7 Tex. Admin. Code § 155.1 Definitions

"Home loans" has the same meaning as that found in Texas Finance Code §343.001.

History

• Source Note: The provisions of this §155.1 adopted to be effective January 8, 2012, 36 TexReg 9300.

7 Tex. Admin. Code § 155.2 Payoff Statement Form

(a) Requests made pursuant to this chapter shall be in writing and submitted to the mortgage servicer by mail, email, or fax. If the mortgage servicer has designated a specific mailing address, email address, fax number, and/or a specific representative to receive requests made pursuant to this chapter, then requests shall be submitted in accordance with such designation. Requests for a payoff statement shall, at a minimum, include the following:

(1) Name of the mortgagor;

(2) Physical address of the underlying collateral of the loan, or a legal description of the property; and

(3) Proposed closing date of the loan.

(b) Upon receipt of a valid request made under subsection (a) of this section, a mortgage servicer shall provide, in writing, by mail or email, the payoff statement information for the home loan specified in the request which must be provided on the prescribed payoff statement form, Figure 7 TAC §155.2(c)(6), or in a substantially similar format which contains all elements not indicated as optional on the prescribed payoff statement form. The statement must include the following information:

(1) The proposed closing date for the sale or other transaction, as provided in the request made pursuant to this chapter;

(2) The payoff amount that is valid through the proposed closing date; and

(3) Sufficient information to identify the loan for which the payoff information is provided, including:

(A) the loan number, if available; or

(B) the original amount of the loan, if the loan number is not available.

(c) If applicable, the payoff statement may contain:

(1) Adjustable rate mortgage;

(2) Per diem amount;

(3) Late charge information;

(4) Escrow disbursement information;

(5) A statement regarding which party is responsible for the release of lien; and

(6) Other information necessary to provide a clear and concise payoff statement.

Attached Graphic

History

• Source Note: The provisions of this §155.2 adopted to be effective January 8, 2012, 36 TexReg 9300; amended to be effective September 20, 2020, 45 TexReg 6359.

7 Tex. Admin. Code § 155.3 Time of Delivery of Payoff Statement

A mortgage servicer shall deliver a payoff statement required under §155.2 of this title (relating to Payoff Statement Form) to the title company by the eighth business day after the date the request is received unless federal law requires a shorter response time.

History

• Source Note: The provisions of this §155.3 adopted to be effective January 8, 2012, 36 TexReg 9300.