Finance Commission Decisions

The Finance Commission of Texas oversees the Texas Department of Banking, the Savings and Loan Department, and the Office of Consumer Credit Commissioner. The mission of the Finance Commission is to ensure that banks, savings institutions, consumer creditors, and other businesses or persons chartered or licensed by the State operate as sound and responsible institutions that enhance the financial well-being of Texas. To achieve its purpose, the Finance Commission:

• selects and oversees a Commissioner to run each of the three financial regulatory agencies;

• employs an administrative law judge to hear cases brought before each of the three Departments.

• Funding. The Finance Commission's total expenditures for fiscal year 1999 were $175,000. The Finance Commission is funded by General Revenue appropriations and interagency transfers for goods and services provided by the Commission to the three Departments.

• Staffing. The Finance Commission has 1.5 budgeted full-time equivalent employees. One employee is the administrative law judge and the part-time employee is the Banking Commissioner who serves as the Finance Commission's Executive Director.

• Research Reports. The Legislature has required the Finance Commission to conduct research on the availability, quality, and pricing of financial services in Texas. To complete these reports, the Finance Commission contracts with private researchers and has broken the topic into smaller projects to be completed over a number of years.

The Department of Banking oversees the safety and soundness of Texas' financial system. The Department's primary role in accomplishing this function is to charter, supervise, and examine state-chartered banks. The Department also oversees other depository institutions and their affiliates such as bank holding companies, trust companies, foreign bank offices, and banks chartered in other states. The Department's oversight activities are not limited to banking. Texas' Department of Banking also oversees companies selling money orders and checks, foreign currency exchange and transmission businesses, perpetual care cemetery trust funds, and prepaid funeral contract sellers.

• Funding. The Department expended $9.7 million in FY 1999. Its revenues for that year equaled $10.9 million.

• Bank and Trust Regulation. The Department is authorized by the Texas Finance Code and the Texas Trust Company Act to oversee state-chartered banks and trust companies. The Department currently oversees 370 state-chartered banks and 33 trust companies. The Department is also responsible for regulating foreign bank offices and interstate branches of state banks.

• Non-Bank Regulation. The Department is responsible for regulating perpetual care cemeteries, prepaid funeral contract sellers, check sellers, and currency exchange and transmission businesses. Currently, the Department regulates 227 perpetual care cemeteries, 438 prepaid funeral contract sellers, 49 check sellers, and 84 currency exchange and transmission businesses.

The Texas Savings and Loan Department protects the depositors of Texas by ensuring the safe and sound operation of state-chartered thrifts. In 1999, the Legislature gave the Department responsibility for licensing mortgage brokers. The Department's major functions include chartering, examining, and supervising state-chartered thrifts and licensing mortgage brokers and their loan officers.

• Funding. The Department's $1.2 million annual budget in FY 99 came from the General Revenue Fund and appropriated receipts. The Department contributed $1,131,300 to the General Revenue Fund from fees that year.

• Staffing. The Department currently employs 22 FTEs. Sixteen work in the Austin office. Six examination staff work in various locations around the state and designate their homes as their headquarters.

• Savings and Loan Regulation. The Texas Savings Bank Act and the Texas Savings and Loan Act authorize the Department to conduct regular examinations of state-chartered thrifts, initiate enforcement actions, and review applications for changes in charter. The Department currently regulates 27 thrifts.

• Regulation of Mortgage Brokers and Loan Officers. In 1999, the Legislature assigned responsibility for licensing mortgage brokers to the Savings and Loan Department. The Mortgage Broker License Act, which established Texas' first licensing requirement for first lien mortgage brokers, does not require regular examinations. Consequently, the investigations of mortgage brokers and loan officers are based solely driven by consumer complaints. As of October 2000, the Department had licensed 8,735 mortgage brokers and their loan officers.

The mission of the Office of Consumer Credit Commissioner (OCCC) is to regulate the credit industry and educate consumers and creditors to produce a fair, lawful, and healthy credit environment for Texas. OCCC regulates businesses that advance cash or loan money; and that sell merchandise on credit, including pawnshops and their employees.

• Funding. OCCC's budget for fiscal year 1999 was about $2.2 million. The agency collects all of its revenue from fees levied from the regulated industries.

• Staffing. OCCC employs 46 full-time employees, with 27 working at the agency's headquarters in Austin; and 19 in the Dallas, Houston, San Antonio, and the Rio Grande Valley.

• Licensing and Registration. OCCC licenses regulated lenders, pawnshops, and pawnshop employees. OCCC also registers creditors who finance the sales of their goods and services. In fiscal year 1999, the agency processed more than 4,100 applications and registered 1,525 new creditors.

• Examination and Enforcement. OCCC examines licensed lenders; and investigates creditors, licensees, and some license applicants. Examinations focus on consumer protection and compliance with the Texas Finance Code. The agency currently regulates about 5,300 licensed lending locations. Examinations generally take place every 12 to 18 months.

• Consumer Complaint. OCCC assists consumers in resolving complaints with creditors, and provides mediation when necessary. Complaints are usually received on a toll-free number that the agency operates. Most complaints (32 percent in fiscal year 1999) involve car dealers, who are governed by a law authorizing limited enforcement action.

• Education. OCCC informs consumers on credit use and promotes consumer resources and assistance, including the agency's consumer help line. The agency uses training videos, newsletters, and educational displays to fulfill its mission. In fiscal year 1999, the education efforts reached 16.5 percent of Texans.

This recommendation would reauthorize the Finance Commission for the standard 12-year period, with the agency subject to Sunset review again in 2013.

1.2 Change the composition of the Finance Commission to add a consumer credit industry representative.

This recommendation would add a representative of the consumer credit industry, while establishing a balanced representation across the three key industries overseen by the Commission. It would reduce the size of the Commission from nine to seven members, but would maintain a majority of public members. The current requirement that one public member be a CPA would be continued. The Commission's new seven-member size would be within the structure of the recent constitutional amendment concerning the size of legislatively created boards.

Although the number of banking and thrift industry representatives would be reduced, the point of having industry representation should be to gain expertise and knowledge of industry operations, not to maintain voting strength on the Commission. A single representative from each of the banking, thrift, and consumer credit industries can provide the needed expertise and knowledge.

1.3 Clarify that the mission and role of the Finance Commission, in coordinating financial regulatory policies, is to protect consumers and ensure a strong depository and lending system in Texas.

This recommendation is intended to establish the Finance Commission's statutory role as both the umbrella policy body overseeing the three financial regulatory agencies, and direct it to take a broad view of Texas' financial services industry. The Finance Commission would serve as the single point of accountability for ensuring that Texas' depository and lending institutions function as a system. This coordination should focus on protecting consumers' interests, as well as maintaining a safe and sound banking system, as a means of increasing the economic prosperity of the state.

To express its view of Texas' financial future, the Finance Commission should continue to complete a strategic plan that would focus on the Commission's role of coordinating Texas' financial system. While the strategic plan should express the Finance Commission's mission, goals, and strategies, the document would not be used as a budgetary document or submitted to the LBB for the appropriations process. For an example of a non-budgetary strategic planning process, the Finance Commission should draw on the expertise of the Department of Information Resources, as that agency's strategic plan for information resources is a model planning process. The Commission should require the Commissioners to work together to produce the plan.

1.4 Vest all rulemaking authority of the three Commissioners in the Finance Commission.

This recommendation would ensure that the Finance Commission has the full ability to control the policy decisions of the three financial regulatory agencies. The current mix of responsibilities for rulemaking between the Commissioners and the Finance Commission would be eliminated in favor of a clear vesting of all rulemaking authority within the policy body.

1.5 Eliminate all statutory references to the Finance Commission as a separate state agency.

This recommendation would maintain the Commission as a policy body over the three financial regulatory agencies, but eliminate its current status as an independent state agency. It would also eliminate the need for a separate Executive Director position. Under this recommendation, the Finance Commission would continue to be responsible for hiring the Commissioners of the three financial regulatory agencies, and approving budgets and legislative appropriations submissions, but the Commission's separate budget codes and responsibility for filing its own Legislative Appropriations Request would be rescinded. Responsibility for overseeing future studies of the availability of financial services could continue to be assigned by the Commission to one of the three agencies.

Reducing the size of the Finance Commission from nine to seven members and eliminating the need for a part-time executive director would save $6,880 per year, from reduced travel and salary expenses.

The Finance Commission concurs with recommendations 1.1, 1.3, and 1.5. The Commission supports the addition of a consumer credit industry member in recommendation 1.2, but suggests the modification below. A majority of Commission members support recommendation 1.4, to vest all rulemaking with the Commission, but a minority believe that the status quo should remain. (W.D. Hilton Jr., Chairman - Finance Commission of Texas, Greenville)

1. Keep the size of the Finance Commission at the current nine members with five public members and four industry representatives. Instead of the current balance of two banking and two thrift representatives, have one representative each from the banking, thrift, and consumer credit industries and allow the Governor to select an additional representative from either the banking or thrift industries.

The Office of Consumer Credit Commissioner supports the staff recommendations. (Leslie Pettijohn, Commissioner - Office of Consumer Credit Commissioner, Austin)

Stephen Scurlock, Executive Vice President - Independent Bankers Association of Texas, Austin

Sam Kelley, Attorney at Law - Texas Consumer Finance Association and CitiFinancial, Austin

J. Eric T. Sandberg Jr., President - Texas Savings and Community Bankers Association, Austin

Lawrence Young, National Home Equity Mortgage Association; Attorney - Hughes, Waters & Askanase, L.L.P., Houston

J. Eric T. Sandberg Jr., President - Texas Savings and Community Bankers Association, Austin

2. The duties to study and make recommendations about the price, quality, and availability of financial services should be assigned to the Office of Consumer Credit Commissioner under the direction of the Finance Commission. (Rob Schneider, Senior Staff Attorney - Consumers Union, Austin)

3. Keep the size of the Finance Commission at the current nine members with five public members and four industry representatives. Instead of the current balance of two banking and two thrift representatives, have three representatives from the state-chartered banking and thrift industries, and one representative from the consumer credit industry. (Stephen Scurlock, Executive Vice President - Independent Bankers Association of Texas, Austin)

2.1 Combine the Department of Banking and the Savings and Loan Department into one agency, the Texas Department of Banks and Thrifts.

This recommendation would abolish the Departments of Banking and Savings and Loan and recreate them under one agency for the regulation of depository institutions. This would be accomplished as follows.

• Abolish the positions of Banking Commissioner and Savings and Loan Commissioner and replace them with one Commissioner of Banks and Thrifts. This single Commissioner would be hired by and serve at the pleasure of the Finance Commission. The new Commissioner would have executive authority for both banking and thrift regulatory activities.

• Require the Department of Banks and Thrifts to maintain and preserve the Texas State Savings Bank Charter, the Texas State Savings and Loan Charter, and the Texas State Bank Charter. Consolidation of the two state regulatory agencies would not affect the powers inherent in each existing charter.

• Require the Department of Banks and Thrifts to supervise and examine all depository institutions currently regulated by the Department of Banking, and state-chartered thrifts regulated by the Savings and Loan Department. This requires the Department to have appropriate expertise for the fair and effective regulation of both institutions.

• Merge applications processing for the chartering, merging, branching, and, among other activities, conversions for state-chartered thrifts and banks.

• Combine bank and thrift examiners. This would create a single pool of examiners for the oversight of banks and thrifts. Examiners would be appropriately trained for thrift, bank, and trust examinations.

• Create a single complaint program for the handling of consumer complaints regarding banks or thrifts. This is addressed in Issue 5 of this report.

• Designate two industry contact positions. One contact would be available to state-chartered thrifts, while the other would be available to state-chartered banks. The purpose of these contacts would be to handle, hear, and resolve concerns from regulated depository institutions regarding their examinations. This requirement does not necessitate the creation of two FTE positions, but the designation of the appropriate individuals within the agency to fulfill this role.

• Maintain the oversight of the sale of checks and currency exchange industries at the Department of Banks and Thrifts. The new Commissioner should have the same level of authority over these regulatory functions as the Banking Commissioner does now.

• Transfer oversight of mortgage brokers to the Office of Consumer Credit Commissioner. This is discussed in Issue 3 of this report.

• Oversight of prepaid funeral contracts and perpetual care cemeteries industry will be addressed in the Sunset Staff report on the Texas Funeral Service Commission.

Consolidating the Department of Banking and the Savings and Loan Department into one agency would have no fiscal impact to the State, as fees are adjusted to cover the actual costs of regulation. Any administrative cost savings to the agency should be redirected to support the agency's examination efforts or result in reduced fees to the regulated industries.

The Finance Commission did not reach a unanimous position to combine the Department of Banking and the Department of Savings and Loan into one agency. Commission members who oppose the recommendation generally voice support for the current organizational structure and supportive of the dual charter system. The minority position supports the Sunset staff's findings that no material difference exists between the banking and thrift industries and that regulatory policies and procedures used to ensure safety and soundness are substantially the same. (W.D. Hilton Jr., Chairman - Finance Commission of Texas, Greenville)

The Department of Banking supports this recommendation. (Randall James, Commissioner - Department of Banking, Austin)

The Savings and Loan Department opposes this recommendation. (James Pledger, Commissioner - Savings and Loan Department, Austin)

Stephen Scurlock, Executive Vice President - Independent Bankers Association of Texas, Austin

Gary D. Akright, Immediate Past President - Texas Association of Mortgage Brokers; President - Dominion Mortgage Corporation, Dallas

Bob Binkley, Texas Association of Mortgage Brokers; President - Reliance Home Mortgage Corporation, Houston

Jan Brown, Director - Texas Association of Mortgage Brokers; Vice President - Bank of America, Irving

Dominick Capriotti, President - Greater Houston Association of Mortgage Brokers, Houston

Russell E. Chase, President Elect - Texas Association of Mortgage Brokers; Golden Financial Services Mortgage Lending, Houston

Harry H. Dinham, Past President - Texas Association of Mortgage Brokers; The Dinham Companies, Plano

Belanie Dishong, Texas Association of Mortgage Brokers, Broker - Mortgage Team Concepts, Houston

Michael D. Duree, Texas Association of Mortgage Brokers; President - Ability Financial Services, Kingwood

Pete Farley, Texas Association of Mortgage Brokers; Account Executive - Bank of America Wholesale, Kingwood

Alex H. Harris, President - San Jacinto Title Services of Corpus Christi, Corpus Christi

J. Bradley Johnston, Chief Administrative Officer, General Counsel, and Secretary - Temple-Inland Financial Services, Inc., Austin

Elizabeth Carolyn Leyland, Texas Association of Mortgage Brokers; Mortgages Direct, Austin

Stacy London, Texas Association of Mortgage Brokers; Executive Vice President - Houston Capital Mortgage, Houston

Kevin Longmire, President - Interstate Mortgage; Texas Association of Mortgage Brokers, Seguin

Mark Metcalf, Texas Association of Mortgage Brokers; Republic Home Mortgage, Inc., Austin

Jim Pair, President - Texas Association of Mortgage Brokers; President - Mortgage Associates Corpus Christi, Corpus Christi

J. Eric T. Sandberg Jr., President - Savings and Community Bankers Association, Austin

Dennis Schwartz, General Counsel - Texas Association of Mortgage Brokers, McKinney

Bill Stinson, Vice President of Governmental Affairs - Texas Association of Realtors, Austin

Phillip R. Youngwirth, Customer Service Manager - Polunsky & Beitel, LLP, Kingwood

1. Include the Credit Union Department in the consolidated banking and thrift agency. (Stephen Scurlock, Executive Vice President - Independent Bankers Association of Texas, Austin)

2. Include the Office of Consumer Credit Commissioner if the Department of Banks and Thrifts is consolidated. This would help the state realize efficiencies through the centralization of the regulation of finance companies, pawn shops, mortgage brokers, second lien lenders, prepaid funeral contract sellers, and sale of checks licensees. (Stephen Scurlock, Executive Vice President - Independent Bankers Association of Texas, Austin)

3.1 Transfer responsibility for licensing first lien mortgage brokers and lenders from the Savings and Loan Department to the Office of Consumer Credit Commissioner.

This change would combine all licensing and regulation of mortgage brokers in one agency -- the Office of Consumer Credit Commissioner. This would make OCCC responsible for the licensing of first lien mortgage brokers under the Mortgage Broker Licensing Act, in addition to OCCC's current regulation of second lien mortgage and home equity lenders. To ensure the full benefits of this merger, the statute should be amended to allow OCCC to use information obtained through one licensing program to meet the requirements of the other. In this way, once a mortgage broker has proved to have the net assets needed or passed a criminal background check, a second review of these components should not be necessary.

Under this transfer, the Mortgage Broker Advisory Committee would continue. It would advise the Consumer Credit Commissioner, rather than the Savings and Loan Commissioner. This would ensure ongoing advice from both the mortgage broker and real estate industry.

The current statutory cap on fees would not change, but the Finance Commission, rather than the Savings and Loan Commissioner, would be responsible for setting reasonable rates, within statutory limits, to cover the costs of regulation.

3.2 Require the Savings and Loan Department and the Office of Consumer Credit Commissioner to jointly formulate a transition plan for the transfer of the regulation of first lien mortgage brokers.

This recommendation would ensure a successful transition for the responsibility of administering the Mortgage Broker Licensing Act from the Savings and Loan Department to OCCC. Given that the two agencies are currently housed on the same floor at the Finance Commission, no physical move may be required. The transition plan should determine the administrative costs and appropriately allocate the costs between the two agencies. The plan should include computer integration to address any information technology or data management issues. A timetable for transferring licensing and regulatory duties should be established by October 1, 2001, with the transfer completed by January 1, 2002, or sooner if possible.

Transferring responsibility for first lien mortgage broker licensing from the Savings and Loan Department to OCCC would have no direct fiscal impact to the State, but should help avoid the need for an additional appropriation in FY 2002-2003.

The Finance Commission unanimously supports the concept of combining licensing for first lien mortgage brokers and lenders. However, there is no clear consensus regarding whether the Office of Consumer Credit Commissioner or the Department of Savings and Loan should have responsibility for the combined components of licensing mortgage broker activities. (W.D. Hilton Jr., Chairman - Finance Commission of Texas, Greenville)

The Department of Banking supports this recommendation. (Randall James, Commissioner - Department of Banking, Austin)

The Savings and Loan Department opposes this recommendation. (James Pledger, Commissioner - Savings and Loan Department, Austin)

The Office of Consumer Credit Commissioner has no objection to the recommendation, and if it is adopted, would ensure a smooth transition and that the program be continued in an efficient manner. (Leslie Pettijohn, Commissioner - Office of Consumer Credit Commissioner, Austin)