Texas Amends Application Procedures and Adopts Consumer Loan Rules
by: Matthew Dailey
The Finance Commission of Texas adopted amendments to 7 TAC §§2.101 – 2.105 and new §2.201 and §2.202, concerning residential mortgage loan originators applying for licensure with the Office of Consumer Credit Commissioner (OCCC) under the Secure and Fair Enforcement for Mortgage Licensing Act. Also, the commission has adopted §83.606, regarding Maximum Term and Maximum Installment Account Handling Charges for regulated lenders. The provisions are effective as of November 7, 2013.
REVISIONS TO APPLICATION PROCEDURES
The purpose of the adopted amendments and new rules is to provide clarification regarding license status, as well as operational requirements related to renewal and background checks. The amendments and new rules place into regulation existing agency policy and do not impose new requirements on licensees. The amendments outline when an application may be withdrawn, and when licenses may be issued in an inactive or conditional status. The new rules concern requirements for renewal, including additional background checks, and a licensee’s duty to maintain current information with NMLS.
Of note is the addition of three new subsections to §2.102. Subsection (c) states that if an application is not completed within 30 calendar days after notice of deficiency has been sent to the applicant then the application will be considered abandoned and be withdrawn. Subsection (d) says the OCCC can 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 originator 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. Subsection (e) simply says that licenses may be issued on a conditional basis.
Section 2.104 clarifies two pieces of information through amendments. First all fees are nontransferable as well as nonrefundable. Second, the reapplication fee for originators is not to exceed $300.00.
Lastly are the new rules which outline requirements for license renewals. Section 2.201 states that a completed renewal application through NMLS, receipt of payment, continued compliance with the minimum requirements for license issuance, and completion of continuing education are all necessary for renewal. This section also states that renewal of a license can be rejected if the applicant withholds information or makes a material misstatement in an application, and that criminal and credit background checks are allowed. Section 2.202 informs originators that they must notify the OCCC of any change in address, name or employer.
ALTERNATE CHARGES FOR CONSUMER LOANS
§83.606 implements Senate Bill (SB) 1251 by providing guidelines under Texas Finance Code, Chapter 342, Subchapter F, concerning interest-calculation methods for loans using the add-on method, the scheduled installment earnings method, and the true daily earnings method. The new rule also addresses payment allocation and maximum term.
First, for loans using the scheduled installment earnings method or the true daily earnings method, the bill lays out the amounts that may be included in the principal balance, and provides that payments must be applied in the following order: (1) the straight line allocation of the acquisition charge, (2) a delinquency charge, (3) a return check fee, (4) any other charges authorized under Subchapter F, (5) accrued interest, and (6) principal balance. The bill also specifies that the maximum term refers to the original scheduled term of the loan.
When breaking down the amendments we see under Subsection (c) that the cash advance or principal balance of a loan contract may not include the acquisition charge, installment account handling charge, default charges, deferment charges, or the return check fees. Subsection (d) discusses maximum terms: where there is a loan with a cash advance of $100 or less, the maximum term of a loan is the lesser of:
(i) one month for each multiple of $10 of cash advance; or
(ii) six months.
For a loan with a cash advance more than $100, the maximum term is one month for each multiple of $20 of cash advance, rounded down to the lower integer.
Next, Subsections (e) and (f) provide the methods for calculating the maximum interest charge for a Subchapter F loan. Here we see that the interest charge is referred to as “installment account handling charge.” For a more complete explanation see the statute and the detailed calculation method.
Subsection (g) explains that prepaid interest in the form of points is not permitted for a loan under this statute. Subsection (h) states when disclosing the finance charge and determining the annual percentage rate for disclosure purposes under the Truth in Lending Act the acquisition charge and installment account handling charge must be considered finance charges.
Finally Subsection (i) describes how payments must be allocated for Subchapter F loan contracts using the scheduled installment earnings method or true daily earnings method. The subsection also specifies how to calculate the straight line allocation of the acquisition charge (divide the original amount of the acquisition charge by the original term of the loan) and includes allocations where the borrower makes a partial payment or prepays the loan in full.
About the Author:
Matthew Daily, J.D. is Regulatory Compliance Consultant at Bankers Advisory, Inc. He is a graduate of Stonehill College and earned his Juris Doctor at the New England School of Law. He is admitted to the Massachusetts Bar. Matthew can be reached at matthew@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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