February 18, 2019 | Issue 4
I asked a House member this week how his Session is going. He said: "It's like a rocket sitting on the launching pad. The engines are rumbling, the smoke is billowing, you can feel the ground shaking, but so far we haven't gone anywhere." That is an apt description. Bills are being filed. Legislative Council continues to churn out bill drafts. Committees are holding their organizational meetings. But per Constitutional mandate, no bills other than Governor declared emergency bills can be voted on until after March 8.
Here are this week's highlights.
The House Pensions, Investments, and Financial Services Committee had two days of organizational hearings. The first day was devoted to pensions. The second day was devoted to financial services. Invited testimony was provided by the Commissioners of Banking, Savings and Mortgage Lending, and Consumer Credit. The financial trade associations also provided testimony. On behalf of the TMBA, I gave an overview of our membership for the Committee new members; a brief state of the industry; and an overview of our legislative objectives for 2019.
Last Tuesday, Rep. Capriglione of South Lake held a stakeholder meeting on data privacy and his outline of a bill that he is drafting. He described his proposal as "California Lite." That is he is using a number of concepts from last year's California's data privacy act. He stated that there would be carve-outs consistent with Graham, Leach, Bliley, and HIPPA. In response to a question I raised, he said that he envisioned enforcement would be by civil penalties from agencies or the AG, and did not anticipate permitting private causes of action.
Bills of interest
HB 1569 (Lambert). This is the Sunset bill for the Finance Commission, Department of Banking, and Savings and Mortgage Lending. Our initial analysis is that it contains all of the Sunset Commission's recommendations for Savings and Mortgage Lending. It extends the life of SML as a free-standing agency until 2031 (the traditional 12 years). It removes the phrase "good moral character" from the Chapter 157 qualifications for a residential mortgage originator license. At first look, this might seem like a weakening of licensing standards, but it isn't really. "Good moral character" has not ever been satisfactorily defined and is one of the things that numerous administrative law judges endlessly debate. The Sunset Commission in its review of occupational licensing agencies has recommended eliminating this phrase from licensing statutes over the last several Sunset review cycles for all agencies.
SB 763 (Menendez). This bill would require that a creditor or landlord provide expanded notices relating to a default of an obligation relating to the residence of a person over 65. If a payment is more than 30 days late, the creditor or landlord would be required to also notify the person who had a durable power of attorney for the borrower or tenant before the creditor or landlord could take any other action such as foreclosure or eviction. It only takes a New York minute to identify a lot of issues with this. How is a creditor to know whether or not the borrower gave a durable power of attorney? If more than one agent is named, does notice have to go to both? How is the creditor to determine if the borrower is now over 65? Do servicing systems have to be reprogrammed to update monthly to identify whether or not a borrower who was 55 when the loan was originated is now turning 65? And what about whether or not the principal wants the agent to know about the default? There are privacy concerns here.
SB 860 (Paxton). This bill creates a regulatory "sandbox" to test "innovative" financial products (in the emerging so-called Fintech space) by permitting the Attorney General through its consumer protection division to authorize persons to offer the financial product for a limited time without the person being licensed or registered. The financial products include "innovative" products otherwise subject to Finance Code Chapter 342 (consumer installment loans); retail installment contracts; money service business products; and acting as an investment advisor. This last category has produced a bit of feather-ruffling, because Senator Paxton's husband, current Attorney General Ken Paxton, admitted in a Texas Securities Board administrative action that he acted as an unregistered investment advisor and he paid an administrative penalty. That also led to his indictment in a criminal case because acting as an unregistered investment advisor is a felony under the Texas Securities Act. The criminal case is still pending. At least as currently drafted, the bill excludes mortgage loans. This is good because if it did cover mortgage products, the bill would place Texas out of compliance with SAFE Act requirements. I see a real structural problem with granting the Attorney General this authority rather than placing this authority within the agencies that have substantive expertise over these agencies: the Finance Commission agencies (here prominently Banking and Consumer Credit) and the Texas Securities Board. As currently structured and funded, the AG's consumer protection division does not have the expertise or the infrastructure to carry out this mandate.