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2007 IBAT Key Legislative Issues
The Independent Bankers Association of Texas Board of Directors has approved the following proactive initiatives for the 2007 legislative session.
ILC Branching. Several giant commercial firms including Wal-Mart and Home Depot have applied for and/or acquired industrial loan companies (ILC) with the apparent objective of branching them into their stores. Like Fed Chairmen Greenspan and Bernanke, IBAT believes that banking and commerce should remain separated. Therefore, we recommend an amendment to the Finance Code that would prohibit any financial institution, not just an ILC, from establishing a branch in an affiliated nonfinancial business.
Home Equity Cleanup. A recent lawsuit brought against the Finance and Credit Union Commissions has brought home the fact that it is extremely difficult for even the experts in the area to analyze and interpret the home equity loan provisions in the Constitution. Therefore, IBAT is recommending cleanup of the Constitution to provide some much-needed clarification. These are not substantive changes but rather mirror the interpretations made by the Finance and Credit Union Commissions. Although banks may find the requirements of this law burdensome, the important thing is that they be able to understand the law so that they can fully comply.
These amendments also address issues raised by recent litigation with regard to variable rate lending, reconciling the fact that the Constitution permits variable rates but also requires “substantially equal” installments. Additionally, the cleanup amendments make it clear that a borrower cannot come back after a home equity loan is made and assert an agriculture use valuation on property in order to defeat a lien.
Finally, Hurricanes Rita and Katrina have taught us that there are times when homeowners need access to the equity in their property. Thus, another amendment would permit a refinancing of a home equity loan prior to the expiration of one year in the event of a bona fide emergency.
Home Equity Cash-Out Refi. Under present law, Texas consumers wishing to refinance while taking additional “new money” must do so under the present home equity scheme. IBAT believes it is time to permit homeowners to take advantage of the lower interest rates and closing costs, as well as the flexibility offered by a first lien traditional mortgage, by permitting a cash-out refinance option.
Margin Tax Technical Corrections. The Texas Legislature wrestled mightily with tax reform, coming up with a business tax solution designed to spread taxes across a broad spectrum of industries, while providing some level of relief from ever-increasing property taxes. Community banks in Texas have historically paid the franchise tax, and continue in their willingness to pay their “fair share”. We will be working with numerous interested parties to ensure that community banking is treated fairly as this law is “fine-tuned”.
Local Government Official Conflict Statements. A recent addition to the Local Government Code requires both local government officials and vendors to local government to provide statements relating to business relationships and affiliations. IBAT believes that potential conflicts of interest are already aggressively covered by banking laws such as the Bank Bribery Act and by stringent review through the bank examination process on a routine basis.
Registered Agent. Corporations in Texas must have a registered agent for service of process. Out of state banks must have a registered agent for service of process. However, Texas based banks can be served at a variety of offices, leading to lawsuit by entrapment. IBAT supports a minor revision of the Civil Practice & Remedies Code that would require actions to be served on a bank's registered agent. Only if the bank does not have a registered agent is process proper on the president or a branch manager.
2007 IBAT Legislative Priorities
Coalition and Defensive Issues
In addition to its key proactive legislative issues, there are several other areas in which IBAT expects to be engaged during the Eightieth Texas Legislature.
Tax Lien Cleanup. While tax lien financiers can provide an important service to consumers, there is also the potential for abuse. IBAT, along with other mortgage lenders, supports amendments to the tax code that would protect consumers and traditional mortgage lenders from abusive practices in this area. Among other changes, an effective notice to lenders will assure that the tax lien is paid in a timely fashion and will prevent traps for the unwary resulting in the loss of valuable property for the consumer and the traditional lender.
Mortgage Fraud. Scams and fraudulent activities are a rising concern in the residential mortgage area. Loan flips and abusive appraisals among other practices are resulting in losses in this industry. These losses increase the cost of financing for consumers and increase risks to all lenders. IBAT supports a reasonable mortgage fraud bill that would address these abuses in a responsible fashion, without placing additional burdens on legitimate lenders and increased costs on consumers.
Commercial Loans – Usury. In the 2005 legislative session, the Texas legislature passed both a statute and proposed constitutional amendment that would permit the legislature to identify certain large “qualified” commercial loans that would be excluded from the Texas usury laws altogether. Unfortunately, the constitutional amendment did not pass. We expect to see both bills reintroduced in 2007, and we will again be supportive of additional flexibility for Texas lenders and borrowers.
Privacy and Identity Theft. All institutions have strict programs in order to comply with the Gramm-Leach-Bliley Act as well as other guidances in order to protect customer information through technology, policies and procedures, and personnel background checks. This applies to their vendors as well. Nonetheless, we anticipate that additional, potentially onerous proposals may emerge with regard to check verification, identity theft issues, and other matters. IBAT is committed to working on rational solutions that balance the protection of consumers with reasonable business solutions.
Wire Transfer Fees. Remittances to foreign countries have grown significantly in Texas. Some of these may be sent by immigrants to their families in their home countries. IBAT anticipates a proposal that would tax these remittances, along with other foreign wire transfers, as a source of funds for public hospitals. While IBAT agrees that the rising cost of indigent care is a major policy concern, it believes that this approach will only drive legitimate wire transfers out of Texas institutions and into out-of-state banks to the detriment of local, community banks while at the same time not raising significant funds.
Matricula Consular Card. This identity card is issued by Mexican consulates and is a way of establishing and verifying identity. According to the federal banking regulators, it is a permissible device for compliance with the USA PATRIOT Act. State legislation limiting the use of these cards arguably could be preempted by federal regulations. The real issue is illegal immigration - not identity cards. IBAT supports rational solutions to the immigration issues but is concerned with efforts that impact prudent banking practices.
Lien Priorities. IBAT strongly opposes any efforts to grant lien priority to subsequent transactions between a borrower and a non-financial entity. Efforts to give businesses such as feed lots a priority lien will disrupt normal agriculture finance and potentially result in reduced credit availability and/or increased costs to agricultural producers in the state of Texas.
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