Office of the Attorney General

Opinion Committee

P.O. Box 12548

Austin, Texas  78711

Re:       Opinion Request Concerning Chapter 176 of the Texas Local Government Code

            RQ-0451-GA

Dear General Abbott:

The Independent Bankers Association of Texas (“IBAT”) has reviewed the opinion request regarding Chapter 176 of the Texas Local Government Code and would like to provide some comments from the perspective of its community bank members who engage in contracting with local governments.  Under various sections of Texas law, banks provide both depository and investment services to a wide array of local governmental units as well as lease finance arrangements.  Thus, the requirements of Chapter 176 are extremely important to IBAT members.  Such members are already subject to regulatory scrutiny under the Federal Bank Bribery Act and examination for conflicts of interest.  However, it appears that this addition to the Local Government Code could impose unreasonable and unnecessary regulatory burden if read in a very elastic manner.  IBAT strongly recommends that the terms in this chapter be carefully scrutinized and interpreted in a way that accomplishes the objective of the legislature while not presenting an inefficient and unnecessary burden on commerce.

First, the terms in this chapter are not themselves fully defined.  This means that the usual statutory and code construction rules should apply.  Where terms have a technical or well-established meaning, those meanings should be used.  (§311.011 Gov. Code)

With that in mind, IBAT would respectfully suggest that the term “affiliation” is a term with clear meaning, particularly for the financial industry.  For banking, “affiliates” are entities that either control each other or are under common control.  (§31.002(a)(1) Finance Code)  Thus an affiliation for purposes of this statute should be interpreted as meaning a control relationship. 

The term “business relationship” should also be interpreted as it is commonly understood.  Again, in the banking industry there is a very clear distinction drawn both in Texas law (the Texas Finance Code) and federal regulatory law between business relationships and consumer ones.  Consumer relationships are those that relate to personal, family or household transactions.  (See for example §342.005 Texas Finance Code and 12 CFR 226.2(a)(12).)  IBAT would suggest that a “business” relationship is one that relates to commercial transactions and not to consumer ones.

Chapter 176 requires the vendor or prospective vender to “identify” each affiliation or business relationship and to “describe” the same.  However, there is no gloss in the chapter as to the level of detail required by such a description.  IBAT would point out that traditionally financial information between a customer and a bank has been considered highly confidential.  Chapter 552 of the Government Code recognizes that and provides certain exceptions from the disclosure under the Public Information Act.  (See §§552.101, 552.110, and 552.112)  Furthermore, federal law has further strengthened the concept of privacy as it relates to consumer information.  Although the Gramm Leach Bliley Act excludes from the nondisclosure rules information required to be disclosed by state law, we would suggest that the trend in banking laws and regulations, both state and federal, is to protect information rather than make it more widely available.  While §59.006 Texas Finance Code does not create a right of privacy, it does reinforce the expectation that certain stringent procedures are appropriate before information becomes a part of the public record in a court proceeding.  Since Chapter 176 requires information disclosed by vendors to be posted on the internet where local governments have a website, the potential for mischief if excessive detail is revealed is staggering.

Furthermore, a narrow reading will facilitate the continued participation of community banks as vendors to local government.  Unlike the large, out of state banks, local community banks are especially sensitive to the disincentives public disclosure of all details of banking relationships could have on local officials.  Conversely, well qualified local business people may hesitate to serve on local school boards or city councils if the details of their most intimate banking relationships are subject to public disclosure.  A broad disclosure would not pose the same dilemma.

Thank you for this opportunity to comment.  Financial institutions are already subject to stringent conflict rules.  They take this issue very seriously and are examined for compliance.  Furthermore, the officers in a bank are subject to federal felony prosecution if they violate the conflicts rules (See 18 USC § 215).  IBAT believes that a narrow reading of Chapter 176 will still achieve the objectives of protecting the public from excessive influence by vendors.