2015 Talking Points

State

Tax Lien Lending

  • While legislative efforts have been made to address problems in the tax lien lending industry, there is more that can be done to protect Texas consumers and first lienholders.
  • Namely, borrowers interested in tax lien loans should have a cooling-off period between the time they apply for the tax lien loan and the time that loan is closed. This cooling-off period is similar to what exists in Texas home equity loans and provides borrowers with time to consider the implications of the transaction they are about to enter into.
  • Furthermore, when a borrower has both a mortgage and a tax lien loan, current law provides that the preexisting lienholder cannot request payoff information on the tax lien loan for 90 days. We support amending this law to give the bank holding the first lien the authority to request payoff information immediately upon the borrower’s default. This ensures that the property owner does not needlessly accrue late payment fees and charges.

Oil and Gas Leases

  • Last session, legislation was filed and passed that provided than an oil or gas lease covering real property subject to a security interest that has been foreclosed upon remains in effect after the foreclosure sale if the O&G lease has not been terminated or expired on its own terms and was executed and recorded before the date the security interest was recorded.
  • This bill was vetoed by the Governor; however, its proponents have already indicated they will be pursuing the bill again this session.
  • While the lending industry is not happy with this change to real property law, the bill that was finally passed was one we could live with. As originally field, though, the bill would have given the leaseholder lien priority even if the lease was executed after the security interest was put into place.
  • In order to be amendable to lenders, any bill filed on this subject matter should include language indemnifying the purchaser and any mortgagee of the foreclosed real property from actual damages resulting from the lessee's operations conducted pursuant to the oil or gas lease.

Commercial Construction Agreements

  • The subcontractors lobby would like to require lenders to notify contractors when they send borrowers notices of intent to accelerate; acceleration; set-off; or foreclosure.
  • TBA opposes this legislation because a bank's contractual agreement is with the project owner, not the contractor, so we do not believe we should have any responsibility to notify a contractor of a term of an agreement he is not a party to.
  • If a bank is made to provide notice of default to parties with whom it has no relationship, the cost of funds for commercial construction projects will unnecessarily rise.

SDSI Status of the Financial Regulatory Agencies

  • The 2009 Legislature took the financial regulatory agencies--for our purposes the Department of Banking and the Department of Savings and Mortgage Lending--outside of the legislative appropriations process.
  • As self-funding, self-leveling agencies, which are statutorily limited to collecting only those fees and assessments that cover the agencies' direct and indirect expenditures, it made little sense for these agencies to present their budgets for legislative approval. The agencies contributed nothing to the state's General Revenue, and drew nothing down from the General Revenue.
  • SDSI status has yielded many benefits for the Departments and, thus, Texas consumers. For example, since 2009, employee turnover rates have markedly declined. In the case of TDSML, the average turnover rate has gone from 22% for the period 2002-2009 to 4% for the period 2010-2013. More seasoned examiners for the Departments mean more protections for Texas banking consumers.
  • The flexibility of SDSI status provides our regulators with the tools they need to effectively ensure Texas continues to have a safe and sound banking system.

Directed Trusts

  • Under traditional trust law, the creator of a trust, the settlor, names someone to administer the trust, the trustee, for the benefit of the beneficiary.  As estate planning has grown more complex and the use of trusts for multi-generational planning by families has grown more widespread, the traditional roles and responsibilities of trustees have evolved.  While there historically was one trustee who was responsible for everything to do with the trust – from taxes to recordkeeping, to making distributions and investment decisions, trust law has progressed such that the creator of a trust can delegate investment decisions to third parties, for example to an advisor, a trust protector, or to an investment trustee. 
  • Texas law seeks to provide guidance in this area through the POWERS TO DIRECT section found in Chapter 114 of the Property Code.  However, estate planning attorneys and professional trustees agree that the current statute is not workable and that a significant amount of trust business has left Texas as a result.  Trust business leaves Texas when Texans organize their trusts under the laws of another state, for example, Delaware.
  • TBA supports legislation that adopts the Delaware directed approach in the State of Texas.  The DE directed trustee statute is considered to be the model bill to follow because it is the nation’s first directed trustee statute, enacted almost 29 years ago, and is the approach that has been adopted by 19 other states.
  • TBA supports HB 3190 by Villalba, which is straightforward legislation modeled after the Delaware directed trustee statute, and clearly sets out that if there is an advisor or an investment trustee who can direct investments, the trustee or the administrative trustee is not liable for following their instructions and does not have to oversee that advisor’s or trustee’s actions.  

Federal

Regulatory Burden

  • Every new law enacted or regulation adopted results in a bank having to increase the amount of resources it devotes to compliance.

  • This redirection of resources means that bank has less money to invest in its community.

  • While the stated purpose of these new laws and regulations is to protect consumers and the strength of the banking system, the opposite is actually happening. Increased regulatory requirements are resulting in banks offering fewer products and services and, therefore, less consumer choice.

The Dodd-Frank Act

  • The Dodd-Frank Act was passed in July 2010. Since that time, there have been over 8,200 DFA-related final regulations and guidance pages issued.
  • In that same time period 103 banks in Texas have disappeared.
  • This reduction in charters in our state is not due to failure – we are in the middle of the Texas miracle after all; rather, these community bankers are recognizing that compliance costs for their institutions outpace earnings, so they sell to larger institutions.
  • A recent study by Harvard University’s Kennedy School of Government found that the DFA’s regulations and other rules are constricting community bank activities and their share of the market.
  • In fact, FDIC data finds that community banks service a disproportionately large amount of the agricultural, residential mortgage, and small business loan market; however, their share of U.S. banking assets and lending markets has fallen 20% in the past 20 years.

Credit Unions

  • TBA believes it is time for credit unions to pay their fair share of taxes.  

  • When originally created, credit unions were designed to serve people of modest means and/or people with a common bond.  Congress gave credit unions tax exempt status to encourage lending to people of modest means.

  • Today's credit unions are indistinguishable from banks when viewing the products and services they offer and the communities they serve; yet credit unions pay no tax. In fact, an individual taxpayer will pay more in taxes this year than all credit unions combined.  

  • TBA supports healthy competition in the banking marketplace. However, an industry that is projected by the Office of Management and Budget NOT to pay $12.81 billion in tax between fiscal years 2015 and 2019 has an unfair advantage, and the playing field is not level.  

  • In 2012, Texas banks paid more than $1.6 billion in local, state and federal taxes; yet in 2010, the last year for which the credit unions' regulator has information available, the 549 credit unions operating in Texas paid nothing in local, state or federal taxes.

     Data Breach

    • Banks have an obligation to safeguard their customers' sensitive financial information and have been doing so for years.

    • As the Internet and electronic commerce grows, banks' first priority continues to be to protect consumers from fraud caused by breach.  

    • Consumers have "zero liability" from fraudulent transactions caused by security breaches like those involving Target, Neiman Marcus, and other retailers because banks are providing that relief, not the retailer that suffered the breach.

    • When a customer's credit or debit card is compromised like in the Target breach situation, his or her banker will typically reissue the card at no cost. However, the costs incurred by the bank are far reaching. This includes: customer notification of the breach, replacing the compromised card, deleting the potentially compromised card and the paper, printing and postage associated with sending all of this to the affected customers.  

    • TBA banks report losses of more than $5.50 per compromised debit card in the Target breach. Again, this is at no cost to the customer; rather, it is a cost borne almost exclusively by the customer's local bank.