On April 18 Sunset staff published their report for the Texas Finance Commission. The Texas Finance Commission is the state commission that oversees the three branches of state financial, banking and lending regulation in Texas.
The three branches are the Department of Banking (DOB), the Department of Savings and Mortgage Lending (SML), and the Office of Consumer Credit (OCCC).
Since 1977, Texas law requires periodic review of every state agency by the Sunset Advisory Commission comprised of 12 members - five members of the Texas House, five members of the Texas Senate, and two public members. The purpose of the review is primarily to determine if the state agency should continue to exist. Secondarily, if continued existence is called for, the Commission can make recommendations to increase efficiency and effectiveness.
For the MH industry our primary concern is the OCCC. The OCCC is tasked with overseeing, among many other consumer lending products, Chapter 347, Finance Code, which is the state law that regulates personal property MH lending in Texas. For MH loans with land, SML is the regulator.
TMHA’s Executive Director, DJ Pendleton, Executive Vice-President, Rob Ripperda, and long-time TMHA lobbyists, Wade Long, meet with Sunset staffers charged with reviewing the Finance Commission in late-March. The productive meeting allowed us to educate the Sunset staffers about MH lending in Texas, and advocate for continued sensible, predictable and fair regulation of MH lending.
After reviewing staff’s 99-page report on the Finance Commission the key MH related takeaways are: 1) staff recommending the OCCC continue to exist; 2) MH lending was not explicitly address and thus implied as a recommendation for status quo; and 3) the registration to be a Chapter 347 registered creditor could go to a two-year registration rather than its current single year.
Trust me when I tell you that when it comes to Sunset staff recommendations that lack of fireworks for the industry you care about is typically a good thing.
And the complete report was far from benign for everyone under review.
Sunset staff’s most shocking announcement was their recommendation to eliminate SML and consolidate its current responsibilities into DOB. They estimate this consolidation will save approximately $1.38 million.
The stated reason for abolishing SML is that the agency’s cores functions of regulating the state’s savings banks and mortgage lenders, “largely duplicate those of the Texas Department of Banking (DOB) and fail to justify the need for a separate agency.” They went on to conclude, “DOB has the sophisticated operations and infrastructure already in place to achieve greater economies of scale and hone the regulation of state savings banks and mortgage industry professionals to the minimum necessary to protect the public interest.”
A summary of the seven issues identified and the corresponding 24 specific recommendations start on page 10 of the report.
Same week the Sunset staff report came out the Finance Commission had a regularly scheduled meeting in Austin. TMHA’s DJ Pendleton regularly attends Commission meetings, but after seeing the Sunset staff report a few days before the meeting knew this meeting was going to be unique. Many of those staffers, including the SML Commissioner, that the Sunset report recommending eliminating their current positions attended the meeting.
As you might expect, while measured and professional, the tone from many of the commissioners and various agencies staffers were of profound disagreement with many of the Sunset staff recommendations.
The Sunset staff’s recommendations are far from the final step in the long process; far from it actually. We are still in the early stages with the next step now moving to the members of the Sunset Commission, public comments and hearings this summer - all of which culminate in the Sunset Commission’s recommendations. While their recommendations carry a lot of weight, the process is turned over to the full legislature in 2019 as the bills regarding these agencies move through the legislative process.
While far from over, last week’s announcement and then reaction to Sunset staff’s recommendations signaled that it will be an interesting summer and 2019 session for anyone who deals with the Finance Commission.