Texas Register, Volume 40, Number 10, Pages 983-1152, March 6, 2015 Page: 1,074
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tax lenders are unable to charge discount points in a manner
that complies with the limitation on funds advanced in Texas Tax
Code, 32.06(e), because borrowers are unable to pay discount
points up front. Third, certain property tax lenders have used
discount points as disguised closing costs, rather than an option
to obtain a lower interest rate. Fourth, the comments indicated
that discount points are particularly confusing to property tax loan
borrowers, and that they provide little benefit to borrowers.
The following is a concise statement of objections that com-
menters proposed against adopting a prohibition on discount
points, along with the commission's reasons for disagreeing
with the objections. First, some commenters argued that the
commission does not have authority to regulate discount points.
The commission disagrees with this objection, because the
commission has the authority to adopt the rule under both Texas
Finance Code, 351.007 and Texas Tax Code, 32.06(a-4)(2).
Second, some commenters argued that prohibiting discount
points would deprive borrowers of benefits associated with
discount points. The commission believes that similar benefits
can be achieved with different pricing structures, and that the
different pricing structures would result in less confusion on the
part of borrowers. Third, some commenters argued that the
rule would disproportionately affect small businesses. The com-
mission believes that the impact on small businesses should
be minimal, and that small businesses should be able to adjust
their pricing practices to comply with the rule, as discussed in
more detail in the "Impact on small businesses" section.
B. Commission's authority to regulate discount points
Two commenters argued that the commission does not have
authority to regulate or prohibit discount points. The commis-
sion disagrees with these comments. Rules governing discount
points are within the commission's rulemaking authority under
two different sections. First, the rules are authorized under Texas
Finance Code, 351.007, which provides: "The finance commis-
sion may adopt rules to ensure compliance with this chapter and
Sections 32.06 and 32.065, Tax Code." Second, the rules are
authorized under Texas Tax Code, 32.06(a-4)(2), which autho-
rizes the commission to "adopt rules relating to the reasonable-
ness of closing costs, fees, and other charges permitted under
this section." The commenters made three arguments to sup-
port the conclusion that the commission does not have authority
to adopt rules regulating discount points.
First, one of the commenters argued that Texas Finance Code,
351.007 does not authorize the commission to adopt rules re-
lating to interest. The commenter stated: " 351.007 gives the
Finance Commission a broad mandate to 'adopt rules to ensure
compliance with this chapter'. However, this language only pro-
vides the Finance Commission authority to adopt rules to imple-
ment the statutes in embodied in Chapter 351 of the Tex. Fi-
nance Code. There is nothing in Chapter 351 of the Finance
Code that addresses interest rates and 351.007 does not give
the Finance Commission the authority to regulate interest."
The commission disagrees with this comment. The commenter
failed to quote the last seven words of 351.007, which authorize
the commission to adopt rules to ensure compliance with Texas
Tax Code, 32.06. In particular, the commission may adopt rules
to ensure compliance with 32.06(e), which includes the limi-
tation on funds advanced and the reasonable-closing-costs re-
quirement.uThe provisions in 89.601(d) help ensurethat prop-
erty tax lenders do not use discount points to violate the limita-
tion on funds advanced. They also help ensure that property taxlenders do not use discount points as a disguised closing cost in
violation of the reasonable-closing-costs requirement.
Second, both commenters argued that the rulemaking author-
ity in Texas Tax Code, 32.06(a-4)(2) is limited to closing costs
and other non-interest charges. One commenter stated: "'Inter-
est' isn't a fee or closing cost, even if it is added at the begin-
ning of a transaction rather than spread over time. As such, the
proposed rules on discount points can't get their authority under
[ 32.06(a-4)(2)], relating to the reasonableness of a closing cost,
fee or charge." The other commenter stated: "Since the legisla-
tive rule making authority granted to the Finance Commission
only authorizes the Finance Commission to adopt rules relating
to the reasonableness of closing costs, fees, and other charges,
the Finance Commission does not have the authority to regulate
interest rates."
The commission also disagrees with these comments. Inter-
est is a charge authorized under 32.06(e), so it falls within
the "other charges permitted under this section" described in
32.06(a-4)(2). The commenters' argument appears to be
based on the premise that interest is not a charge, but this
premise is incorrect. Texas courts have routinelyreferred to
interest as a charge. See, e.g., Danziger v. San Jacinto Sa.
Ass'n, 732 S.W.2d 300, 304 (Tex. 1987) ("A usurious charge
may be contained in an invoice, a letter, a ledger sheet or other
book or document. . . . A pay-off quote which reflects a charge
of interest in excess of that allowed by law constitutes 'charging'
of usurious interest.") (emphasis added). Because interest isa
charge authorized under 32.06(e), the commission is autho-
rized to adopt rules relating to interest under 32.06(a-4)(2).
The commission may also adopt a rule prohibiting discount
points because they are an unreasonable charge in connection
with a property tax loan.
Third, both commenters argued that a rule governing discount
points would be inconsistent with the 18% interest limitation in
32.06(e). One commented stated: "The Legislature capped the
interest rate on tax loans covered by Tex. Tax Code 32.06 at
18%. Accordingly, so long as a lender follows the appropriate
rules for calculating interest already provided by the Legislature
regarding interest calculations, the OCCC and Finance Commis-
sion are only authorized to enforce the existing statutes regard-
ing property tax loan interest rates and does not have the inde-
pendent authority to implement rules regulating interest rates."
Similarly, the other commenter stated: "A prohibition is inconsis-
tent because 32.06(e) is unambiguous: the interest rate cap is
18% per year. If the aggregate interest rate calculation falls be-
low 18%, compliance is achieved."
The commission disagrees with the suggestion that the rule is
inconsistent with the 18% interest limitation. The provisions in
89.601(d) do not substitute a different maximum interest rate
for the 18% maximum in 32.06(e). Rather, the provisions help
ensure that lenders do not impose an unreasonable charge, and
that they do not violate the limitation on funds advanced. They
also help ensure that property tax lenders do not mischaracterize
discount points as closing costs.
IV Impact on small businesses
The adopted rules may have an economic impact on some small
and micro-businesses. Many small property tax lenders will be
unaffected by the adopted rules, because they already charge
closing costs below the adopted $900 limitation, do not use affil-
iated business arrangements, and do not charge discount points.
However, the comments indicated that a segment of small prop-40 TexReg 1074 March 6, 2015 Texas Register
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Texas. Secretary of State. Texas Register, Volume 40, Number 10, Pages 983-1152, March 6, 2015, periodical, March 6, 2015; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth606207/m1/92/?q=32+TexReg+3206: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.