BILL ANALYSIS C.S.H.B. 1608 By: Grusendorf 03-13-95 Committee Report (Substituted) BACKGROUND The Sale of Checks Act gives the Department of Banking regulatory authority and responsibility to administer and enforce the Act. This bill proposes changes in the current law to reflect the current operating environment of licensees and the public, as well as the repeal of existing law where it is outmoded. Incorporated telegraph companies are currently exempt from licensing under the Sale of Checks Act to the extent they transmit money by telegraph. This exemption is not utilized. No incorporated telegraph companies transmit money by telegraph. This exemption is deleted. Presently, applicants for a license under the Sale of Checks Act must have a net worth of at least $500,000 and must meet certain general requirements with respect to financial ability, responsibility, business experience, and general character and fitness. Proposed changes in the license requirements would provide greater protection of the public which would be better served by a more comprehensive, less ambiguous framework of requirements for licensing. The Finance Commission currently does not have rulemaking authority under the Sale of Checks Act. It is difficult for the Department of Banking to adequately administer the Act without express rulemaking authority. This bill provides the Finance Commission with the power to promulgate rules relating to license applications and all matters relating to the qualifications for licensing, and with respect to all matters incidental to the enforcement and orderly administration of the Act. PURPOSE This bill would expand the scope of the Act when it is perceived that public policy considerations warrant additional regulation to protect the public and advance the purposes of the Act. Where existing legislation has become overly burdensome or outmoded, House Bill 1608 proposes to amend the Act to correct or relieve such problems as necessary. RULEMAKING AUTHORITY It is the committee's opinion that this bill grants rulemaking authority to the Finance Commisssion in Sections 3 and 8 of this bill. It is the committee's opinion that the Banking Commissioner is granted rulemaking authority in Section 2 of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Definitions. Sec.2 Amends Article 489d by adding a new subsection (g) to provide a definition of "commission" to mean the Finance Commission of Texas. SECTION 2. Section 4(b) of Article 489d is deleted to eliminate the exemption from licensing for incorporated telegraph companies. A new subsection (b) to Section 4 is added to allow the Commissioner to grant exemptions from regulation or provide for less stringent regulatory standards or requirements for companies engaged solely in commercial check selling activities that serve to promote interstate commerce if the Commissioner finds that doing so is in the public interest. SECTION 3. Qualifications. Applicants seeking a license under the Sale of Checks Act must: 1. Have net worth of at least $500,000; 2. Be in a financial condition such that the applicant may safely and soundly engage in the business of selling checks; 3. Not ever have been convicted of a felony or crime involving moral turpitude; 4. Be qualified, by experience or otherwise, to perform the duties required of a licensee; 5. Truthfully and completely answer each question in the original application and all renewals thereof; 6. Not be indebted to the state for any fees or for the payment of any penalty imposed under the Sale of Checks Act or rule of the Finance Commission; 7. Not be engaged in activities or practices that adversely affect the safety and soundness of the applicant. SECTION 4. Section 7 of Article 489d is amended to allow the Commissioner discretion to set the investigation fee. Section 7(c) of Article 489d is amended to allow the Banking Commissioner to require an additional bond over the $500,000 ceiling up to a maximum of $1,000,000 based on the licensee's financial condition and the dollar volume of licensee's outstanding checks. Included is a provision that the bond represent funds held in trust for the benefit of check purchasers. Claimants (i.e., check purchasers) are allowed to sue directly on the bond for an amount equal to the amount of any unpaid judgment against the licensee. Claimants also could assert claims directly against a licensee, if the licensee were in bankruptcy or receivership. A provision is included for mandatory venue in Travis County for actions brought against a licensee by the Attorney General on behalf of claimants. Section 7(d) of Article 489d is amended to provide for prior approval of the Banking Commissioner to deposit securities in lieu of bond. Additionally, cash and certificates of deposit are included in the list of items which may be deposited in lieu of bond. SECTION 5. Section 9 of Article 489d is amended to allow the licensee additional time to file quarterly reports and so that the reporting requirement in Section 9 comports with other reporting requirements in the Act. SECTION 6. Clarifies the date through which quarterly reports should be filed, i.e., through the end of the immediately preceding fiscal quarter. Also licensees are allowed 120 days after the end of each fiscal year to file their annual audited unconsolidated financial statement. The provisions allowing certain licensees to file only a single report is deleted. SECTION 7. Section 9C of Article 489d is revised so that a trust is impressed upon proceeds from the sale of checks in the hands of both licensees and their agents. SECTION 8. Section 5 of Article 489d is amended to provide the Finance Commission with the power to promulgate rules relating to license applications and all matters relating to the qualifications for licensing. Section 9E is added to the Sale of Checks Act directing the Department of Banking administer the Act and granting rulemaking authority to the Finance Commission with respect to all matters incidental to the enforcement and orderly administration of the Act. An agent or sub-agent is exempted from rules adopted. Section 9D would require an agent of a licensee to remit all funds due from the sale of checks to the licensee within ten calendar days after the sale. In order to not unduly infringe upon the licensee's right to contract with its agent, the section includes a provision whereby the licensee may require a shorter period of time between sale and remittance of funds. The section also includes a discretionary feature which would allow the Banking Commissioner to require remittance in a shorter period of time, if deemed necessary. SECTION 9. Section 13 of Article 489d is amended to provide that the mailing address or telephone number of the licensee be included with the licensees' name on the face of the instrument. SECTION 10. Section 15 of Article 489d is amended to allow the Banking Commissioner to make orders effective immediately in cases where the Commissioner finds an imminent peril to the public health, safety or welfare would result from delaying the effective date of the order. This section also clarifies that licensees seeking court review of the Banking Commissioner's findings and order would proceed under the provisions of the Chapter 2001, Texas Government Code. SECTION 11. The Sale of Checks Act is amended by adding a new Section 15A which would allow the Commissioner to issue cease and desist orders if any one of the following violations or practices is found to have occurred: Violation of any provision of the Sale of Checks Act or any other law or regulation applicable to the sale of checks; A refusal to comply with the provisions of the Sale of Checks or any other law or regulation applicable to the sale of checks, any willful neglect to perform duties, or the commission of a breach of trust of fiduciary duty; Commission of any fraudulent or other practice in the conduct of the licensee's business which endangers or threatens the solvency of the licensee; Refusal to submit to examination; Business being conducted in an unsafe or unauthorized manner; or A violation of any condition of a license or any agreement or order entered into with the Banking Commissioner. Such cease and desist orders allow the subject of any cease and desist order to appeal the order to the Finance Commission. Section 15A would also provide that the Attorney General of Texas, at the request of the Commissioner, could bring suit in District Court to enforce the final order of the Commissioner or the Finance Commission and to enjoin violation of such orders. The section also specifically provides that the Commissioner would be empowered to act under authority of the proposed cease and desist section, Section 14 of the Act providing for revocation of the license or any other application section of the Sale of Checks Act, or any other law. Therefore, it would not be necessary for the Commissioner to proceed with a cease and desist order prior to taking regulatory action to revoke the license or assess penalties under the Act. SECTION 12. Amends Section 16 of the Sale of Checks Act, governing penalties, to allow the Commissioner to assess civil penalty in accordance with that section for violation of any order of the Commissioner issued under the Sale of Checks Act (i.e., violation of a cease and desist order) or pursuant to any rule or regulation adopted under the Act. SECTION 13. Amends the Sale of Checks Act by adding a new Section 18 which would require that the Department of Banking keep confidential all information obtained from a licensee relative to the financial condition of a licensee, other than proprietary information of a licensee, whether obtained through examination or otherwise, except published statements, and all files and records the Department of Banking relative thereto. The Commissioner and the officers and employees of the Department of Banking would be prohibited from disclosing such information. The Commissioner, however, would be entitled to release such information if: The Commissioner finds immediate and irreparable harm is threatened to purchasers or potential purchasers of check or the general public; The licensee consents to any such release; The Commissioner finds that release of the information is required in connection with an administrative hearing under the Act, in which case information may be distributed to the parties to the hearing; or The Commissioner finds that the release is reasonably necessary for the protection of the public and in the interest of justice, in which case information may be distributed to an agency, department of instrumentality of this state, any other state of the federal government. SECTION 14. Effective date September 1, 1995. SECTION 15. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill contained some drafting mistakes and the substitute corrects these mistakes. On page 10 of the substitute, the phrase "business day" is clarified to say that it does not include Saturdays, Sundays, and legal public holidays. Also on page 10, section 9E of the substitute was amended to exempt sub-agent or an agent from rules adopted under this Act. SUMMARY OF COMMITTEE ACTION The committee considered HB 1608 in a public hearing on March 13, 1995. The committee considered a complete committee substitute for the bill which was adopted without objections. The following person testified in favor of the bill: James C. Duff. The following person testified neutrally on the bill: Catherine A. Ghiglieri. The bill was left pending. The committee considered HB 1608 in a public hearing on April 3, 1995. The committee reconsidered the vote by which it adopted the complete committee substitute for HB 1608 without objection. The substitute was before the committee. The committee considered two amendments to the substitute which were adopted without objection. The Chair instructed the Clerk to incorporate the amendments into the substitute. The motion to adopt the committee substitute as amended and report HB 1608 favorably as substituted with the recommendation that it do pass and be printed prevailed by the following record vote: 9 Ayes, 0 Nays, 0 PNV, 0 Absent.