LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 24, 1997 TO: Honorable Kenneth Armbrister, Chair IN RE: Senate Bill No. 173, Committee Report 1st House, as amended Committee on State Affairs By: Patterson, Jerry Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB173 ( Relating to a voluntary, consensual encumbrance on homestead property for the purpose of an equity loan.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB173-Committee Report 1st House, as amended Implementing the provisions of the bill would result in a net positive impact of $65,000 to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. Fiscal Analysis This bill would create a division within the Office of the Consumer Credit Commissioner for the purpose of licensing, examining and verifying compliance of lenders with the provisions of the bill. The Office of the Consumer Credit Commissioner projects that additional examiners will be required to examine an increased number of licensed lenders at an increased cost per examination as a result of the added complexity of the type of examinations conducted. Collected revenues would increase due to the licensure of more regulated lenders, and from fees collected as a result of charges assessed to lenders for examinations. The bill would also direct the Consumer Credit Commissioner to establish and maintain an equity loan recovery fund. Money in the fund would be used for reimbursing aggrieved persons who suffer actual damages. Money received by the consumer credit commissioner for deposit in the equity loan recovery fund would be held by the consumer credit commissioner in trust for carrying out the purposes of the fund. The finance commission would be required to establish and collect reasonable and necessary fees from each authorized lender for each home equity loan originated by the lender to accomplish the purposes of the fund. Fees collected shall be deposited into the fund. Methodolgy The bill provides for the Finance Commission to establish and collect reasonable and necessary fees from each authorized lender for each home equity loan originated by the lender to accomplish the purposes of the Equity Loan Recovery Fund. The Office of the Consumer Credit Commissioner's projected revenues of $1.3 million during the first year of implementation include increased licensing fees resulting from a projected increase in the number of lenders, as well as revenues generated from examinations. The agency will charge a $150 surcharge per visit, plus $32 per hour of examination. The agency projects that the cost of the new division would include 22 additional full time equivalents (FTEs), including 5 examiners, 2 assistant examiners, 3 financial analysts, 2 attorneys, 1 consumer education specialist, and 9 administrative technicians. Salaries are projected at $740,000 per year. With additional travel and related operating costs, the total costs of operation and staffing is estimated at slightly over $1 million dollars per year. Collection of funds for the equity loan recovery fund depends on rules established by the Finance Commission. No amounts for this fund can be projected until such rules are promulgated. The comptroller notes that, even though bill specifies that the Equity Loan Recovery Fund would be held in trust by the Office of Consumer Credit Commissioner, these funds could potentially be considered a new dedicated account in the General Revenue Fund. This fiscal note assumes that the Equity Loan Recovery Fund would not be a new dedicated account in the General Revenue Fund. The probable fiscal implications of Implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Five Year Impact: Fiscal Year Probable Probable Revenue Probable Revenue Change in Number Savings/(Cost) Gain/(Loss) from Gain/(Loss) from of State from General General Revenue Other - Equity Employees from Revenue Fund Fund Loan Recovery Fund FY 1997 0001 0001 OTHER-OTH 1998 ($1,253,500) $1,256,000 $110,000 22.0 1998 (1,198,500) 1,261,000 110,000 22.0 2000 (1,209,500) 1,261,000 110,000 22.0 2001 (1,229,500) 1,261,000 110,000 22.0 2002 (1,276,500) 1,316,000 110,000 22.0 Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 $2,500 1999 62,500 2000 51,500 2001 31,500 2002 39,500 Similar annual fiscal implications These impacts would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Agencies: 454 Department of Insurance 450 Savings and Loan Department 449 Finance Commission of Texas 451 Department of Banking 304 Comptroller of Public Accounts LBB Staff: JK ,JD ,JA