 ‘7 OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

   JOHN CORNYN




                                            June 11,2002



Mr. Randall S. James,                            Opinion No. JC-05 13
Commissioner of Banking
                                                 Re: Whether the requirement of section 341.502(a)
Ms. Leslie L. Pettijohn,                         of the Finance Code applies to loan transactions
Consumer Credit Commissioner                     other than those “regulated by the Office of
                                                 Consumer Credit Commissioner”      (RQ-0483-JC)
Mr. James Pledger,
Savings and Loan Commissioner

Texas Finance Commission
2601 North Lamar Boulevard
Austin, Texas 78705-4294

Dear Commissioners:

        You have requested our opinion as to whether the phrase “regulated by the Office of
Consumer Credit Commissioner” applies to all loan transactions listed in section 341.502(a) of the
Finance Code. See TEX. Fm. CODEANN. 8 341.502(a) (Vernon Supp. 2002). For the reasons
explained below, we conclude that section 341.502(a) is applicable only to those transactions for
which the consumer credit commissioner is the appointed regulating official.

        Section 341.502 was added to the Finance Code in 2001 by Senate Bill 317. See Act of
May 27,2001,77th      Leg., R.S., ch. 1235, 9 11, sec. 341.502,2001 Tex. Gen. Laws 2899,2903. It
was enacted as part of Senate Bill 3 17 and “continues the Office of Consumer Credit Commissioner
for 12 years and makes changes to the statutes that were recommended by the Sunset Advisory
Commission.” SENATECOMM.ONBUSINESS           & COMMERCE,     BILLANALYSIS,Tex. S.B. 3 17,77th Leg.,
R.S. (2001) ( enrolled version). Section 341.502 provides:

                   (a) A contractfor a loan under Chapter 342, a retail installment
               transaction under Chapter 348, or a home equity loan regulated by
               the Office of Consumer Credit Commissioner, whether in English or
               Spanish, must be written in plain language designed to be easily
               understood by the average consumer. The contract must be printed
               in an easily readable font and type size.
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger             - Page 2               (JC-05 13)




                     (b) The finance commission shall adopt rules governing the form
                 of contracts to which this section applies. The rules must include
                 model contracts complying with the rules and this section.

                     (c) A person governed by this section is not required to use a
                 model contract. The person, however, may not use a contract other
                 than a model contract unless the person has submitted the contract to
                 the cornmissioner. The commissioner shall issue an order disapprov-
                 ing the contract if the commissioner determines that the contract does
                 not comply with this section or rules adopted under this section.

                    (d) The person may begin using a contract submitted under
                 Subsection (c) on the date it is submitted for review.       If the
                 commissioner issues an order disapproving the contract, the person
                 may not use the contract after the order takes effect.

                      (e) A person may not represent that the commissioner’s failure to
                 disapprove a contract constitutes an approval of the contract by the
                 commissioner, the Office of Consumer Credit Commissioner, or the
                 finance commission.



TEX. FIN. CODEANN. 5 341.502 (Vernon Supp. 2002) (emphasis        added). The “commissioner,” for
purposes of subtitle B, title 4 of the Finance Code, of which chapter 341 is a part, is defined as the
“consumer credit commissioner.”       Id. $ 34 1.001(4).

         Subsection (a) of section 341.502 names three categories of loan: (1) “a contract for a loan
under Chapter 342”; (2) “a retail installment transaction under Chapter 348”; and (3) “a home equity
loan regulated by the Office of Consumer Credit Commissioner.” Id. 5 341.502(a). All these kinds
of loan appear to be subject to a “plain language” requirement. “Plain language,” according to the
statute, means “designed to be easily understood by the average consumer.” Id. The question you
pose is whether the clause “regulated by the Office of Consumer Credit Commissioner” applies only
to the category of “home equity loan,” or whether, in the alternative, it modifies all three categories
of loan.’ In short, you ask whether all loans made pursuant to chapters 342 and 348 of the Finance
Code, regardless of the official assigned to regulate them, are subject to the “plain language”
requirement.    See Request Letter, supra note 1. The significance of this inquiry, as will be made
clear subsequently, is that if all loans made pursuant to chapters 342 and 348 are subject to the terms
of section 341.502, then the consumer credit commissioner will exercise a substantial degree of
control over those contracts.



          ‘See Letter from Randall S. James, Banking Commissioner,         Leslie L. Pettijohn, Consumer Credit
Commissioner,   James Pledger, Savings & Loan Commissioner, to Honorable John Comyn, Texas Attorney General
(Dec. 2 1,200l) (on file with Opinion Committee) [hereinafter Request Letter].
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger               - Page 3               (JC-0513)




         Chapter 342 applies to a loan which has an interest rate greater than 10 percent per year; “is
extended primarily for personal, family, or household use”; and is not usually secured by a lien on
real property. TEX. FIN. CODEANN. 8 342.005 (Vernon Supp. 2002). A lender who makes a loan
under chapter 342 is required to obtain a license from the consumer credit commissioner.       See id.
§§ 341.101 (Vernon 1998), 342.051 (Vernon Supp. 2002). Chapter 348 relates to “motor vehicle
installment sales.” Id. @ 348.006-.518 (Vernon 1998 & Supp. 2002). Unless a person is an
“authorized lender or a credit union,“2 he must, in order to sell a motor vehicle at retail, hold a
license issued by the consumer credit commissioner.       Id. 59 348.501, .502, .504 (Vernon Supp.
2002).

         As we have noted, section 341.502 was added as part of the bill to extend the existence of
and make changes to the statutes pertaining to the Office of Consumer Credit Commissioner.      The
bill analysis for the engrossed version of Senate Bill 3 17 explains:

                  The Office of Consumer Credit Commissioner (OCCC) was created
                  in 1967 to regulate the credit industry and educate consumers and
                  creditors to produce a fair, lawful, and healthy credit environment for
                  Texas. OCCC regulates businesses that loan money, sell merchandise
                  on credit, or advance cash, including pawnshops and their employees.
                  The Sunset Advisory Committee has reviewed OCCC and has set
                  forth recommendations    regarding OCCC. Senate Bill 3 17 continues
                  OCCC and sets forth the recommendations         of the Sunset Advisory
                  Commission.



HOUSE COMM. ON FINANCIAL INSTITUTIONS,
                                    BILLANALYSIS,Tex.                    S.B. 317, 77th Leg., R.S. (2002)
(engrossed   version).   Specifically   as to section 341.502, the bill analysis states:

                 The bill sets forth provisions regulating the form of a loan contract
                 for a consumer loan, a motor vehicle installment transaction, or a
                 home equity loan and requires the [finance] commission to adopt
                 rules governing the form of loan contracts. The bill requires the rules
                 to include model contracts complying with the rules.

Id. The bill analysis follows recommendations            made by the Sunset Advisory
                                                                               Commission.   See
SUNSET ADVISORY COMM’N, STAFF&PORT:OFFICE       OFCONSUMER   CREDIT   COMMISSIONER  at 43 (2000)
(Finance Commission to adopt rules governing consumer loan contracts, including model contracts
written in plain language).




           2An “authorized lender” is a “person who holds a license issued under chapter 342, a bank, or a savings
association.”  TEX. FIN. CODE ANN. 6 341 .OOl( 1) (Vernon Supp. 2002).
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger         - Page 4              (JC-0513)




         At first blush, it might appear that the language of section 341.502(a) is applicable to all loan
transactions described therein, including those made pursuant to chapters 342 and 348, regardless
of the regulating official otherwise responsible for such transactions.         The punctuation of the
sentence would seem to suggest that result. But the Code Construction Act requires not only that
words and phrases be “construed according to the rules of grammar and common usage,” it also
directs that “[wlords and phrases shall be read in context.” TEX. GOV’T CODEANN. 8 311.01 l(a)
(Vernon 1998). And the context of section 341.502 is clearly the regulatory authority of the
consumer credit commissioner.

         Chapter 341 of the Finance Code provides that the consumer credit commissioner “has the
powers and shall perform all duties relating to the issuance of a license under this subtitle and is
responsible for the other administration ofthis subtitle, except asprovided by this subchapter.” TEX.
FIN.CODEANN.8 341.101 (Vernon 1998) (emphasis added). Under subsections (c) and (d) of section
341.502, a person who opts not to use a model contract must submit his contract to the consumer
credit commissioner. The commissioner is required to disapprove the contract if he “determines that
the contract does not comply with this section or rules adopted under this section.” Id. 4 341.502
(Vernon Supp. 2002). Thus, if subsection (a) of section 341.502 is construed according to its literal
sentence structure and punctuation, any lender, including banks, savings and loan associations, and
credit unions, so long as they choose not to use the model contract adopted by the Finance
Commission, must submit their contracts under chapters 342 and 348 for approval by the consumer
credit commissioner.    See id.

        Such a construction is, however, at variance with chapter 341 as a whole. Subchapter B of
chapter 341, entitled “Regulating Official,” describes the entities responsible for regulating various
lenders. As we previously observed, section 341.10 1 charges the consumer credit commissioner
with regulation “relating to the issuance of a license,” but imposes the caveat “except as provided
by this subchapter.” Section 341.102 relates to the regulation of banks:

                     (a) The banking commissioner shall enforce this subtitle relating
                to the regulation of a state bank operating under this subtitle.

                     (b) The official exercising authority over the operations of
                national banks equivalent to the authority exercised by the banking
                commissioner over state banks may enforce this subtitle relating to
                the regulation of a national bank operating under this subtitle.

Id. 8 341.102 (Vernon      1998).   Likewise,   section 341.103 pertains to the regulation    of savings
associations:

                     (a) The savings and loan commissioner shall enforce this subtitle
                relating to the regulation of state savings associations operating under
                this subtitle.
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger         - Page 5            (JC-0513)




                    (b) The official exercising authority over the operation of federal
                savings associations equivalent to the authority exercised by the
                savings and loan commissioner over state savings associations may
                enforce this subtitle relating to the regulation of a federal savings
                association operating under this subtitle.

Id. § 341.103 (Vernon Supp. 2002). And section 341.104 deals with the regulation of credit unions:

                     (a) The credit union commissioner shall enforce this subtitle
                relating to the regulation of state credit unions operating under this
                subtitle.

                    (b) The official exercising    authority over federal credit unions
                equivalent    to the authority       exercised by the credit union
                commissioner may enforce this       subtitle relating to the regulation of
                a federal credit union operating   under this subtitle.

Id. 6 341.104 (Vernon 1998).

          It is clear from these provisions that the consumer credit commissioner is empowered to
regulate only such loan transactions as are not embraced within the regulatory authority of the
banking commissioner, the savings and loan commissioner, the credit union commissioner, and the
federal officials responsible for that regulation within their particular spheres. The Code Construc-
tion Act directs that when construing a statute a court (and this office) may consider, inter alia, the
“object sought to be attained”; the “circumstances under which the statute was enacted”; the
“legislative history”; and, the “consequences of a particular construction.” TEX. GOV’T CODEANN.
5 3 11.023 (Vernon 1998). In our view, the first three of these factors indicate that section 341.502
was enacted as part of a comprehensive statute amending the regulatory authority of the consumer
credit commissioner and was not meant to implicate the regulatory authority of the other regulating
officials. The banking commissioner, the savings and loan commissioner, and the credit union
commissioner have for many years been granted regulatory authority in their respective spheres.
Had the legislature intended to transfer oversight in the area of loan contracts from these
commissioners to the consumer credit commissioner, we believe it would have done so explicitly.
Certainly such a definitive change would have been reflected in the bill analyses, the
recommendations       of the Sunset Commission, or in legislative hearings, but we find nothing in those
sources to that effect.

          Furthermore, to construe the statute to perrnit the consumer credit commissioner to approve
the loan contracts of banks, savings associations, and credit unions would have the consequence of
interfering with federal regulatory authority. “No national bank shall be subject to any visitorial
powers, except as authorized by Federal law, vested in the courts ofjustice. . . .” 12 U.S.C. 5 484(a)
(2000). “Visitorial power” has been defined as the “power to control and arrest abuses, and to
enforce a due observance of the statutes.” State v. First Nat ‘1Bank, Or., 123 P.712 (Or. 1912).
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger      - Page 6             (JC-0513)




Finally, the context of section 341.502 is that of chapter 341 of the Finance Code in general, which
describes the various officials responsible for the regulation of particular kinds of institutions.

         The result is that the clause “regulated by the Office of Consumer Credit Commissioner”
should be applied to each of the three kinds of transactions described by section 341.502. In sum,
section 341.502 is applicable only to transactions that are otherwise within the regulatory authority
of the consumer credit commissioner.       It has no application to transactions that are committed by
statute to the regulatory authority of the banking commissioner, the savings and loan commissioner,
the credit union commissioner,       or the federal officials responsible for such regulation in their
respective spheres.
Mr. Randall S. James, Ms. Leslie L. Pettijohn, Mr. James Pledger    - Page 7           (JC-0513)




                                       SUMMARY

                        Section 341.502(a) of the Finance Code is applicable only to
               those loan transactions for which the consumer credit commissioner
               is the appointed regulating official. It has no application to loan
               transactions subject to the regulatory authority of the banking
               commissioner, the savings and loan commissioner, the credit union
               commissioner,    and the federal officials responsible for regulation
               within their respective spheres.



                                             Yo rs very tru y,



                                            4 l
                                             JOHN
                                                   AT

                                                      CORNYN
                                             Attorney General of Texas



HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee
