_    .

                 Tms         ATTORNEY    GENERAL
                                OF TlcKAs
                               AUSTIN.     %kXAS          78711




                                         May 2.    1975


    The Honorable Sam Kelley                                 Opinion No.   H-   598
    Commissioner
    Consumer   Credit Commission                             Re:   Validity of the Finance
    P. 0. Box 2107                                                 Commission    Regulation 4.03
    Austin, Texas                                                  requiring that property
                                                                   insurance written in connec-
                                                                   tion with certain loans be
                                                                   written at rates not in excess
                                                                   of rates approved by the
    Dear Mr.    Kelley:                                            State Board of Insurance.

        You have requested our opinion concerning   the validity of Regulation 4.03,
    which was adopted by the Finance Commission     pursuant to the rule making
    authority provided by article 5069-3.12 of the Credit Code, V. T. C. S.

         Regulation   4.03   provides:

                 Section 4.03.     INSURANCE     PREMIUMS      - FIXED OR
            APPROVED/NOT          FIXED OR APPROVED.           Any property
            insurance written in connection with a loan made under
            the provisions    of Chapter 3 of the Texas Credit Code
            must be written at rates not in excess of the rates fixed
            or approved by the State Board of Insurance where a rate
            structure is so fixed or approved for a particular        type
            of insurance.     If rates are not fixed or approved by the
            State Board of Insurance for a particular       type coverage,
            the licensee must obtain prior acknowledgment          from
            the Consumer     Credit Commissioner       that such coverage
            and rates are reasonable      in relation to loans made under
            Chapter 3 of the Texas Credit Code.          In addition, a
            licensee writing insurance at rates not fixed or approved
            must adhere to any conditions and procedures          the Com-
            missioner    may deem necessary       within his authority
            under Article 3.18 of the Texas Credit Code.          Insurance




                                            p.    2657
   .



The Honorable      Sam Kelley,     page 2     (H-598)




          not written at rates fixed or approved by the State Board
          of Insurance is subject to cancellation   or adjustment if
          such insurance   is not written in accordance   with the con-
          ditions and procedures   established  by the Commissioner.
          (Article 3.18) (Emphasis    added)

Article   5069 provides     in part:

               (1) The State Finance Commission       may make regu-
          lations necessary  for the enforcement     of this Chapter and
          consistent with all of its provisions.   . . . The Consumer
          Credit Commissioner      shall recommend,     and the State
          Finance Commission,      after consideration   of all relevant
          matters presented,    shall adopt and promulgate      every
          regulation in written form stating          the date of adoption
          and the date of promulgation.

Article   5069-2.02(4)     provides    in part:

               The Consumer    Credit Commissioner   shall enforce
          the provisions  of Chapters 2. 3, 4. 5. 6, 7, 8 and 9
          of this Title. . . .

    The Legislature         has therefore   delegated the power to enforce the Act to
the Commissioner         and the power to adopt rules and regulations        to the Finance
Commission.       The      Commissioner     does not have rule-making     authority under
these provisions.        See
                         -     Attorney   General  Opinion C-130  (1963).

    Regulation 4.03 contains three pertinent elements.      (1) Property
insurance may not be written at rates in excess of those fixed or approved
by the State Board of Insurance,   where a rate structure has been fixed
or approved for that type of insurance.   (2) If such a rate structure has not
been fixed or approved,   prior acknowledgment    that the coverage and rates
are reasonable   must be obtained from the Commissioner.        (3) The Commisioner
is to establish conditions and procedures   for the writing of insurance policies
when there has been no rate structure promulgated.

     With respect to the requirement  of consistency            with rate structures  which
have been promulgated    by the Board of Insurance,             article 5069 provides in
part:




                                            p. 2658
The Honorable    Sam Kelley.    page 3    O-I-   598)


            Such insurance and the premiums       or charges therefor
        shall bear, a reasonable  relationship  to the amount, term
        and conditions of the loan, the value of the collateral,
        the existing hazards or risk of loss,    damage or destruction,
        and shall not provide for unusual or exceptional     risks or
        coverages   which are not ordinarily   included in policies
        issued to the general public.

     Rate structures    promulgated   by the Board of Insurance muet be “just.
reasonable,    and adequate. ‘I Insur.   Code, arts.   5.01, 5,14,  5.25,   The
similarity   of the standards established   by the two codes. as well as the
recognized    expertise   of the Board of Insurance,   in our opinion fully
justifies  the first part of Regulation 4.03.    The  Finance   Commission,
in the exercise    of its power to adopt regulations   eoneistent with the Credit
Code, may regulate insurande policies to insure their compliance          with
section 3.18(2),    and may do so by reference    to the rate structures   promul-
gated by the Board of Insurance,

    It hae been suggested that section 3,18(3) of the Credit       Code requires
an opposite reeult,   In pertinent part it provides:

             , . . when any rmuested      or required insurance    ie
        sold or procured by the licensee at a premium or rate
        of charge not fixed or approved by the State Board of
        Insurance,     . , . the borrower    shall have the option for
        a periadof    five days from the date of loan of furnishing
        the required insurance      coverage   either through existing
        policies   , . . or of procuring and furnishing equivalent
        insurance    coverage   , , .

In our view this section in no way grants lenders a right to place insurance
at rater higher than those set by the Board of Insurance for the parti,cular
type involved.    It merely gives ,the borrower a right to secure his own
coverage In those instances where the rates involved are greater than the
rates set by the Board of Insurance or where the Board has not promulgated
a rate structure for the particular      type of insurance involved,    It is our
belief that it is the latter instance to which the statute is primarily      addressed,
for shortly prior to the adoption of the Act, the Board of Insurance stopped
promulgating    rate structures   applicable to some types of insurance involved
in coneumer     credit practice.    This statute principally  provides a procedure
by which policies may be written when there is no applicable         rate structure.



                                     p. 2659
The Honorable     Sam Kelley,     page 4       (H- 598)




    The second two portions of Regulation 4.03 empower the Commissioner
to impose conditions concerning insurance policies for which a rate struc-
ture has not been promulgated   by the Board of Insurance and to determine
whether premiums    for such insurance are reasonable.

    As previously       noted, the Commissioner      has statutory authority to
enforce theAct and the Finance Commission’s              regulations.      “Enforce”
has been defined in part as “to compel obedience to. ” 20 Corpus Juris.
1256, cited in Dozier v. Citv of Gatesville,         51 S. W. 2d 1091, 1094 (Tex. Civ.
APP. --Waco       1932).    In our view it is clear that the Commissioner’s          enforce-
ment authority requires him to determine on a case-by-case                  basis whether
rates are reasonable        as defined by article 5069-3.18(2).        However,    the
Commissioner        may promulgate      conditions and procedures       only to the extent
necessary     to his enforcement      power.    Construing Regulation 4.03 to uphold
its validity,   Railroad Commission        v. Shell Oil Co.,    161 S. W. 2d 1022 (Tex.
Sup. 1942). in our opinion the conditions and procedures              referred to are
either clerical     or are involved in a determination       of reasonableness.        It is
our understanding        that the Commissioner     has so interpreted      Regulation 4.03,
and in accordance        with that determination   has conditioned approval on a
requirement      that certain clauses be included in various policies.            This type
of condition is in our view valid as a form of implementation               of the Commis-
sioner’s   enforcement       power.

                                SUMMARY

              Regulation 4.03 of the Texas Credit Code is valid
         insofar as it requires insurance policies to be written
         consistent   with rate structures  promulgated     by the Board
         of Insurance.    In addition, the Consumer     Credit Commis-
         sioner may enforce the statutory standard of reasonableness,
         and may set conditions and procedures       involved in his deter-
         mination of whether a policy is reasonable,        He may not
         enact rules and regulations    as this function is to be exer-
         cised by the Finance Commission.




                                              Attorney    General   of Texas




                                       p.   2660
.   .    .



        The Honorable   Sam Kelley,     page 5        (H-   598)


        APPROVED:




                                        Y&f
        DAVID   M.   KENDALL,   First    Assistant




        C. ROBERT HEATH,        Chairman
        Opinion Committee




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