HBA-LJP C.S.S.B. 314 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 314 By: Sibley Financial Institutions 5/7/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE The Department of Banking (department) was created in 1923 by the 38th Legislature to oversee the safety and soundness of the financial system of Texas. The department charters, supervises, and examines statechartered banks. The department also oversees depository institutions and their affiliates, companies selling money orders and checks, foreign currency exchange and transmission businesses, perpetual care cemetery funds, and prepaid funeral contract sellers. Currently, the department is subject to the Texas Sunset Act and will be abolished on September 1, 2001, unless continued by the legislature. C.S.S.B. 314 provides for the continuation of the department and incorporates the recommendations of the Sunset Advisory Commission. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Finance Commission of Texas in SECTION 6 (Section 154.151, Finance Code) and SECTION 11 (Section 712.008, Health and Safety Code) of this bill. ANALYSIS C.S.S.B. 314 amends the Finance Code to continue the Texas Department of Banking until September 1, 2013 and to set forth standard Sunset Advisory Commission recommendations regarding conflicts of interest, the development of an equal employment policy, standards of conduct, and the maintaining of written complaints. The bill requires the banking commissioner or banking commissioner's designee to provide to agency employees information and training on the benefits and methods of participation in the state employee incentive program (Sec. 12.113). The bill authorizes the banking commissioner to place on probation a permit holder whose permit relating to prepaid funeral services is suspended and to require the permit holder to report regularly to the Texas Department of Banking and to limit their activities as prescribed by the banking commissioner (Sec. 154.109). The bill requires the Finance Commission of Texas (commission) by rule to establish a standard disclosure that must be included in each contract to inform purchasers of the goods and services that will be provided or excluded under the contract and the circumstances under which the contract may be modified after the death of the beneficiary (Sec. 154.151). The bill provides that the purchaser of prepaid funeral benefits is entitled to receive the actual amount paid by the purchaser and half of the earnings attributable to that money (Sec. 154.155). The bill authorizes the banking commissioner to impose an administrative penalty on persons who engage in a pattern of violations, as determined by the banking commissioner, or who violates a rule of the commission. In determining the amount of the penalty, the bill requires the banking commissioner to consider the person's history of violations. The bill provides that the imposition of a penalty by the banking commissioner is subject to judicial review (Sec. 154.406). If, after a hearing, the trier of fact finds that a violation of provisions under prepaid funeral services or a rule of the commission establishes a pattern of wilful disregard for the requirements of prepaid funeral services or the rules of the commission, then the trier of fact is required to recommend to the banking commissioner that the maximum administrative penalty related to prepaid funeral services be imposed on the person committing the violation or that the banking commissioner cancel or not renew the person's prepaid funeral services permit (Secs. 154.4061, Finance Code and 712.0442, Health and Safety Code). The bill amends the Health and Safety Code to authorize the commission to adopt rules to enforce and administer provisions relating to perpetual care cemeteries, including rules establishing fees to defray the costs of enforcement and administration (Sec. 712.008). The bill authorizes, rather than requires, the banking commissioner to examine the books and records of a corporation relating to its fund annually or more often as necessary to protect plot owners. The bill authorizes the banking commissioner to examine consumer complaint files relating to the fund or to the discharge of the corporation's perpetual care responsibilities, minutes of the board of the directors of the corporation, cemetery dedication statements and plat maps, and lawn crypt construction contracts and specifications. The bill also deletes provisions relating to the required period of time covered by the examination of the books and records of the corporation (Sec. 712.044). After a notice and opportunity for a hearing, the bill authorizes the banking commissioner to impose an administrative penalty, not to exceed $1,000 for each violation, on a person who violates certain provisions relating to perpetual care cemeteries, a final order of the banking commissioner, or a rule of the commission and does not correct the violation within a specified time period or a person who engages in a pattern of violations as determined by the banking commissioner. The bill also provides guidelines under which the banking commissioner determines the amount of the penalty (Sec. 712.0441). The bill amends the Insurance Code to provide that a funeral home employee or a person who has a funeral prearrangement life insurance agent license and who writes certain life insurance policies and fixed annuity contracts regarding prepaid funeral contracts is not required to comply with any continuing education requirements to maintain such a license. The bill provides that the appointing insurance company must educate appointed agents about any new products sold by the licensed agent to fund prepaid funeral contracts and that such a licensee may be appointed by more than one insurance company (Art. 21.07-1). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 314 amends the original to provide that if, after a hearing, the trier of fact finds that a violation of provisions under prepaid funeral services or a rule of the Finance Commission of Texas (commission) establishes a pattern of wilful disregard for the requirements of prepaid funeral services or the rules of the commission, then the trier of fact is required to recommend to the banking commissioner that the maximum administrative penalty regarding prepaid funeral services be imposed on the person committing the violation or that the banking commissioner cancel or not renew the person's prepaid funeral services permit (Secs. 154.4061, Finance Code and 712.0442, Health and Safety Code). The substitute removes the authorization of a seller of trust-funded prepaid funeral benefits contracts to retain an amount not to exceed one-half of all money collected or paid until the seller has received an amount equal to the amount spent by the seller on selling expenses, service costs, and general overhead according to the rules of the commission (Sec. 154.252, Finance Code). The substitute also reinstates the inclusion of prepaid funeral benefits in the definition of "services" that relate to retail installment services (Sec. 345.003, Finance Code). The substitute authorizes the banking commissioner to examine consumer complaint files relating to the fund or to the discharge of the corporation's perpetual care responsibilities, minutes of the board of the directors of the corporation, cemetery dedication statements and plat maps, and lawn crypt construction contracts and specifications (Sec. 712.044, Health and Safety Code). C.S.S.B. 314 provides that a funeral home employee or a person who has a funeral prearrangement life insurance agent license and who writes certain life insurance policies and fixed annuity contracts regarding prepaid funeral contracts is not required to comply with any continuing education requirements to maintain such a license. The substitute provides that the appointing insurance company must educate appointed agents about any new products sold by the licensed agent to fund prepaid funeral contracts and that such a licensee may be appointed by more than one insurance company (Art. 21.07-1, Insurance Code).