Celeste Embrey

Celeste Embrey
TBA General Counsel

88th Texas Legislative Session

How TBA approached it and how bankers fared

Bankers’ ability to meet their customers’ credit and deposit needs will largely continue as-is.”

TBA’s objective every legislative session is to ensure banking-related measures discussed at the Texas Capitol result in our members being able to better serve their customers and, thus, their communities. If a legislative proposal helps bankers serve their customers, communities and shareholders, TBA leadership directs your TBA staff to support the legislation. If a bill, no matter how well-intentioned, makes it more difficult to serve your customers, staff is directed to weigh the costs and benefits of the bill, solicit input from our bankers and then develop a legislative strategy for whether the Association should oppose the bill while working to lessen the legislation’s potential negative impacts. 

With 181 citizen legislators, the majority of whom are not full-time bankers, it’s easy to see how close to 90% of your TBA Advocacy Team’s time at the Texas Capitol is spent defensively fending off bad ideas from often friendly legislators who simply don’t understand the impact their bills could have on the banking industry in the state.

Status quo

With this being said, how did banks weather the 88th Session of the Texas Legislature? On the whole, because of a very engaged industry, Texas bankers fared well at the Capitol this session. While there are compliance updates that must be made, for the most part, from a state perspective, how banks conducted their business at the beginning of 2023 will very closely resemble how banks will conduct their business at the end of the year. Bankers’ ability to meet their customers’ credit and deposit needs will largely continue as-is. 

Swipe fees

However, there are legislative issues that all bankers should pay close attention to, whether they made their way to the governor’s desk or not. 

For example, HB 3395 by Rep. Gio Capriglione, relating to the charging of swipe fees on certain electronic payment transactions; authorizing a civil penalty. HB 3395 would have required the creation of a new interchange system in Texas for electronic payments because it required a payment card network to deduct the state and local sales tax portion of a transaction from the calculation of any interchange fees that could be assessed. No other state has such a system, and despite many meetings and explanations that the system envisioned by HB 3395 simply did not exist, Rep. Capriglione was convinced that the process set out in the bill was as simple as flipping a switch. 

Thankfully, the day the bill was set for a public hearing in the House Committee on Pensions, Investments & Financial Services, TBA had more than 100 bankers at the Texas Capitol for our biennial Texas Bankers Blitz. Having over 100 bankers register their opposition to the legislation certainly helped stall the bill in the legislative process. HB 3395 never made it to the House Floor for debate thanks to banker outreach.

Second Amendment Financial Privacy Act

While HB 3395 never made it out of the Texas House, HB 2837 by Rep. Matt Schaefer was sent to Governor Abbott on May 24. HB 2837 relates to prohibiting a person or entity from surveilling, reporting or tracking the purchase of firearms, ammunition and accessories through the use of certain merchant category codes; imposing a civil penalty. The genesis for HB 2837, deemed the Second Amendment Financial Privacy Act, is in Geneva, Switzerland, where the International Organization for Standardization (ISO) is based. In the fall of 2022, the ISO adopted new Merchant Category Code (MCC) 5723 for ammunition and firearms retailers. Payment card networks participating in the ISO would be required to assign MCC 5723 for all firearms and ammunition purchases. 

Despite the fact that banks do not assign MCCs (payment card networks do), under Schaefer’s legislation, which was sponsored in the Texas Senate by Sen. Charles Schwertner, if signed by the governor, Texas banks, as payment card issuers, will have to notify customers every time a firearms code is assigned to an electronic payment card transaction on a payment card holder’s account. Failure to provide such notification will be a violation of the regime created by Schaefer and Schwertner’s legislation, thus subjecting banks not only to private rights of action, but also potentially up to $10,000 in fines from the Texas Attorney General for each violation. 

In both the Texas House and the Texas Senate, TBA testified to our members’ strong support of the Second Amendment and our commitment to the protection of the privacy of our customers’ information. We explained that Texas banks not only do not collect gun purchase information, they do not want to collect gun purchase information! Despite this, the legislation overwhelmingly passed both chambers. If signed by the Governor, banks will have to adopt a compliance program to show their regulators they are not collecting MCC 5723 in violation of the statute. 

Unlawful debt collection

Finally, in the closing days of the session, TBA’s advocacy efforts to positively change a bill that could have had serious consequences for Texas lenders paid off. Thanks to our friends at the Texas Mortgage Bankers Association (TMBA), TBA and other lenders realized that an omnibus bill creating a state-level RICO (Racketeer Influenced and Corrupt Organizations Act) statute actually captured legitimate lending enterprises. As originally passed by the Texas House, HB 4635 by Rep. Ryan Guillen defined “unlawful debt collection” to include the collection of any debt contracted in violation of the Interest Section of the Texas Finance Code. This meant, for example, that if a bank calculated interest on a loan utilizing the 360-method instead of the 365-method established under the Finance Code and subsequently collected on that debt, the bank would be engaged in unlawful debt collection, which the bill deems to be a second-degree felony. The collection of two such debts could expose the bank to a racketeering charge.

As soon as we realized the potentially dire consequences the final passage of the bill could have on legitimate lenders, TBA and TMBA sprang into action and worked to educate the bill’s Senate Sponsor, Sen. Pete Flores, about what we believed to be a simple (and easily correctable) drafting oversight. Unfortunately, our efforts to amend the bill in the Texas Senate were unsuccessful, as the Senator was unwilling to accept any amendment from the lending community. 

Thankfully, through the advocacy work of engaged Rio Grande Valley bankers, Rep. Guillen was willing to sit down and hear the legitimate concerns of bankers and mortgage bankers. Guillen and his staff worked with industry on acceptable language and took the bill to the conference committee to ensure that banks making simple interest miscalculations would not become felons. If signed by the Governor, in relevant part, HB 4635 provides that if a lender charges more than two times the statutory rate of interest, then they can be found to be engaged in unlawful debt collection. This easy fix to the bill could not have been achieved had Guillen’s constituent bankers not actively worked to educate him on the real-world implications the bill could have for Main Street lenders.

Texas Tour

TBA will be covering these bills and many others as we tour the state this summer with TBA Chairman David Osborn, president & CEO of El Paso-based WestStar Bank, as part of our 2023 Texas Tour. Bills requiring systems changes will also be covered in our 2023 Report of the Texas Legislature, which will be published in August. 

The Texas banking industry fared as well as it did in the 88th Session because TBA’s members have great relationships with their hometown legislators and are invested in the legislative process. We appreciate your efforts and welcome the opportunity to sit down with you and your legislators in your bank at any time so we can leverage the relationships you have as we approach legislators heading into the 89th Session, which convenes January 14, 2025. 

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