The OCCC’s goal of addressing the needs of consumers and lenders while gaining efficiencies presents opportunities for innovation in the regulation of consumer credit. Exciting promise for change in the consumer credit environment appears close on the horizon. The OCCC will embrace that change and continually improve service to Texas citizens.
Delivering exceptional customer service is, and always has been, a driving force within the agency. The agency maintains a results-oriented focus, always seeking the highest levels of performance. OCCC staff members are professionals who have assimilated the agency’s mission into their daily activities. They are the agency’s most valuable resource and are well-qualified and eager to serve the needs of their fellow Texans. The agency will continue to develop staff to meet the changing needs of the financial services industry and consumers through training programs, cross-training and other creative learning techniques, and by providing challenging and changing work programs for the employees.
Perhaps the greatest opportunity the OCCC has to affect the lives of Texas citizens lies in credit education. Educating consumers provides them the ability to make informed decisions, increasing self-sufficiency and self-responsibility. Education yields greater rewards and benefits to the citizens and the state. The OCCC will focus on educational activities and, specifically, the agency will work towards providing an electronic curriculum for use in Texas high schools to educate the state’s future borrowers.
The agency employs 52 full-time equivalent employees (FTEs) as authorized by the General Appropriations Act. Twenty-nine employees are headquartered in Austin at the State Finance Commission Building; a total of twenty three examiners are stationed throughout the state. Although staff turnover dipped to historically low levels in FY02 (as shown in Figure 8), retaining existing staff continues to be a challenge. When hiring new employees, consideration is given to enhancing workforce diversity (Figure 9).
The nature of applying and interpreting the credit statutes is exceedingly technical and requires an extraordinary level of expertise among staff members. Obviously the agency’s demand for this expertise, most of which must be developed in-house, is high. To meet this demand for knowledge, an intense focus is placed on training to develop employees to ensure successful job performance. The agency demands the highest levels of integrity and has in place an ethics policy that assures objectivity from employees when dealing with licensed creditors.
Primary OCCC functions are divided into five areas: Consumer Assistance, Consumer Protection, Licensing and Registration, Credit Education, and Legal and Administration.
Consumers can receive assistance from the OCCC by calling the helpline number (800-538-1579) printed on every contract used by a creditor subject to agency regulation.
The consumer helpline’s contribution to Texas consumers is a particular point of pride for the agency. In the majority of cases, consumer assistance representatives are able to secure an amicable outcome for both consumer and licensee. In some cases, this section has succeeded in settling consumer grievances with non-licensees as well.
Call volume has remained relatively stable after an increase in FY02 (as depicted in Figure 10), but activity will likely continue to rise as a result of the motor vehicle licensing requirement that became effective in September 2002. The increase in volume from FY01 to FY02 is likely due to the significant developments of the 77th Legislature. In addition to responsibility for a motor vehicle licensing program, the OCCC was given authority to initiate administrative rules governing payday loans and develop plain language contracts for use by licensees. These topics generated a great deal of interest in both consumers and industry. Spikes of activity occur on the helpline any time creditors introduce new programs or when the number is used in conjunction with a news story. Further, other agencies are referring consumers to the OCCC on a more frequent basis.
Additionally, this section is responsible for staffing the “high cost home loan” consumer helpline on behalf of the Finance Commission of Texas agencies. Call volume on this new number remains relatively light, although it continues to increase each month.
The consumer protection section, often referred to as examination and enforcement, is responsible for the examination of licensed lenders and the investigation of creditors and licensees. Integrating and reevaluating new activities into existing examination processes will be a key to successful agency operations over the next few years.
An examination is designed primarily to determine compliance with both state and federal lending laws. During an examination, the examiner will review actual contracts on a sample basis. Often these reviews reveal errors. The OCCC requires licensees to make corrections either through refunding money directly to consumers, crediting their accounts, or providing updated and corrected disclosures. The agency’s approach to regulation resulted in $9,795,000 returned to Texans over the last ten years (depicted in Figure 2 in the Agency Overview section).
The OCCC’s increased authority over motor vehicle sales financing activities has created an entirely new examination program. An exam process has been established and examiners undergo extensive training to conduct examinations. This section will also commit resources to educating the industry to ensure licensee understanding of the new requirements.
The legislatively-mandated study of high cost lending has placed additional emphasis on identifying potential predatory or discriminatory lending patterns or practices. Examiners are cognizant of these issues and of the current protections offered in Texas law (see table in the External Assessment section) and continue to find and correct abuses. Should the Legislature take action to set a standard defining predatory lending, the OCCC’s consumer protection section will ensure that its licensees comply with the requirements.
Consumer protection also ensures that licensees implement practices that conform to legislative amendments to the finance statutes, such as the proper distribution of the “high cost home loan” disclosure and plain language contracts. Standardization of documents makes it easier for examiners to perform work; provisions like plain language will certainly reduce the time required to train examiners.
The number of transactions and licensed creditors in Texas has and will continue to increase as a result of high consumer debt levels and the introduction of new credit products, potentially decreasing the frequency that licensees are examined. Until 1978, the OCCC examined 100% of licensees annually. As recently as 2001, about 45% of licensees were examined in a given year, as depicted in Figure 11. With the addition of nearly 5,000 motor vehicle sales finance licensees since September 2002, the percentage dropped to 28%. The length of time between examinations remains a concern on the consumer protection agenda; maintaining desired examination frequency requires diligent risk-based scheduling.
Due to the large volume of expected motor vehicle sales finance licensees, the agency anticipates an extended examination cycle for motor vehicle sales finance companies. Optimizing examination schedules will remain a concern as the agency balances volume levels of licensees with available resources.
Interestingly, the length of time required to complete an individual pawnshop examination has slightly increased in some locations due to an unforeseen effect of the volume-based examination fee structure that went into effect with the June 2002 license renewals. The previous structure consisted of an annual license renewal fee plus an hourly charge. The use of a volume-based structure provides a set fee for each pawnshop operation, payable at the time of renewal rather than at the time of examination. With the hourly charge removed, pawnshop operators feel more at ease asking questions of the examiners about the exam process and findings. The increase in time required is offset by the corresponding increase in the level of licensee awareness and education.
Licensing and Registration
This section processes all regulated loan, motor vehicle sales financing, pawnshop, and pawnshop employee license applications, as well as creditor registrations. With the shift of motor vehicle dealers from the relatively simple process of registration to the far more rigorous license application process, this section has seen a drastic increase in activity since September 2002. Since that time, 4,662 motor vehicles sales finance licenses have been issued (as of May 1, 2004), increasing by 66% the number of licenses in force. Figure 12 depicts the licensing activity trends over the past ten years.
As the section responsible for processing the applications of motor vehicle sales companies, Licensing experienced the greatest immediate impact of the requirement. The number of applications received in FY2002 was 740; FY2003 saw 4,140 applications, an increase in activity of 560%. No additional personnel were authorized to help manage the dramatic increase in workload.
The unusually high activity level associated with licensing motor vehicle sales finance companies has stabilized, but the section will have to continue to manage the needs of a larger number of licensees. The licensing section continues to consider ways to streamline the licensing process. Many of these opportunities have been, and will continue to be, gained through technology enhancements. Already applicants can download all the required forms and instructions from the agency’s Web site. In the future, licensees should be able to submit address changes and renew their licenses through an online process. Ideally, the entire application process would take place online as well, although certain statutory requirements may impede conversion of the entire process to an online environment.
The agency also maintains an imaging system that assists in processing and storing applications. For example, the imaging system is used to track license sequence numbers for auditing purposes. The section’s goal is to establish a paperless process for application review. As the members of OCCC’s staff gain experience with the system, the section will work to automate the licensing process wherever there is an opportunity to do so.
The OCCC has two primary goals for its credit education program: equipping consumers with the necessary knowledge to use credit wisely and educating industry so that its members are better informed of their responsibilities under the law.
With so many new issues on the horizon, the credit education section has enhanced opportunities for outreach. The education section will develop new materials about motor vehicle sales financing for both consumers and industry. As always, the agency will seek opportunities to provide interested consumers with information about protecting themselves from abusive credit practices. Ongoing credit education for consumers is essential. Although the complexity and variety of credit options steadily increases, most consumers remain unconcerned. Education efforts focus on target Texas populations that include the elderly, students, and low-income groups.
The OCCC supports financial literacy in part through educational programs aimed at high school and college students. Young Texans would benefit greatly from education in personal finance offered at the high-school level, before they begin to use credit products such as payday loans or credit cards. The OCCC does reach some teenage consumers through its programs, but these efforts are limited by financial considerations as well as the practical issues of integrating a new curriculum into an educational system already overwhelmed with teacher and curriculum challenges. To ensure a greater likelihood of education reaching this segment, the agency plans to devise an e-curriculum module that integrates well with existing curriculum requirements, such as specific math requirements. In the meantime, the agency has developed teacher-specific PowerPoint presentations that will be freely available to teachers and students on the agency Web site.
It is not unusual for predatory lenders and other abusive creditors to prey in large measure on the elderly. The Texas Department on Aging (TDOA) reported that the OCCC is a valuable resource for older Texans. Older Texans may be unaware of the costs associated with certain loan products, including reverse mortgages and home equity loans. The OCCC has prepared materials to help address those concerns, as well as others. The agency will continue to monitor the needs of the state’s older citizens.
Another outlet for education is the public information function inherent in answering open records requests. Open record requests have remained fairly steady over the last few years (depicted in Figure 13) but the types of information requested have shifted. Certain types of requests have decreased, such as license verifications that can now be obtained by using the agency’s online licensee database. Other types of requests have increased, such as those for mortgage loan and lender data as well as motor vehicle sales finance documents.
Distribution of information will continue to rise as the OCCC Web site increases its presence as a consumer resource. As in every area, the agency strives to serve consumers and businesses by providing immediate access to resources whenever possible, saving time and money for both the agency and the requestor of information. For example, the Web site’s main menu has evolved in response to end-user comments about the information that is most frequently sought and therefore should be most immediately accessible. The obvious presence of this information on the Web site decreases the need for interested parties to issue public information requests. Further, this agency regularly receives requests for information about companies and industries outside of the agency’s regulatory sphere, providing the opportunity to educate requesters about the functions of various Texas regulatory agencies and the array of consumer protection resources available to them.
With the budgetary constraints the education program faces, it is sometimes difficult to develop the kind of high-impact campaigns that often are most effective. The agency, however, has placed additional focus on media outreach. Media-related opportunities can provide educational material to a large number of Texans quickly and cheaply. The OCCC is also interested in developing electronic curriculum for use in Texas classrooms and an interactive Web page to educate young people. While many of the agency’s educational materials are available in Spanish and English, the OCCC continues to seek partnerships with organizations offering the agency the chance to reach Texas’s Spanish-speaking citizens.
The agency also provides continuing education to the regulated industries. The OCCC produces regular newsletters for its regulated licensees, informing them of new developments and requirements. Although the most effective communication often occurs through in-person contact either during an examination or through industry-focused events, the agency welcomes industry requests for education and presents information to industry as opportunities arise.
The OCCC has the potential to have a decided effect on Texas citizens. By extending its education program, the agency can help ensure that the citizens of the state have the necessary knowledge, and thus the capability, to accept responsibility for their financial decisions.
Legal and Administration
The legal and administration department propels the agency’s operation in fundamental ways. Administration of the agency includes these aspects: personnel, accounting, purchasing, agency publication management, media relations, and record retention. The agency relies on outside sources for some operational support by sharing personnel with Department of Banking and the Savings and Loan Department and by contracting with private providers. The OCCC boasts a solid track record of spending through historically underutilized businesses (HUBs), as is illustrated in Figure 14.
The OCCC’s legal section supports many of the agency’s regulatory functions and is called upon to provide compliance information to the financial services industry as well. Although the OCCC does not regulate banks, savings institutions, or credit unions, the agency does maintain interpretive authority for relevant portions of the Texas credit laws and the agency provides services to these industries by lending assistance and advice to them and their legal representatives.
Minimizing potential damages that could result from litigation arising from a violation of the credit statutes is a strong incentive for constructing credit transactions to comply with state law. Agency actions in response to violations could include administrative penalties and license revocation. Because a creditor’s practices are typically standardized throughout their organization, a violation could be systemically repeated, resulting in a greater potential exposure for liability. By obtaining regulatory advice on the proper application of the credit statutes, creditors can minimize this exposure.
Often legal may provide advice on an informal basis, but may be called upon to draft an official interpretation. Certain interpretations may even result in an affirmative defense in litigation over alleged violations, assuming the creditor followed the prescribed regulatory procedure. Since the OCCC was given interpretive authority in 1981, the agency has issued 136 interpretation letters. This authority has been instrumental in preserving and maintaining the integrity of the state’s usury law and in limiting unnecessary litigation.
The Finance Commission of Texas is the supervisory and oversight body for the OCCC, as well as the Texas Department of Banking and the Texas Savings and Loan Department. This commission consists of a nine-member board appointed by the governor with members serving six-year staggered terms. The Finance Commission is comprised of one banking executive, one savings executive, one consumer credit executive, one mortgage broker, and five individuals from the general public.
The inclusion of the consumer credit executive as a member of the Finance Commission provides the consumer finance segment of the market a voice on the commission, balancing the commission’s membership among all the types of regulated entities the Finance Commission oversees. Although a person has not yet been appointed to fill this position, an appointment is expected during 2004.
The three agencies under the Finance Commission are encouraged to share resources and personnel; efficiencies have been attained among the agencies through interagency contracts and cooperation.
The OCCC is financed through fees paid by regulated lenders and creditors that fund a general revenue appropriation. These fees are required to cover expenses. The OCCC has consistently generated sufficient revenues to support the direct and indirect cost of operations. Fees and charges are periodically assessed to determine whether the amounts truly reflect the cost of providing the necessary service or product. For example, the publications price list was revised to reflect a decreased agency cost in producing licensee lists (as lists are now provided almost exclusively in electronic formats rather than printed) and increased cost for licensing application packets (a result of rising paper and postage costs).
The OCCC’s annual budget of approximately $3.4 million allows the agency to make a significant effort towards the regulation of consumer credit. In several areas, however, the agency is constrained by the limited availability of resources and could deliver a more comprehensive regulatory system if the budget allowed additional resources.
Avenues of revenue generation include license application and renewal fees, charges for agency publications and administrative services, and examination charges. As mentioned earlier in this section, the examination structure for pawnshops was revised in February 2002, shifting from a set renewal fee plus a separately billed hourly exam charge to a more predictable volume-based examination fee coupled with the flat renewal rate. This fee structure, already in place for the agency’s other licensee groups, provides both licensees and the agency the opportunity to budget the necessary costs of exams.
A far more variable expense set is involved with examinations conducted beyond Texas. As financial services institutions have broadly expanded geographically, more out-of-state examinations are required. Out-of-state travel limitations enacted by the Legislature may impact the agency’s ability to meet its regulatory goals through examination.
OCCC business depends increasingly on Internet-based service and information delivery, and customers are demanding more productivity from government. To that end, the agency utilizes an optical imaging system that stands to enhance the speed that agency information is delivered, both to the public and to agency staff members. Already the entire set of interpretation letters is available directly to the public through the agency’s Web site. The use of the imaging system allows agency personnel to retrieve and view the information contained in files more quickly from their desks through keyword searches (instead of going to a separate room and sorting through paper files manually). As the imaging system increasingly becomes a fully integrated office tool, the manual process of handling and approving applications themselves will become more automated. Such a system is necessary because the agency has reached a critical threshold in available storage space for paper document files. The OCCC shares an imaging system with the two other FC agencies. Although much of the system hardware is shared, information and records are secure by agency.
At the same time the agency avails itself of technology advances, it must also keep a watchful eye on the security of its computer systems. Disruptions to Internet access—through viruses, DoS (denial of service) attacks and other security threats—have become more prevalent. However, maintaining network and Internet availability become crucial to routine agency operations. As preventing and repairing damage resulting from system vulnerability was consuming increasing amounts of time and other resources, the agency installed a firewall to protect its information resource capabilities and information.
Future plans include upgrading in-house databases to increase efficiency and enhance reliability. The more quickly and efficiently staff can access the data they need, the better they will serve agency customers. The updating of databases in the recent past has resulted in greater efficiency in both daily activities and overall data analysis, and in greater access to information.
The OCCC's internal network provides the tools necessary for daily operations and consists of a server supporting 29 clients. All headquarter employees are provided with workstations and examiners use similarly equipped notebooks in the field. Examiners are able to transmit to and access information from headquarters remotely.
The OCCC has recently added a server for certain databases and is planning updates to other nearly obsolete databases. The upgrades have and will continue to speed access to OCCC data and allow greater access to the data stored within. Data partitioned across servers also increases the security of the information.
One of the OCCC’s most important service deliverables is, simply, information. The Internet enables the OCCC to distribute this information quickly and without a large investment of resources. In this arena, the agency has made great strides since the last strategic planning period. All staff members have use of Internet e-mail, an increasingly vital component in the agency's efforts to provide efficient, top quality service. The OCCC Web site (www.occc.state.tx.us) is continuously updated with essential agency information—statutes and rules, application forms, legislative updates, education materials, news releases, consumer assistance pages, and a licensee search feature—creating a valuable resource that is just a click away.
The agency’s Web site has become a valuable tool for the financial services industry. The online availability of OCCC forms has proven especially helpful to the Texas credit industry as licensees and applicants now have immediate access to the forms. A major design update has occurred to make the site more user-friendly and to meet updated accessibility requirements. In the future, licensees should be able to conduct some license administration activities through the Web site.
The OCCC Web site has seen an increasing amount of traffic as its value to industry and consumers increases (site traffic patterns are illustrated in Figure 15).
As part of the OCCC’s efforts to provide a user-friendly site to Texan consumers, the agency has added and will continue to add Web pages that address a variety of consumer credit and personal finance topics. In addressing the perceived need for online consumer resources, agency publications were augmented with links to external resources to better service the Texas consumers. In the same manner the OCCC will continue to synthesize external resources with internal expertise to respond to issues that arise in the Texas credit market and in the state’s overall economic development.