S.B. No. 1165
AN ACT
relating to certain enforcement powers of the banking commissioner;
providing administrative penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 35.003, Finance Code, is amended by
amending Subsections (a) and (b) and adding Subsection (b-1) to
read as follows:
(a) The banking commissioner has grounds to remove or
prohibit a present or former officer, director, or employee of a
state bank from office or employment in, or prohibit a controlling
shareholder or other person participating in the affairs of a state
bank from further participation in the affairs of, a state bank or
any other entity chartered, registered, permitted, or licensed by
the banking commissioner if the banking commissioner determines
from examination or other credible evidence that:
(1) the person:
(A) intentionally committed or participated in
the commission of an act described by Section 35.002(a) with regard
to the affairs of a financial institution, as defined by Section
201.101 [the bank]; [or]
(B) violated a final cease and desist order
issued by a state or federal regulatory agency against the person or
an entity in which the person is or was an officer, director, or
employee [in response to the same or a similar act]; or
(C) made, or caused to be made, false entries in
the records of a financial institution;
(2) because of this action by the person:
(A) the financial institution [bank] has
suffered or will probably suffer financial loss or expense, or
other damage;
(B) the interests of the [bank's] depositors,
creditors, or shareholders of the financial institution have been
or could be prejudiced; or
(C) the person has received financial gain or
other benefit by reason of the action, or likely would have if the
action had not been discovered; and
(3) the action:
(A) involves personal dishonesty on the part of
the person; or
(B) demonstrates wilful or continuing disregard
for the safety or soundness of the financial institution [bank].
(b) If the banking commissioner has grounds for action under
Subsection (a) and finds that a removal or prohibition order
appears to be necessary and in the best interest of the bank
involved and its depositors, creditors, or [and] shareholders, the
banking commissioner may serve a proposed removal or prohibition
order, as appropriate, on a person alleged to have committed or
participated in the action. The proposed order must:
(1) be delivered by personal delivery or by registered
or certified mail, return receipt requested;
(2) state with reasonable certainty the grounds for
removal or prohibition; [and]
(3) state the effective date of the order, which may
not be before the 21st day after the date the proposed order is
delivered or mailed; and
(4) state the duration of the order, including whether
the duration of the order is perpetual.
(b-1) The banking commissioner may make a removal or
prohibition order perpetual or effective for a specific period of
time, may probate the order, or may impose other conditions on the
order.
SECTION 2. Subsection (b), Section 35.005, Finance Code, is
amended to read as follows:
(b) In each emergency order the banking commissioner shall
notify the bank and any person against whom the emergency order is
directed of:
(1) the specific conduct requiring the order;
(2) the citation of each law alleged to have been
violated;
(3) the immediate and irreparable harm alleged to be
threatened; [and]
(4) the duration of the order, including whether the
duration of the order is perpetual; and
(5) the right to a hearing.
SECTION 3. Subsection (a), Section 35.007, Finance Code, is
amended to read as follows:
(a) Except as otherwise provided by law, without the prior
written approval of the banking commissioner, a person subject to a
final and enforceable removal or prohibition order issued by the
banking commissioner, or by another state, federal, or foreign
financial institution regulatory agency, may not:
(1) serve as a director, officer, or employee of a
state bank or [,] trust company, or as a director, officer, or
employee with financial responsibility of any other entity
chartered, registered, permitted, or licensed by the banking
commissioner under the laws of this state[, including an interstate
branch, trust office, or representative office in this state of an
out-of-state state bank, trust company, or foreign bank];
(2) directly or indirectly participate in any manner
in the management of such an entity;
(3) directly or indirectly vote for a director of such
an entity; or
(4) solicit, procure, transfer, attempt to transfer,
vote, or attempt to vote a proxy, consent, or authorization with
respect to voting rights in such an entity.
SECTION 4. Subchapter A, Chapter 35, Finance Code, is
amended by adding Section 35.0071 to read as follows:
Sec. 35.0071. APPLICATION FOR RELEASE FROM FINAL REMOVAL OR
PROHIBITION ORDER. (a) After the expiration of 10 years from date
of issuance, a person who is subject to a prohibition or removal
order issued under this subchapter, regardless of the order's
stated duration or date of issuance, may apply to the banking
commissioner to be released from the order.
(b) The application must be made under oath and in the form
required by the banking commissioner. The application must be
accompanied by any required fees.
(c) The banking commissioner, in the exercise of
discretion, may approve or deny an application filed under this
section.
(d) The banking commissioner's decision under Subsection
(c) is final and not appealable.
SECTION 5. Section 35.009, Finance Code, is amended to read
as follows:
Sec. 35.009. ENFORCEMENT BY COMMISSIONER [OF FINAL ORDER].
(a) If the banking commissioner reasonably believes that a bank or
other person has violated any of the following, the banking
commissioner may take any action authorized under Subsection (a-1):
(1) this subtitle or rules enacted under this subtitle
and, as a result of that violation, exposed or could have exposed
the bank or the bank's depositors, creditors, or shareholders to
harm;
(2) other applicable law of this state and, as a result
of that violation, exposed or could have exposed the bank or the
bank's depositors, creditors, or shareholders to harm; or
(3) a final order issued by the banking commissioner.
(a-1) The [a final and enforceable cease and desist,
removal, or prohibition order issued under this subchapter, the]
banking commissioner may:
(1) initiate an administrative penalty proceeding
against the bank or other person, in accordance with Sections
[under Section] 35.010 and 35.011;
(2) refer the matter to the attorney general for
enforcement by injunction or other available remedy; or
(3) pursue any other action the banking commissioner
considers appropriate under applicable law.
(b) If the attorney general prevails in an action brought
under Subsection (a-1)(2) [(a)(2)], the attorney general is
entitled to recover reasonable attorney's fees from the bank or
person committing the violation [violating the order].
SECTION 6. Section 35.010, Finance Code, is amended to read
as follows:
Sec. 35.010. ADMINISTRATIVE PENALTY. (a) The banking
commissioner may initiate a proceeding for an administrative
penalty against a bank or other person by serving on the bank or
other person, as applicable, notice of the time and place of a
hearing on the penalty. The hearing may not be held earlier than
the 20th day after the date the notice is served. The notice must:
(1) be served by personal delivery or by registered or
certified mail, return receipt requested; [and]
(2) contain a statement of the conduct alleged to
constitute a violation; and
(3) if the alleged violation is described by Section
35.009(a)(1) or (2), identify corrective action that the bank or
other person must take to avoid or reduce the amount of a penalty
that would otherwise be imposed under this section [violate the
order].
(b) In determining the amount of any penalty to be imposed
[whether an order has been violated], the banking commissioner
shall consider the following factors:
(1) the financial resources of the bank or other
person;
(2) the good faith of the bank or other person,
including any corrective action taken;
(3) the gravity of the violation;
(4) the history of previous violations;
(5) an offset of the amount of the penalty by the
amount of any penalty imposed by another state or federal agency for
the same conduct; and
(6) any other matter that justice may require
[maintenance of procedures reasonably adopted to ensure compliance
with the order].
(c) If the banking commissioner determines after the
hearing that the alleged conduct occurred and that the conduct
constitutes a violation [order has been violated], the banking
commissioner may impose an administrative penalty against a [the]
bank or other person, as applicable, in an amount:
(1) if imposed against a bank, not less than $500 and
not more than $10,000 for each violation for each day the violation
continues, except that the maximum administrative penalty that may
be imposed is the lesser of $500,000 or one percent of the bank's
assets; or
(2) if imposed against a person other than a bank, not
less than $500 and not more than $5,000 for each violation for each
day the violation continues, except that the maximum administrative
penalty that may be imposed is $250,000 [not to exceed $500 for each
day the bank violates the final order].
SECTION 7. Section 35.011, Finance Code, is amended to read
as follows:
Sec. 35.011. PAYMENT OR APPEAL OF ADMINISTRATIVE PENALTY.
(a) When a penalty order under Section 35.010 becomes final, the
bank or other person, as applicable, shall pay the penalty or appeal
by filing a petition for judicial review.
(b) The petition for judicial review stays the penalty order
during the period preceding the decision of the court. If the court
sustains the order, the court shall order the bank or other person,
as applicable, to pay the full amount of the penalty or a lower
amount determined by the court. If the court does not sustain the
order, a penalty is not owed. If the final judgment of the court
requires payment of a penalty, interest accrues on the penalty, at
the rate charged on loans to depository institutions by the Federal
Reserve Bank of New York, beginning on the date the judgment is
final and ending on the date the penalty and interest are paid.
(c) If the bank or other person, as applicable, does not pay
the penalty imposed under a final and nonappealable penalty order,
the banking commissioner shall refer the matter to the attorney
general for enforcement. The attorney general is entitled to
recover reasonable attorney's fees from the bank or other person,
as applicable, if the attorney general prevails in judicial action
necessary for collection of the penalty.
SECTION 8. Section 35.012, Finance Code, is amended to read
as follows:
Sec. 35.012. CONFIDENTIALITY OF RECORDS. A copy of a
notice, correspondence, transcript, pleading, or other document in
the records of the department relating to an order issued under this
subchapter is confidential and may be released only as provided by
Subchapter D, Chapter 31, except that the banking commissioner
periodically shall publish all final removal and prohibition
orders. The banking commissioner may release a final cease and
desist order, a final order imposing an administrative penalty, or
information regarding the existence of any of those orders [the
order] to the public if the banking commissioner concludes that the
release would enhance effective enforcement of the order.
SECTION 9. Section 185.003, Finance Code, is amended by
amending Subsections (a) and (b) and adding Subsection (b-1) to
read as follows:
(a) The banking commissioner has grounds to remove or
prohibit a present or former officer, director, manager, managing
participant, or employee of a state trust company from office or
employment in, or [to] prohibit a controlling shareholder or
participant or other person from participation in the affairs of,
the state trust company or any other entity chartered, registered,
permitted, or licensed by the banking commissioner if the banking
commissioner determines from examination or other credible
evidence that:
(1) the person:
(A) intentionally committed or participated in
the commission of an act described by Section 185.002(a) with
regard to the affairs of a financial institution, as defined by
Section 201.101 [the state trust company]; [or]
(B) violated a final cease and desist order
issued by a state or federal regulatory agency against the person or
an entity in which the person is or was an officer, director, or
employee [in response to the same or a similar act]; or
(C) made, or caused to be made, false entries in
the records of a financial institution;
(2) because of this [that] action by the person:
(A) the financial institution [state trust
company] has suffered or will probably suffer financial loss or
expense, or other damage;
(B) the interests of the [trust company's]
clients, depositors, creditors, or shareholders of the financial
institution have been or could be prejudiced; or
(C) the person has received financial gain or
other benefit by reason of the action, or likely would have if the
action had not been discovered [violation]; and
(3) that action by the person:
(A) involves personal dishonesty on the part of
the person; or
(B) demonstrates wilful or continuing disregard
for the safety or soundness of the financial institution [state
trust company].
(b) If the banking commissioner has grounds for action under
Subsection (a) and finds that a removal or prohibition order
appears to be necessary and in the best interest of the state trust
company involved and its clients, creditors, [and] shareholders, or
participants, the banking commissioner may serve a proposed removal
or prohibition order, as appropriate, on an officer, employee,
director, manager or managing participant, controlling shareholder
or participant, or other person alleged to have committed or
participated in the violation or other conduct described by Section
185.002(a). The order must:
(1) be delivered by personal delivery or by registered
or certified mail, return receipt requested;
(2) state with reasonable certainty the grounds for
removal or prohibition; [and]
(3) state the effective date of the order, which may
not be before [earlier than] the 21st day after the date the
proposed order is delivered or mailed; and
(4) state the duration of the order, including whether
the duration of the order is perpetual [or delivered].
(b-1) The banking commissioner may make a removal or
prohibition order perpetual or effective for a specific period of
time, may probate the order, or may impose other conditions on the
order.
SECTION 10. Subsection (b), Section 185.005, Finance Code,
is amended to read as follows:
(b) In each emergency order the banking commissioner shall
notify the state trust company and any person against whom the
emergency order is directed of:
(1) the specific conduct requiring the order;
(2) the citation of each statute or rule alleged to
have been violated;
(3) the immediate and irreparable harm alleged to be
threatened; [and]
(4) the duration of the order, including whether the
duration of the order is perpetual; and
(5) the right to a hearing.
SECTION 11. Subsection (a), Section 185.007, Finance Code,
is amended to read as follows:
(a) Except as provided by other law, without the prior
written approval of the banking commissioner, a person subject to a
final and enforceable removal or prohibition order issued by the
banking commissioner, or by another state, federal, or foreign
financial institution regulatory agency, may not:
(1) serve as a director, officer, or employee of a
state trust company or [,] state bank, or as a director, officer, or
employee with financial responsibility of any other entity
chartered, registered, permitted, or licensed by the banking
commissioner under the laws of this state while the order is in
effect[, including an interstate branch, trust office, or
representative office in this state of an out-of-state bank, trust
company, or foreign bank];
(2) directly or indirectly participate in any manner
in the management of such an entity;
(3) directly or indirectly vote for a director of such
an entity; or
(4) solicit, procure, transfer, attempt to transfer,
vote, or attempt to vote a proxy, consent, or authorization with
respect to voting rights in such an entity.
SECTION 12. Subchapter A, Chapter 185, Finance Code, is
amended by adding Section 185.0071 to read as follows:
Sec. 185.0071. APPLICATION FOR RELEASE FROM FINAL REMOVAL
OR PROHIBITION ORDER. (a) After the expiration of 10 years from
the date of issuance, a person who is subject to a prohibition or
removal order issued under this subchapter, regardless of the
order's stated duration or date of issuance, may apply to the
banking commissioner to be released from the order.
(b) The application must be made under oath and in the form
required by the banking commissioner. The application must be
accompanied by any required fees.
(c) The banking commissioner, in the exercise of
discretion, may approve or deny an application filed under this
section.
(d) The banking commissioner's decision under Subsection
(c) is final and not appealable.
SECTION 13. Section 185.009, Finance Code, is amended to
read as follows:
Sec. 185.009. ENFORCEMENT BY COMMISSIONER [OF FINAL ORDER].
(a) If the banking commissioner reasonably believes that a state
trust company or other person has violated any of the following, the
banking commissioner may take any action authorized under
Subsection (a-1):
(1) this subtitle or rules enacted under this subtitle
and, as a result of that violation, exposed or could have exposed
the state trust company or its clients, creditors, shareholders, or
participants to harm;
(2) other applicable law of this state and, as a result
of that violation, exposed or could have exposed the state trust
company or its clients, creditors, shareholders, or participants to
harm; or
(3) a final order issued by the banking commissioner.
(a-1) The [a final and enforceable cease and desist,
removal, or prohibition order issued under this subchapter, the]
banking commissioner may:
(1) initiate administrative penalty proceedings
against the state trust company or other person, as applicable, in
accordance with Sections [under Section] 185.010 and 185.011;
(2) refer the matter to the attorney general for
enforcement by injunction or other available remedy; or
(3) pursue any other action the banking commissioner
considers appropriate under applicable law.
(b) If the attorney general prevails in an action brought
under Subsection (a-1)(2) [(a)(2)], the attorney general is
entitled to recover reasonable attorney's fees from a state trust
company or person committing the violation [violating the order].
SECTION 14. Section 185.010, Finance Code, is amended to
read as follows:
Sec. 185.010. ADMINISTRATIVE PENALTY. (a) The banking
commissioner may initiate a proceeding for an administrative
penalty against a state trust company or other person by serving on
the state trust company or other person, as applicable, notice of
the time and place of a hearing on the penalty. The hearing may not
be held earlier than the 20th day after the date the notice is
served. The notice must:
(1) be served by personal delivery or by registered or
certified mail, return receipt requested; [and]
(2) contain a statement of the conduct alleged to
constitute a [be in] violation; and
(3) if the alleged violation is described by Section
185.009(a)(1) or (2), identify corrective action that the state
trust company or other person must take to avoid or reduce the
amount of a penalty that would otherwise be imposed under this
section [of the order].
(b) In determining the amount of any penalty to be imposed
[whether an order has been violated], the banking commissioner
shall consider the following factors:
(1) the financial resources of the state trust company
or other person;
(2) the good faith of the state trust company or other
person, including any corrective action taken;
(3) the gravity of the violation;
(4) the history of previous violations;
(5) an offset of the amount of the penalty by the
amount of any penalty imposed by another state or federal agency for
the same conduct; and
(6) any other matter that justice may require
[maintenance of procedures reasonably adopted to ensure compliance
with the order].
(c) If the banking commissioner determines after the
hearing that the alleged conduct occurred and that the conduct
constitutes a violation [an order has been violated], the banking
commissioner may impose an administrative penalty against a state
trust company or other person, as applicable, in an amount:
(1) if imposed against a state trust company, not less
than $500 and not more than $10,000 for each violation for each day
the violation continues, except that the maximum administrative
penalty that may be imposed is the lesser of $500,000 or one percent
of the state trust company's assets; or
(2) if imposed against a person other than a state
trust company, not less than $500 and not more than $5,000 for each
violation for each day the violation continues, except that the
maximum administrative penalty that may be imposed is $250,000 [not
to exceed $500 for each day the state trust company violates the
final order].
SECTION 15. Section 185.011, Finance Code, is amended to
read as follows:
Sec. 185.011. PAYMENT OR APPEAL OF ADMINISTRATIVE PENALTY.
(a) When a penalty order under Section 185.010 becomes final, a
state trust company or other person, as applicable, shall pay the
penalty or appeal by filing a petition for judicial review.
(b) The petition for judicial review stays the penalty order
during the period preceding the decision of the court. If the court
sustains the order, the court shall order the state trust company or
other person, as applicable, to pay the full amount of the penalty
or a lower amount determined by the court. If the court does not
sustain the order, a penalty is not owed. If the final judgment of
the court requires payment of a penalty, interest accrues on the
penalty, at the rate charged on loans to depository institutions by
the [New York] Federal Reserve Bank of New York, beginning on the
date the judgment is final and ending on the date the penalty and
interest are paid.
(c) If the state trust company or other person, as
applicable, does not pay the penalty imposed under a final and
nonappealable penalty order, the banking commissioner shall refer
the matter to the attorney general for enforcement. The attorney
general is entitled to recover reasonable attorney's fees from the
state trust company or other person, as applicable, if the attorney
general prevails in judicial action necessary for collection of the
penalty.
SECTION 16. Section 185.012, Finance Code, is amended to
read as follows:
Sec. 185.012. CONFIDENTIALITY OF RECORDS. A copy of a
notice, correspondence, transcript, pleading, or other document in
the records of the department relating to an order issued under this
subchapter is confidential and may be released only as provided by
Subchapter D, Chapter 181, except that the banking commissioner
periodically shall publish all final removal and prohibition
orders. The banking commissioner may release a final cease and
desist order, a final order imposing an administrative penalty, or
information regarding [relating to] the existence of any of those
orders [the order] to the public if the banking commissioner
concludes that the release would enhance effective enforcement of
the order.
SECTION 17. Subsection (a), Section 202.005, Finance Code,
is amended to read as follows:
(a) The commissioner may:
(1) examine a bank holding company that controls a
Texas bank to the same extent as if the bank holding company were a
Texas state bank; and
(2) bring an enforcement proceeding under Chapter 35
against a bank holding company or other person that violates or
participates in a violation of Subtitle A, an agreement filed with
the commissioner under this chapter, or a rule adopted by the
finance commission or order issued by the commissioner under
Subtitle A, as if the bank holding company were a Texas state bank.
SECTION 18. The changes in law made by this Act apply only
to conduct occurring on or after the effective date of this Act.
Conduct occurring before the effective date of this Act is governed
by the law in effect on the date the conduct occurred, and the
former law is continued in effect for that purpose.
SECTION 19. This Act takes effect immediately if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for immediate
effect, this Act takes effect September 1, 2011.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1165 passed the Senate on
March 29, 2011, by the following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1165 passed the House on
May 13, 2011, by the following vote: Yeas 138, Nays 0, one present
not voting.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor