Untitled Texas Attorney General Opinion

_ .

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

p. 2661