THE A7rro ET GENERAL
OF EXAS
October 20, 1989
Mr. James L. Pledger Opinion No. JM-1110
Commissioner
Texas Savings and Loan Re: Whether article 342-705,
Department V.T.C.S., restricts the autho-
2601 N. Lamar, Suite 201 rity of the Savings and Loan
Austin, Texas 78705 Commissioner to issue sub-
poenas for bank records
(RQ-1765)
Dear Mr. Pledger:
You ask:
Does Section 1 of Article 342-705, Vernon's
Texas Civil Statutes, restrict the authority
of the Texas Savings and Loan Commissioner to
issue subpoenas to banks for records of bank
accounts or other bank records pursuant to
examinations conducted under Section 8.02 of
the Texas Savings and Loan Act?
Section 8.02 of article 852a, V.T.C.S., a provision of
the Savings and Loan Act (hereinafter "section 8.02")
provides in pertinent part:
The commissioner shall periodically cause
an examination to be made into the affairs of
each association, including its subsidiaries
and transactions and the dealings of any
savings and loan holding company related to
its savings and loan subsidiaries, including
an audit if an independent audit is not
available or is unsatisfactory to the commis-
sioner. On completion of an audit, one copy
of the audit report, signed and certified by
the auditor, shall be filed promptly with the
commissioner. The commissioner, a deputy
commissioner, or an examiner or auditor of
the commissioner shall have free access to
the books and records of an association or a
subsidiary corporation or holding company of
the association that relate to the associa-
tion's business and to books and records kept
P. 5815
Mr. James L. Pledger - Page 2 (JM-1110)
by an officer, agent, or employee of one of
the entities relating to or on which a record
of its business is kept. The commissioner,
deputy commissioner, examiner, or auditor may
subpoena witnesses and administer oaths or
affirmations in examination of the directors,
officers, agents, or employees of an associa-
tion or any other person in relation to its
affairs, transactions, and condition and may
require and compel by subpoena the production
of records, books, papers, contracts, or
other documents.
It is our understanding that it has been a frequent and
long-standing practice of the Savings and Loan Department
(hereinafter the "department") of the Finance Commission of
Texas, in conducting the examinations provided for in
section 8.02, to obtain bank records where necessary to
reconstruct transactions of a savings and loan association
(hereinafter "S&L") under examination. In the brief
submitted with your request, you refer, as authority for
this practice, to the language of section 8.02 empowering
the commissioner, etc., to "subpoena witnesses and
administer oaths or affirmations in examination of the
directors, officers, agents, or employees of an association
or anv other oerson in relation to its affairs, transac-
tions, and condition and may require and compel by subpoena
the production of records, books, papers, contracts, or
other documents." (Emphasis yours.)1
1. The last quoted language of section 8.02 derives
from provisions originally enacted in 1913 as part of, in
the words of the bill's caption, "an Act to provide for the
incorporation and regulation of certain corporations
generally known as building and loan associations." Acts
1913, 33d Leg., 1st C.S., ch. 33, at 72. Section 16 of the
1913 act provided for periodic examination of the affairs of
all building and loan associations by the Commissioner of
Banking and Insurance. The second sentence of section 16
read:
Such examinations shall be full and complete, and in
making the same the examiner shall have full access
to, and may compel the production of all books, papers
and moneys, etc., of the association under examina-
tion, and may administer oaths to and examine the
officers of such association or any other person
(Footnote Continued)
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Mr. James L. Pledger - Page 3 (JM-1110)
We note that you do not ask whether this language
of section 8.02 standing alone authorizes the commissioner
to subpoena bank records in connection with the examination
of an S&L. In the understanding that the department has
long construed the provision to grant such authority -- and
mindful of the rule that a court will ordinarily defer to a
long-standing construction of an ambiguous statute by the
administrative agency charged with its implementation -- we
will assume for purposes of this opinion that section 8.02
does authorize the commissioner to subpoena bank records
when he deems them pertinent to the affairs of an S&L under
examination. See, e.a., Ex carte Roloff, 510 S.W.2d 913
(Tex. 1974).
It is our understanding that in a recent examination of
an S&L under section 8.02, the department sought to examine
certain bank records the commissioner deemed relevant to the
affairs of the S&L under examination. The bank's officials
expressed concern that a provision of the Texas Banking Code
of 1943, as amended, see V.T.C.S. art. 342-705, restricted
the bank's disclosure of records covered by that article.
Article 342-705, as amended by the 71st Legislature in
1989, provides in section 1 that no financial institution2
shall be required to recognize the claim of any third party
to any deposit or withhold payment of any deposit to any
depositor until the bank is served with citation or other
process from a court. Section 1 as amended further
provides:
[Nleither shall any~financial institution be
required to disclose or produce to third
(Footnote Continued)
connected therewith, as to its business and affairs.
Id. at 76.
2. Section 4 of article 342-705, added in 1989 pro-
vides:
In this article 'financial institution' means a
state or national bank or state or federal savings and
loan association maintaining an office, branch, or
agency office in this state or otherwise engaged in
the business of lending money or extending credit in
this state.
Acts 1989, 71st Leg., ch. 1196, 5 7, at 4886.
p. 5817
Mr. .James L. Pledger - Page 4 (JM-1110)
parties, or permit third parties to examine
the amount deposited by any depositor or
other records pertaining to the deposits,
accounts, loans, or other transactions of
a depositor, owner, borrower, or customer
except (i) where the depositor, owner,
borrower, or customer to whom the information
is to be disclosed is a proper or necessary
party to a proceeding in a court of competent
jurisdiction in which event the records
pertaining to the deposits, accounts, loans,
or other financial institution transactions
of such depositor, owner, borrower, or
customer shall be subject to disclosure or
(ii) where the financial institution itself
is a proper or necessary party to a pro-
ceeding in a court of competent jurisdiction,
except that records pertaining to the
deposits, accounts, loans, or other trans-
actions of a depositor, owner, borrower, or
customer may not be disclosed unless the
court orders and the financial institution
subsequently obtains the written consent of
the depositor, owner, borrower, or customer
to whom the records pertain, or (iii) in
response to a subpoena issued by a legisla-
tive investigating committee of the Legisla-
ture of Texas, or (iv) in response to a
request for examination of its records by the
Attorney General of Texas pursuant to Article
1302-5.01 et seq. of the Texas Miscellaneous
Corporation Laws Act.
Acts 1989, 71st Leg., ch. 1196, 5 7, at 4885, effective June
16, 1989.
Attorney General Opinion JM-101 (1983), at 2, pointed
to the provision in section 3 of a 1983 amendment to article
342-705 that "the provisions of this Act shall not apply to
the investigation or prosecution of criminal offenses." YOU
state in your brief, and we assume for purposes of this
opinion, that the bank records you ask about are not sought
in the context of criminal investigations or prosecutions.
The limitations on required disclosure provided for in
article 342-705 were first adopted in 1963, and then applied
only to bank depositors' accounts. Acts 1963, 58th Leg.,
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Mr. James L. Pledger - Page 5 (JM-1110)
ch. 440, § 1, at 1135.3 The 1989 amendment to article
342-705 broadened the scope of the disclosure restriction to
cover "records pertaining to the deposits, accounts, loans,
or other transactions of a depositor, owner, borrower, or
customer" of a financial institution. Acts 1989, 71st Leg.,
ch. 1196, § 7, at 4885. Clearly, the application of article
342-705 in its present form as a restriction on the
examination of S&L's under section 8.02 would limit not only
the department% access to bank records deemed relevant to
examinations, but also access to the records of S&L's under
examination, the latter being "financial institutions" now
within the article's coverage.
The 1989 amendment to article 342-705 also added a
section 5, providing in relevant part:
This article does not restrict or apply to
the use or disclosure by a bank of informa-
tion or records pertaining to deposits,
accounts, or bank transactions if the use or
disclosure is made in good faith in the usual
course of the financial business of the
bank . . . .
Id. at 4886.
3. It is perhaps worthy of note that subparts (iii)
and (iv) of section 1, excepting legislative committee
subpoenas and certain requests for examination by the
attorney general from the required disclosure prohibition,
derive from a house committee amendment to the 1963 bill
which originally added the disclosure restrictions to
article 342-705. The bill as introduced provided only for
the litigation exceptions covered in subparts (i) and (ii).
See Bill File, S.B. 298, 58th Leg. (1963).
We also note that in the enrolled version of the 1989
amendment to section 1, and in the corresponding session law
entry -- chapter 1196 -- an "as" appears to have been mis-
takenly deleted from the pre-amendment language before the
words "to whom information is to be disclosed" in subpart
(iI. That language should probably read "except (i) where
the depositor, owner, borrower, or customer as to whom the
information is to be disclosed . . .'I Obviously subpart (i)
is meant to except information s to depositors and not
information to be disclosed to the depositors, etc., them-
selves. See Bill File, S.B. 962, 71st Leg. (1989).
p. 5819
Mr. James L. Pledger - Page 6 (JM-1110)
Though we do not here rule on the precise scope of the
language in section 5, that article 342-705 "does not
restrict or apply to . . . disclosure . . . [of bank]
records . . . if the use or disclosure is made in good faith
in the usual course of the financial business of the bank,"
we think that the language strongly suggests that the
article is not intended to apply to disclosures in the
course of section 8.02 examinations. Banks and other
financial institutions are regulated industries, and it
would seem that the periodic examinations provided for in
section 8.02 as part of the regulatory process would be
matters "in the usual course of the financial business of
the bank."
Concededly, if section 5 of article 342-705 is not read
to except that articles' application to section 8.02
examinations involving bank records, the provisions of
section 8.02 and article 342-705 could be harmonized by
reading the disclosure limitations in article 342-705 as an
exception to the subpoena provisions of section 8.02; i.e.,
that section 8.02 authorizes the commissioner to gain access
to records pertinent to examinations of S&L's except those
records article 342-705 provides a financial institution may
not be required to disclose. You suggest in your brief that
to place such restrictions on section 8.02 examinations
would yield an absurd result by rendering examinations based
only on records not covered by article 342-705 ineffectual.
Of course, in attempting to ascertain the legislative intent
as to the interaction, if any, of section 8.02 and article
342-705, a court would indulge the presumption that the
legislature could not have intended an absurd or un-
reasonable result. See, e.a., Metrooolitan Transit Auth. v.
Plessner, 682 S.W.2d 650 (Tex. App. - Houston [lst Dist.]
1984, no writ).
A determination of whether the result of limiting the
section 8.02 subpoena power by the disclosure limitations in
article 342-705 would be an absurd or unreasonable one
might, we think, involve questions of fact as to examination
procedures and whether the department's assessments of the
soundness and lawfulness of an S&L's operations can be made
without access to such records as are covered by article
342-705. We are unable to make findings of fact in the
opinion process. The department, as the agency responsible
for examining and regulating S&L's, is better situated than
we are to make such determinations.
Clearly the purpose of section 8.02 examinations is to
provide the commissioner with information about the
financial condition of S&L's so that he may perform his
other duties under the act. See, e.a., V.T.C.S. arts.
P. 5820
Mr. James L. Pledger - Page 7 (JM-1110)
342-205(d) (commissioner and department to supervise and
regulate S&L's); 852a, 55 8.01 (department and commissioner
to regulate S&L's and subsidiaries and enforce Savings and
Loan Act), 8.04 (commissioner may intervene in the affairs
of an S&L if it is engaging in unsound practices or violates
applicable laws or rules), 5.01 (commissioner shall adopt
rules regarding loans and investments of S&L, including
types of loans S&L may originate, make, or sell), 5.05
(restrictions on lending). It may be that in order to
fulfill his statutory duties to insure that S&L's are
operating in a sound and lawful manner, etc., the commis-
sioner would have occasion to require information available
only from the types of records covered by article 342-705.
Until such time as a court,4 through the taking of
testimony and other evidence, determines a reasonable
construction of the provisions in question, or until the
legislature clarifies their import, we feel we must defer to
what we understand to be the long-standing construction of
these provisions by the department: that the disclosure
restrictions of article 342-705 do not apply to the
obtaining of records by the Savings and Loan Commissioner in
the context of section 8.02 examinations of S&L%. The
newly added provisions of section 5 of article 342-705 would
appear to 'support the department's long-standing
construction of that article as not applying to section 8.02
examinations, at least when the records sought are &+.&
records within the meaning of that section.
In support of our decision to adhere to the construc-
tion of the provisions in question by the department, we
note that the Banking Department of the Finance Commission
has also, as we understand it, long construed the
restrictions on disclosure in article 342-705 not to apply
to bank examinations conducted by the Banking Department
under the similarly broad authorization of V.T.C.S. article
4. Interestingly, Nikrasch v. State, 698 S.W.2d 443,
450 (Tex. APP. - Dallas 1985, no writ), noted that the
language of the prior version of article 342-705 under
consideration in that opinion -- "neither shall any bank be
required to disclose the amount deposited by any depositor
to third parties" -- did not "forbid a bank from disclosing
how much a depositor has on deposit: it only provides that a
bank may not be reauired to disclose that information."
(Emphasis in original.) We find no cases, however,
addressing whether article 342-705 limits the subpoena of
bank records under section 8.02.
p. 5821
Mr. James L. Pledger - Page 8 (JM-1110)
342-208 (commissioner, etc., may "examine any person under
oath upon any subject which he deems pertinent to the
financial condition of any state or private bank").
We also note that section 11.18 of V.T.C.S. article
852a, the Savings and Loan Act, restricts the commissioner
and other officers, agents and employees of the savings and
loan section from disclosing information obtained in
examinations. The existence of these provisions we think
suggests that there would be no policy served by applying
the additional disclosure restrictions of article 342-705 to
section 8.02 examinations of S&L'S. The provision of 12
U.S.C., section 3413(b), also indicates that, as a policy
matter, regulatory agencies should not be subject to
disclosure restrictions such as these of article 342-705.
Section 3413(b) excepts examinations by supervisory agencies
of financial institutions from the restrictions on access to
financial records by government authorities provided for in
sections 3401, et seq.
You also ask:
Do the advance notice and challenge provi-
sions of Sections 2 and 3 of Article 342-705,
apply to subpoenas issued to banks by the
Texas Savings and Loan Commissioner in
examinations conducted under Section 8.02 of
the Texas Savings and Loan Act?
Section 2 of article 342-705 provides that "before
disclosure, production, or examination may be required under
Section 1 of this article" the party or entity seeking
disclosure must give notice and certificate of service as
provided for in the section. Since, following the Savings
and Loan Department's construction of the provisions in
question, we have concluded that the disclosure limitation
provisions of section 1 of article 342-705 do not apply to
records sought by the department under section 8.02 of the
Savings and Loan Act, it would follow that the department's
obtaining such records would not involve a "disclosure,
production, or examination . . . required under Section 1"
within the meaning of the provisions of section 2, and that
the notice and certification requirements of section 2 would
therefore not be applicable to subpoenas for records issued
to banks in connection with S&L examinations under section
8.02 of the Savings and Loan Act.
Section 3 of article 342-705 deals with court chal-
lenges to production subpoenas, requests, etc. under
sections 1 and 2. Since, as we have concluded, sections 1
and 2 of article 342-705 do not apply to subpoenas of bank
p. 5822
Mr. James L. Pledger - Page 9 (JM-1110)
records by the Savings and Loan Department under section
8.02 of the Savings and Loan Act, the provisions of section
3 regarding challenges to section 1 and section 2 subpoenas
would not apply either to such section 8.02 subpoenas by the
department.
SUMMARY
The provisions of V.T.C.S. article
342-705, restricting disclosure of records of
a financial institution and providing for
notice, certificates of service, and court
challenges with regard to requests and
subpoenas for such records, do not apply to
subpoenas for bank records by the Savings and
Loan Commissioner in connection with examina-
tions of savings and loan associations under
section 8.02 of article 852a, the Savings and
Loan Act.
J h
Very truly y ,
&
JIM MATTOX
Attorney General of Texas
WARY KELLER
First Assistant Attorney General
LOU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by William Walker
Assistant Attorney General
p. 5823