By: Carona S.B. No. 1165
 
  (Truitt)
 
   
 
 
A BILL TO BE ENTITLED
 
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.