Summary
determining constitutional grant of interpretive authority to executive agencies did not place the agencies' interpretations beyond judicial review and explaining that the argument for exclusive agency interpretation violated the requirement that exceptions to the separation of powers be expressly stated
Summary of this case from Harlandale Indep. Sch. Dist. v. Jasmine Eng'g, Inc.Opinion
No. 10–0121.
2014-01-24
The FINANCE COMMISSION OF TEXAS, The Credit Union Commission of Texas, and Texas Bankers Association, Petitioners, v. Valerie NORWOOD, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas, Respondents.
7 Tex. Admin. Code §§ 153.1(11), 153.15(2), (3). Ron Beal, Professor & Attorney at Law, Waco, TX, for Amicus Curiae.
Held Invalid
7 Tex. Admin. Code §§ 153.1(11), 153.15(2), (3).Ron Beal, Professor & Attorney at Law, Waco, TX, for Amicus Curiae.
Ann Hartley, David S. Morales, Evan S. Greene, William J. “Bill” Cobb III, Office of Attorney General of Texas, Arthur Cleveland D'Andrea, Assistant Solicitor General, Clarence Andrew Weber, Kelly Hart & Hallman LLP, Daniel Tekstar Hodge, First Asst. Attorney General, David C. Mattax, Director of Defense Litigation, Office of the Attorney General, Greg W. Abbott, Attorney General of Texas, Jack Hohengarten, Attny General Ofc. Finance Div., Jonathan F. Mitchell, Solicitor General Office of the Attorney General, Austin, TX, James C. Ho, Gibson Dunn & Crutcher LLP, Dallas, TX, for Petitioner 1, The Finance Commission of Texas and The Credit Union Commission of Texas.
Alex S. Valdes, Brian T. Morris, Michael Kent O'Neal, Winstead PC, Austin, Melissa Prentice Lorber, Craig T. Enoch, Enoch Kever PLLC, Austin, for Petitioners 2, Texas Bankers Association.
Bruce Everett Priddy, Law Offices of Bruce Priddy, Dallas, Jean Constance Davis, AARP Foundation, Washington, John Paul Salmon, Nelson H. Mock, Texas RioGrande Legal Aid, Austin, Laurie E. Ratliff, Ikard Golden Jones, P.C., Austin, Robert L. Wharton, East Texas Legal Services, Nacogdoches, Robert W. Doggett, Attorney General, for Respondents Assoc'n of Community Orgnizations for Reform Now (ACORN), Valerie Norwood, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas.
Justice HECHT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice GREEN, Justice WILLETT, Justice GUZMAN, Justice LEHRMANN, Justice BOYD, and Justice DEVINE joined, and in Parts I and II of which Justice JOHNSON joined.
The separation of the powers of government into three distinct, rival branches—legislative, executive, and judicial—is “the absolutely central guarantee of a just Government.”
Checks and balances among the branches protect the individual. It is the separation of powers, for example, that establishes bills of rights as rules of law rather than merely hollow words, which is all they are in most countries where power is vested in a few.
Morrison v. Olson, 487 U.S. 654, 697, 108 S.Ct. 2597, 101 L.Ed.2d 569 (1988) (Scalia, J., dissenting).
As James Madison famously declared in Federalist No. 47: “No political truth is certainly of greater intrinsic value, or is stamped with the authority of more enlightened patrons of liberty, than [this:] The accumulation of all powers, legislative, executive, and judiciary, in the same hands ... may justly be pronounced the very definition of tyranny.”
Id. (“Without a secure structure of separated powers, our Bill of Rights would be worthless, as are the bills of rights of many nations of the world that have adopted, or even improved upon, the mere words of ours.”).
.The Federalist No. 47 (James Madison).
The principle of separation of powers is foundational for federal and state governments in this country and firmly embedded in our nation's history. The Texas Constitution mandates:
The powers of the Government of the State of Texas shall be divided into three distinct departments, each of which shall be confided to a separate body of magistracy, to wit: Those which are Legislative to one; those which are Executive to another, and those which are Judicial to another; and no person, or collection of persons, being of one of these departments, shall exercise any power properly attached to either of the others, except in the instances herein expressly permitted.
Exceptions to the constitutionally mandated separation of powers are never to be implied in the least; they must be “expressly permitted” by the Constitution itself.
.Tex. Const. art. II, § 1.
Id. We do not consider whether exceptions, even expressly permitted by the Constitution, can selectively shift power among the departments of government without infringing on other constitutional guarantees, such as due process, equal protection, and the open courts guarantee of the Texas Constitution.
A 2003 amendment to the Constitution authorized the Legislature to delegate to a state agency the power to interpret certain provisions of the Texas Constitution governing home equity lending, a power that the Constitution's separation-of-powers provision unquestionably allocates to the Judiciary.
We must determine in this case the extent of this exception and specifically, whether agency interpretations made under this authority are beyond judicial review. We conclude they are not.
W. Orange–Cove Consol. Indep. Sch. Dist. v. Alanis, 107 S.W.3d 558, 563 (Tex.2003) (“The final authority to determine adherence to the Constitution resides with the Judiciary.”) (citing Marbury v. Madison, 5 U.S. (1 Cranch) 137, 176–178, 2 L.Ed. 60 (1803), and Love v. Wilcox, 119 Tex. 256, 28 S.W.2d 515, 520 (1930)).
Of the several agency interpretations challenged in this case, the court of appeals decided that some are valid and others invalid.
We agree in part and disagree in part, and render judgment.
.303 S.W.3d 404 (Tex.App.–Austin 2010).
I
In the State of Texas, the homestead has always been protected from forced sale, not merely by statute as inmost states, but by the Constitution.
The 1869 and 1876 Constitutions allowed three exceptions,
.Tex. Const. art. VII, § 22 (1845); Tex. Const. art. VII, § 22 (1861); Tex. Const. art. VII, § 22 (1866); Tex. Const. art. XII, § 15 (1869); Tex. Const. art. XVI, § 50 (1876). In the Republic of Texas, homestead protection was secured by statute. Act approved Jan. 26, 1839, 3d Cong., R.S., 1839 Repub. Tex. Laws 125, 125–26, reprinted in 2 H.P.N. Gammel, The Laws of Texas 1822–1897 at 125, 125–26 (Austin, Gammel Book Co. 1898).
and others have been added by amendments.
The 1869 Constitution allowed exceptions for purchase money, taxes, and labor and materials expended on the property. Tex. Const. art. XII, § 15 (1869). The 1876 Constitution recognized the first two exceptions and limited the third. Tex. Const. art. XVI, § 50 (1876).
Exceptions for certain home equity loans and for reverse mortgages, finally adopted by constitutional amendment in 1997, effective January 1, 1998,
A 1995 amendment added two exceptions, one for an owelty of partition imposed against the entirety of the property by agreement or court order (as in divorce), and the other for refinancing a lien on the property. Tex. Const. art. XVI, § 50(a)(3), (4). A 1997 amendment added exceptions for certain home equity loans and for reverse mortgages. Id.§ 50(a)(6), (7). A 2001 amendment added an exception for converting or refinancing a lien on a manufactured home. Id.§ 50(a)(8).
were extremely controversial, in part because of age-old concerns that lenders would be unfair and borrowers unwise, eroding the protection the homestead is intended to afford.
Tex. H.R.J. Res. 31, 75th Leg., R.S., 1997 Tex. Gen. Laws 6739 (adopted at the general election on Nov. 4, 1997, by a vote of 698,870 to 474,443).
So long leery of any impairment to the homestead, Texas was the fiftieth state in the Union to permit home equity lending.
Professor James Paulsen has provided an excellent description of the long history leading up to the amendment. James W. Paulsen, Introduction: The Texas Home Equity Controversy in Context, 26 St. Mary's L.J. 307 (1995).
LaSalle Bank Nat'l Ass'n v. White, 246 S.W.3d 616, 618 (Tex.2007) (per curiam) (“For over 175 years, Texas has carefully protected the family homestead from foreclosure by limiting the types of liens that can be placed upon homestead property. Texas became the last state in the nation to permit home-equity loans when constitutional amendments voted on by referendum took effect in 1997.”); see also House Research Org., Bill Analysis, Tex. H.J.R. 31, 76th Leg., R.S., at 5 (1997).
To assure that the compromises finally struck would withstand future political pressures on the Legislature, lengthy, elaborate, detailed provisions, remarkable even for our State's Constitution, were included in Article XVI, Section 50
See J. Alton Alsup, Pitfalls (and Pratfalls) of Texas Home Equity Lending, 52 Consumer Fin. L.Q. Rep. 437, 437 (1998) (“The new home equity amendment was ... an emotionally contested and stubbornly compromised bill ... subject to a maze of 25, or more, exacting conditions regulating the loan amount, recourse and enforceability, fees and charges, permitted loan terms, and the lender's loan origination and closing practices. And it was not happenstance that these exacting conditions ... were embedded firmly in the constitution itself without the benefit of enabling legislation that usually accompanies a constitutional amendment to provide an interpretative framework for its implementation. Rather, it reportedly was legislative tactics by reluctant proponents to put any future attempt of fellow legislators to moderate these requirements to the rigors of the identical constitutional amendment process ( i.e., requiring a super-majority approval of both houses and a successful voter referendum).”). With just under 6,000 words and over 150 sub-parts, Section 50 is by far the longest, most complex section of the Texas Constitution.
A homestead may be subject to forced sale to repay a home equity loan only if the loan meets the requirements of Section 50, alterable only by a vote of the people.
.Tex. Const. art. XVI, § 50(j) (“Subsection (a)(6) and Subsections (e)–(i) of this section are not severable, and none of those provisions would have been enacted without the others.”).
The constitutional amendment did not provide for implementing legislation or for administrative interpretation or rule-making. Loan terms and conditions, notices to borrowers, and all applicable regulations were set out in Section 50 itself.
.Tex. Const. art. XVI, § 1 (proposed constitutional amendments).
Exigency supplanted wisdom. See M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 407, 4 L.Ed. 579 (1819) (“A constitution, to contain an accurate detail of all the subdivisions of which its great powers will admit, and of all the means by which they may be carried into execution, would partake of the prolixity of a legal code, and could scarcely be embraced by the human mind. It would, probably, never be understood by the public. Its nature, therefore, requires, that only its great outlines should be marked, its important objects designated, and the minor ingredients which compose those objects, be deduced from the nature of the objects themselves.”); Ex parte Davis, 574 S.W.2d 166, 169 n. 4 (Tex.Crim.App.1978) (“Procedural details should not be written into constitutions, but state constitutions should provide for reasonable procedural regulations by legislative enactment.”).
But not, of course, with perfect clarity. And for lenders, Section 50 prescribed a Draconian consequence of noncompliance, whether intentional or inadvertent: not merely the loss of the right of forced sale of the homestead, but forfeiture of all principal and interest.
On October 7, 1998, several months after the amendment to Section 50 took effect, four state regulatory agencies with authority over lenders jointly issued a Regulatory Commentary on Equity Lending Procedures.
Tex. H.R.J. Res. 31, § 1, 75th Leg., R.S., 1997 Tex. Gen. Laws 6739, 6741 (proposing Tex. Const. art. XVI, § 50(a)(6)(Q)(x), stating that “the lender ... shall forfeit all principal and interest ... if the lender ... fails to comply with the lender's ... obligations ... within a reasonable time after the lender ... is notified by the borrower of the lender's failure to comply”).
Noting that the details “[i]nherent in an issue as complex as home equity” lending had not been and could not be “fully addressed within the text of the amendment” to Section 50, the agencies sought to “provide guidance to lenders and consumers concerning the regulatory views of the meaning and effect” of the amendment.
.Office of Consumer Credit Comm'r et al., Regulatory Commentary on Equity Lending Procedures 1 (Oct. 7, 1998) [hereinafter Regulatory Commentary], available at http:// www. fc. state. tx. us/ homeinfo/ homeq 2. pdf and http:// www. occc. state. tx. us/ pages/ Legal/ commentary. htm (last visited June 17, 2013).
But the agencies warned that “a court may or may not defer to this interpretation.”
Id. at 1.
Id. See Stringer v. Cendant Mortg. Corp., 23 S.W.3d 353, 357 (Tex.2000) (noting that the Regulatory Commentary “is advisory and not authoritative”).
A few weeks later, the Attorney General wrote in an opinion that “the amendment has given rise to numerous questions regarding its construction” and
does not authorize the legislature to enact general implementing legislation or empower a state agency to adopt interpretive rules. Consequently, the state is faced with an environment of uncertainty as to how lenders, builders, insurers, borrowers, and others may properly negotiate enforceable home equity loans.
Furthermore, the Attorney General continued,
.Tex. Att'y Gen. Op. No. DM–495 (1998).
[t]he Legislature has no authority to interpret or declare a matter of constitutional construction, nor may it delegate such authority to an administrative agency. To do so, absent express constitutional authorization, would be to usurp the powers of the judiciary in violation of the separation of powers principles set out in article II, section 1 of the Texas Constitution.... [A]s section 50 now stands, neither the legislature nor any state agency has the power to declare definitively what it means. The ultimate power to construe constitutionalprovisions lies solely with the courts.
“As a rule, court decisions apply retrospectively,”
Id. (internal quotation marks and footnotes omitted). See City of Dallas v. Stewart, 361 S.W.3d 562, 568 (Tex.2012) (“Agencies, we have held, lack the ultimate power of constitutional construction.”) (citing Cent. Power & Light Co. v. Sharp, 960 S.W.2d 617, 618 (Tex.1997)).
and thus a lender faced the prospect that its loans could be forfeited long after they were made, based on judicial decisions in cases in which it was not even involved. The risk was understandably viewed as having a dampening effect on the home equity lending market.
Centex Homes v. Buecher, 95 S.W.3d 266, 277 (Tex.2002).
To solve the problem, the Attorney General advised that “the constitution could be amended to give to an executive agency judicial-type interpretive powers with respect to the home equity amendment.”
Consequently, in 2003 the Legislature proposed, and the people adopted, Section 50(u), which states:
.Tex. Att'y Gen. Op. No. DM–495. The Attorney General added: “We do not advise you on the wisdom of this or any other particular action.”
The legislature may by statute delegate one or more state agencies the power to interpret Subsections (a)(5)–(a)(7), (e)–(p), and (t), of this section. An act or omission does not violate a provision included in those subsections if the act or omission conforms to an interpretation of the provision that is:
(1) in effect at the time of the act or omission; and
(2) made by a state agency to which the power of interpretation is delegated as provided by this subsection or by an appellate court of this state or the United States.
The referenced subsections which the legislatively designated state agencies are empowered to interpret contain essentially all the provisions governing home equity lending. Thus, the first sentence addresses the perceived need for a less cumbersome interpretative process than that afforded by litigation. The second sentence creates a safe harbor for lenders, relieving them of liability for any constitutional violations as long as agency interpretations are followed.
Tex. S.J. Res. 42, 78th Leg., R.S., 2003 Tex. Gen. Laws 6219, 6225 (adopted at the general election on Sept. 13, 2003, by a vote of 862,009 to 455,707). The amendment also added Section 50(a)(6)(Q)(x)(a)–(f), 2003 Tex. Gen. Laws at 6222, specifying ways in which lenders can rectify noncompliance after the fact and so avoid forfeiture of principal and interest. Very generally, rectification may require repayment of overcharges, reduction in the amount of the lien, modification of terms, delivery of documents required to be furnished, abatement of interest and other obligations, and a $1,000 credit with an offer to refinance on the same terms at no cost. Tex. Const. art. XVI, § 50(a)(6)(Q)(x)(a)–(f).
But importantly, it does so not merely by excusing a violation; it states that no violation even occurs. A lender's compliance with an agency interpretation of Section 50, even a wrong interpretation, is compliance with Section 50 itself.
Following judicial interpretations also insulates lenders from liability, but that aspect of the provision is not at issue in this case.
In anticipation of the people's adoption of the 2003 amendments, the Legislature delegated interpretative authority under Section 50(u) to the Finance Commission and the Credit Union Commission (“the Commissions”), subject to the Administrative Procedure Act.
Act of May 25, 2003, 78th Leg., R.S., ch. 1207, 2003 Tex. Gen. Laws 3427 (effective Sept. 13, 2003), enacting Tex. Fin.Code §§ 11.308 & 15.413.
Section 11.308 states: “The finance commission may, on request of an interested person or on its own motion, issue interpretations of Sections 50(a)(5)–(7), (e)–(p), (t), and (u), Article XVI, Texas Constitution. An interpretation under this section is subject to Chapter 2001, Government Code [the Administrative Procedure Act], and is applicable to all lenders authorized to make extensions of credit under Section 50(a)(6), Article XVI, Texas Constitution, except lenders regulated by the Credit Union Commission. The finance commission and the Credit Union Commission shall attempt to adopt interpretations that are as consistent as feasible or shall state justification for any inconsistency.”
Similarly, Section 15.413 states: “The commission may, on request of an interested person or on its own motion, issue interpretations of Sections 50(a)(5)–(7), (e)–(p), (t), and (u), Article XVI, Texas Constitution. An interpretation under this section is subject to Chapter 2001, Government Code, and is applicable to lenders regulated by the commission. The Finance Commission of Texas and the commission shall attempt to adopt interpretations that are as consistent as feasible or shall state justification for any inconsistency.”
The finance commission is responsible for overseeing and coordinating the Texas Department of Banking, the Department of Savings and Mortgage Lending, and the Office of Consumer Credit Commissioner and serves as the primary point of accountability for ensuring that state depository and lending institutions function as a system, considering the broad scope of the financial services industry. The finance commission is the policy-making body for those finance agencies and is not a separate state agency. The finance commission shall carry out its functions in a manner that protects consumer interests, maintains a safe and sound banking system, and increases the economic prosperity of the state.
The Credit Union Commission, together with its Commissioner and the employees of the Credit Union Department, is responsible for “supervis[ing] and regulat [ing] credit unions”.
The Finance Commission and the Credit Union Commission have eleven and nine members, respectively, all appointed by the Governor with the advice and consent of the Senate, each for a six-year term.
Id. §§ 15.101–.102.
Both Commissions have general rule-making power apart from their delegated authority to interpret Section 50.
Id. §§ 11.101(a)–(b), 15.201(a)–(b).
Id. §§ 11.301, 11.302, 11.304, 11.306, 11.307, 11.309, 15.402, 15.4022, 15.4024, 15.501.
The Commissions quickly published proposed interpretations generally following the Regulatory Commentary, invited public comment, conducted a public hearing, and issued final interpretations effective January 8, 2004.
Three weeks later, six homeowners (“the Homeowners”)
.7 Tex. Admin. Code §§ 153.1–.96. Interpretations were published November 7, 2003, and adopted December 19, 2003. 28 Tex. Reg. 9656–9653 (2003), 29 Tex. Reg. 84–96 (2004).
brought this action against the Commissions, challenging several of the interpretations. The Texas Bankers Association (the “TBA”) intervened. By final summary judgment, the trial court invalidated many of the interpretations.
The Homeowners are Valerie Norwood, Elise Shows, Maryann Robles–Valdez, Bobby Martin, Pamela Cooper, and Carlos Rivas. The other original plaintiff, Association of Community Organizations for Reform Now, has withdrawn from the case.
A divided court of appeals affirmed in part and reversed in part.
The court invalidated the interpretation defining “interest” excluded from the fee cap imposed by Section 50(a)(6)(E), 7 Tex. Admin. Code § 153.1(11), and related interpretations, id. §§ 153.5(3), (4), (6), (8), (9), and (12). The court denied the Homeowners' challenges to interpretations allowing mailing of consent and closing by a borrower's attorney-in-fact, id.§§ 153.15(2)–(3), and allowing a rebuttable presumption of timely disclosure by mail before closing, id.§§ 153.51(1), (3). These three rulings remain at issue. Other interpretations invalidated by the trial court— id. §§ 153.12(2), 153.13(4), 153.18(3), 153.20, 153.22 and 153.84(1)—have since been amended or repealed by the Commissions and are no longer at issue. 31 Tex. Reg. 5080–5085, 9022–9023 (2006); 33 Tex. Reg. 5295–5297, 9074–9078 (2008).
.303 S.W.3d 404 (Tex.App.–Austin 2010).
As the case comes to us, the substantive disputes over the Commissions' interpretations have been winnowed to three:
First:Section 50(a)(6)(E) caps “fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit” at three percent of principal. Fees do not include “any interest”.
Did the Commissions correctly give “interest” the same meaning as Section 301.002(a)(4) of the Texas Finance Code,
The excerpted provision is structured as follows. Section 50(a) states that a homestead is protected from forced sale with certain exceptions. One exception is a home equity loan that meets the requirements of Section 50(a)(6). One such requirement, in Section 50(a)(6)(E), is that the loan “does not require the owner or the owner's spouse to pay, in addition to any interest, fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, three percent of the original principal amount of the extension of credit[.]”
which includes fees paid to the lender, thereby removing lender fees from the cap?
Section § 301.002(a)(4) provides: “In this subtitle ... ‘Interest’ means compensation for the use, forbearance, or detention of money. The term does not include time price differential, regardless of how it is denominated. The term does not include compensation or other amounts that are determined or stated by this code or other applicable law not to constitute interest or that are permitted to be contracted for, charged, or received in addition to interest in connection with an extension of credit.”
The court of appeals held they did not. The statutory definition of interest, the court reasoned, is as broad as it is to protect borrowers from usury.
.7 Tex. Admin. Code § 153.1 (“These words and terms have the following meanings when used in this section, unless the context indicates otherwise: ... (11) Interest—interest as defined in the Texas Finance Code § 301.002(4) and as interpreted by the courts.”). See also id. § 153.5(3) (“Charges that are Interest. Charges an owner or an owner's spouse is required to pay that constitute interest under the law, for example per diem interest and points, are not fees subject to the three percent limitation.”); id. § 153.5(4) (“Charges that are not Interest. Charges an owner or an owner's spouse is required to pay that are not interest are fees subject to the three percent limitation.”); id. § 153.5(6) (“Charges to Originate. Charges an owner or an owner's spouse is required to pay to originate an equity loan that are not interest are fees subject to the three percent limitation.”); id. § 153.5(8) (“Charges to Evaluate. Charges an owner or an owner's spouse is required to pay to evaluate the credit decision for an equity loan, that are not interest, are fees subject to the three percent limitation. Examples of these charges include fees collected to cover the expenses of a credit report, survey, flood zone determination, tax certificate, title report, inspection, or appraisal.”); id. § 153.5(9) (“Charges to Maintain. Charges paid by an owner or an owner's spouse at the inception of an equity loan to maintain the loan that are not interest are fees subject to the three percent limitation. Charges that are not interest that an owner pays at the inception of an equity loan to maintain the equity loan, or that are customarily paid at the inception of an equity loan to maintain the equity loan, but are deferred for later payment after closing, are fees subject to the three percent limitation.”); id. § 153.5(12) (“Charges to Service. Charges paid by an owner or an owner's spouse at the inception of an equity loan for a party to service the loan that are not interest are fees subject to the three percent limitation. Charges that are not interest that an owner pays at the inception of an equity loan to service the equity loan, or that are customarily paid at the inception of an equity loan to service the equity loan, but are deferred for later payment after closing, are fees subject to the three percent limitation.”). The Regulatory Commentary had stated: “The word ‘interest’ means interest as defined in the Texas Credit Title and as interpreted by the courts of the state of Texas.” Supra note 19, at 3.
The broader the concept of interest, the greater the protection. But “[i]n the home equity lending context, incorporating the extremely broad usury definition of interest would defeat the purpose of the constitutional provision imposing a fee cap in the first place.”
Broadening “interest” in Section 50(a)(6)(E) reduces protection. By “exclud [ing] basically all fees charged by the lender from the cap”, the court concluded, “[t]he Commissions' interpretation ... essentially renders [the] cap meaningless ... contrary to the intent and plain meaning of the constitution.”
Id. at 411.
Id. at 412.
Second:Section 50(a)(6)(N) provides that a loan may be “closed only at the office of the lender, an attorney at law, or a title company”.
This is required for a home equity loan to fall within the Section 50(a)(6) exception.
This provision was intended to prohibit the coercive closing of an equity loan at the home of the owner. The requirement that the closing occur at the physical address of the lender, attorney, or title company eliminates the possibility of the closing occurring at the residence of the owner, and also eliminates confusion on the part of the owner who wishes to rescind an equity loan.
Nevertheless, the Commissions interpreted this provision to allow a borrower to mail a lender the required consent to having a lien placed on his homestead
29 Tex. Reg. 84, 90 (2004).
and to attend closing through his attorney-in-fact.
.7 Tex. Admin. Code § 153.15(3) (“A lender may receive consent required under Section 50(a)(6)(A) by mail or other delivery of the party's signature to an authorized physical location and not the homestead.”). The Constitution, at art. XVI, Section 50(a)(6)(A), provides that a valid voluntary lien securing a home equity loan can be created only “under a written agreement with the consent of each owner and each owner's spouse”.
.7 Tex. Admin. Code § 153.15(2) (“A lender may accept a properly executed power of attorney allowing the attorney-in-fact to execute closing documents on behalf of the owner.”).
The court of appeals held it was, reasoning that when Section 50 prohibits the use of a power of attorney, it does so expressly—as in Section 50(a)(6)(Q)(iv), to facilitate obtaining a judgment against a debtor.
The Regulatory Commentary had stated: “If the transaction is closed at one of [the offices specified in Section 50], but lacks the consent of a spouse or other party, it is permissible to obtain that individual's consent by mail. A properly executed power of attorney is acceptable for designating an individual to close the loan on behalf of the owner.” Supra note 19, at 7.
Another requirement a home equity loan must satisfy to come within the Section 50(a)(6) exception is that “the owner of the homestead not sign a confession of judgment or power of attorney to the lender or to a third person to confess judgment or to appear for the owner in a judicial proceeding”. Tex. Const. art. XVI, § 50(a)(6)(Q)(iv).
The use of powers of attorney to designate an attorney-in-fact to act on the designor's behalf is a recognized principle of Texas law. As a result, it is neither inconsistent with the constitution nor impermissible rulemaking for the Commissions to clarify that this principle continues to apply in the context of home equity loan closings, particularly where the drafters expressly prohibited the use of powers of attorney in other home equity lending contexts, but not with regard to closing the loan.
Further, the court concluded, allowing a borrower to mail documents to a lender was not unreasonable.
.303 S.W.3d at 417 (citations omitted).
Id.
Third:Section 50(g) requires that a loan not be closed before the 12th day after the lender “provides” the borrower the prescribed notice.
Did the Commissions correctly interpret Section 50(g) to permit a rebuttable presumption that notice is received, and therefore provided, three days after it is mailed?
The provision reads in relevant part: “An extension of credit described by Subsection (a)(6) of this section may be secured by a valid lien against homestead property if the extension of credit is not closed before the 12th day after the lender provides the owner with the following written notice on a separate instrument....”
The court of appeals concluded that “[t]he Commissions' regulations merely interpret the appropriate way to determine whether [provision of notice] has occurred and to establish compliance with the notice requirement. It is for precisely that type of guidance that the Commissions were authorized to issue interpretations in the first place.”
.7 Tex. Admin. Code § 153.51(1), (3) (“(1) If a lender mails the consumer disclosure to the owner, the lender shall allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.... (3) A lender may rely on an established system of verifiable procedures to evidence compliance with this section.”). The Regulatory Commentary had stated: “A lender should establish verifiable procedures to ensure that an owner receives the required notice within the specified time frame. If a lender mails the notice to the owner, the lender shall allow a reasonable period of time for delivery. A three day period not including Sundays and legal holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.” Supra note 19, at 11.
.303 S.W.3d at 418 (footnote omitted).
At the outset, we must decide two jurisdictional issues. First is whether Section 50(u) deprives the Judiciary of the power to review the Commissions' interpretations. Concluding that it does not, we then determine whether, as the dissent argues, the Homeowners lack standing to assert their claims. Finding that the Homeowners have standing, we at last turn to each of the three substantive challenges to the Commissions' interpretations.
II
The Commissions' position on the effect of Section 50(u) is not entirely clear. They contend in their merits brief that Section 50(u) “alter[s] basic separation-of-powers principles by empowering the Commissions with definitive interpretative authority over the meaning of the home equity lending provisions.”
Consequently—they argue later in their brief—“judicial review of the substance of [their] interpretations ought to be exceptionally limited, if not wholly prohibited.”
Brief on the Merits of Petitioners Finance Commission of Texas and Credit Union Commission of Texas [hereinafter “Commissions' Brief”] 7.
In the same paragraph, however, they assert that Section 50(u) “places the Commissions' interpretationson equal footing with those issued by courts of appeals”,
Id. at 14.
which, of course, are subject to non-deferential, de novo judicial review—by the Supreme Court of Texas. In the next paragraph, the Commissions acknowledge that their authority is not exclusive and that courts can interpret Section 50, too, and can construe the meaning of the Commissions' interpretations.
Id.
The next sentence states: “Moreover, courts would still serve the meaningful function of ensuring that any interpretation promulgated by the Commissions actually ‘interprets' the Constitution.”
Id. at 14–15.
If the sentence means that a court can determine that an interpretation actually misinterprets Section 50, it is not clear how that differs from judicial review that “ought to be ... wholly prohibited”; and if the sentence means that courts can do something else that is still meaningful, it is not clear what that is, exactly. Another sentence later, the Commissions acknowledge that their interpretations are subject to the Administrative Procedure Act and “could ... be challenged for failure to substantially comply with [the Act's] procedural requirements”.
Id. at 15.
But the Commissions never explain why another provision of the Act—that “[t]he validity ... of a rule ... may be determined in an action for declaratory judgment”
Id.
.Tex. Gov't Code § 2001.038(a). “Rule” is defined as “a state agency statement of general applicability that (i) implements, interprets, or prescribes law or policy....” Id. § 2001.003(6)(A)(i). The parties have not argued that the Commissions' interpretations should not be treated as rules for purposes of Section 2001.038.
Finally, at oral argument, counsel for the Commissions stated that “fortunately, it isn't even necessary to reach the question of whether judicial review is totally excluded in this case because the Commissions' challenged interpretations satisfy the ordinary deference standard” of review that should be applied.
The Commissions argue only that the Homeowners lack standing to bring a declaratory judgment action. See Commissions' Supplemental Brief Addressing Jurisdiction 4–7; Commissions' Response Brief Addressing Jurisdiction 1.
Transcript of Oral Argument at *2, Fin. Comm'n of Texas v. Norwood, No. 10–0121, 2011 WL 4403630 (Tex. argued Sept. 13, 2011), available at http:// www. supreme. cour ts.state.tx.us/oral arguments/transcripts/10–0121.pdf.
On the last point, the law is absolutely clear. If Section 50(u) precludes judicial review, then the courts have no jurisdiction over the Homeowners' challenges, and we must dismiss the case without reaching the merits. “Without jurisdiction the court cannot proceed at all in any cause; it may not assume jurisdiction for the purpose of deciding the merits of the case.”
Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (internal quotation marks omitted) (citing Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)).
[T]he denial of a claim on the merits is not an alternative to dismissal for want of jurisdiction merely because the ultimate result is the same because the assertion of jurisdiction “carries the courts beyond the bounds of authorized judicial action and thus offends fundamental principles of separation of powers.”
We must determine the effect of Section 50(u).
DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 307 (Tex.2008) (quoting Steel Co., 523 U.S. at 94, 118 S.Ct. 1003).
The purpose of Section 50(u), the Commissions agree, was to remove market uncertainty over the exact meaning of home equity lending provisions.
This it did by allowing for administrative interpretations of the provisions and giving those interpretations constitutional authority, equating compliance with them to compliance with the Constitution itself. Judicial review of the Commissions' interpretations does not impair Section 50(u)'s purpose in the least, but rather, assures that the interpretations adhere to the meaning of the constitutional provisions. To read Section 50(u) as giving the Commissions interpretative authority that is absolute and unreviewable—as the Commissions at times seem to read this section—would defeat the purpose of constitutionalizing home equity lending procedures in the first place: to shield them from political pressures in the legislative and executive departments of government. The Executive could influence interpretations through its power to appoint members of the Commissions, and the Legislature could exert similar influence through statutes governing the Commissions' functions. Indeed, as we will see later, the Legislature could directly alter the meaning of constitutional provisions by amending statutes used by the Commissions to define constitutional terms—“interest”, for example. Instead of requiring a constitutional amendment to change home equity lending procedures, a constitutional amendment would be required to change the Commissions' interpretations. Nothing in Section 50(u) or the history of its adoption suggests that the framers and ratifiers of the 2003 amendment to Section 50 intended to upend the fundamental goal of the 1997 amendment.
Commissions' Brief 18 (“Indeed, the entire purpose of § 50(u)'s delegation of interpretive authority to the Commissions was to enable the agencies to clarify the restrictions set forth throughout § 50(a)(6) in order to increase certainty and spur home equity lending.”).
Sears v. Bayoud, 786 S.W.2d 248, 251 (Tex.1990) (“[I]n construing a constitutional provision, this Court has always given effect to the intention of the framers and ratifiers of the provision.”).
Moreover, so expansive a reading of Section 50(u) violates the requirement of Article II, Section 1 that exceptions to the separation of powers be expressly stated. Section 50(u) authorizes the Legislature to confer interpretative authority on designated agencies, but nothing more. Indeed, Section 50(u)(2) expressly contemplates that the constitutional provisions will be interpreted not only by the agencies delegated that task but by state and federal courts as well, extending the safe harbor to include all interpretations, administrative and judicial. And as the Commissions argue, Section 50(u) seems to equate administrative interpretations with those of appellate courts, which—except for decisions of the United States Supreme Court—are subject to review. Every implication of Section 50(u) is that judicial review is not foreclosed, and that seems to be the Legislature's understanding in subjecting the Commissions' interpretations to the Administrative Procedure Act, which provides for judicial review.
Accordingly, we conclude that the Commissions' interpretations of Section 50 are subject to judicial review.
III
In the trial court and court of appeals, and in the initial briefing and argumentin this Court, neither the Commissions nor the TBA suggested that the Homeowners lacked standing to sue, and the lower courts never raised the issue themselves. But after oral argument, the Court directed the parties to brief the subject. Because standing is required for subject-matter jurisdiction, it can be—and if in doubt, must be—raised by a court on its own at any time.
Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445–446 (Tex.1993).
Standing and other concepts of justiciability
have been “developed to identify appropriate occasions for judicial action”
“The central concepts often are elaborated into more specific categories of justiciability—advisory opinions, feigned and collusive cases, standing, ripeness, mootness, political questions, and administrative questions.” 13 Charles Alan Wright, et al., Federal Practice and Procedure § 3529 (3d ed.2008).
and thus maintain the proper separation of governmental powers. As Justice Frankfurter observed, “[w]hether ‘justiciability’ exists ... has most often turned on evaluating both the appropriateness of the issues for decision by courts and the hardship of denying judicial relief.”
Id.
We have explained the doctrine of standing as follows:
Joint Anti–Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 156, 71 S.Ct. 624, 95 L.Ed. 817 (1951) (Frankfurter, J., concurring).
The requirement in this State that a plaintiff have standing to assert a claim derives from the Texas Constitution's separation of powers among the departments of government, which denies the judiciary authority to decide issues in the abstract, and from the Open Courts provision, which provides court access only to a “person for an injury done him”. A court has no jurisdiction over a claim made by a plaintiff without standing to assert it. For standing, a plaintiff must be personally aggrieved; his alleged injury must be concrete and particularized, actual or imminent, not hypothetical.
DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304–305 (Tex.2008).
“Generally”, we recently wrote in Andrade v. NAACP of Austin, “a citizen lacks standing to bring a lawsuit challenging the lawfulness of governmental acts.”
But we added, “[t]he line between a generalized grievance and a particularized harm is difficult to draw, and it varies with the claims made.”
.345 S.W.3d 1, 7 (Tex.2011).
“[T]he proper inquiry”, we stated, “is whether the plaintiffs sue solely as citizens who insist that the government follow the law.”
Id. at 8 (emphasis added).
Id.
Andrade illustrates that whether an injury is sufficiently “concrete”, “particularized”, “actual or imminent”, and “not hypothetical” for standing depends on the context in which the claim is asserted. There, registered voters sued the Secretary of State, asserting that she exceeded her authority in certifying the use of electronic voting machines that do not produce a contemporaneous paper record of each vote.
The plaintiffs alleged that the machines were susceptible to being fraudulently manipulated and prone to malfunction, and that the lack of a paper record of each vote, made the moment the vote was cast, prevented a determination whether the votes counted by the machines were actually those that were cast.
Id. at 6.
They complained that because they were forced to use the machines while other voters were not, and their votes were less likely to be counted than others', their statutory right to a recount and their constitutional right to equal protection of the law was violated.
Id. at 6, 10.
Relying on the United States Supreme Court's seminal decision in Baker v. Carr,
Id.
.369 U.S. 186, 207–208, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962).
If such impairment does produce a legally cognizable injury, [the plaintiffs] are among those who have sustained it. Because they assert a plain, direct and adequate interest in maintaining the effectiveness of their votes, not merely a claim of the right, possessed by every citizen, to require that the Government be administered according to law, the voters have standing to pursue their equal protection claim.
We noted that our analysis could be different for equal-protection complaints unrelated to voting.
Andrade v. NAACP of Austin, 345 S.W.3d 1, 6, 10 (Tex.2011) (internal quotation marks omitted).
Id. (citing Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 646–647 (Tex.2004)).
In the present case, a unique consideration in determining the Homeowners' standing is the safe-harbor provision in Section 50(u), by which a home equity lender's conduct in compliance with the Commissions' interpretations does not violate Section 50 and therefore cannot injure a borrower. For example, a lender may charge fees permitted by the Commissions' interpretation of the constitutional cap, even if the interpretation is incorrect, and the borrower is not only denied redress, he has not even been overcharged. Even if the Commissions' interpretations are later determined to be wrong, they still, while in effect, substitute for Section 50's provisions.
A home equity borrower cannot be injured by a lender's compliance with the Commissions' interpretations because nothing illegal has occurred. To have complied with the interpretations is to have complied with the Constitution itself.
We do not consider the effect of an interpretation adopted in violation of procedural requirements.
Injury lies only in the Commissions' misinterpretation of Section 50, and then only to a person's interest in obtaining a home equity loan in the future. To return to the fee example, once a loan has closed and the fees have been paid according to the Commissions' interpretations, no injury has occurred. Injury can exist only in the prospect of having to pay fees that, though permitted by the interpretations, are excessive under Section 50.
Were this injury insufficient to confer standing to challenge the Commissions' interpretations, their authority to interpret Section 50 would be final and absolute, not merely shared with the Judiciary. But the principle of standing exists to protect the separation of powers, not to defeat it. Standing operates to prevent the Judiciary from exercising authority that belongs to other departments of government, not to deprive the Judiciary of its role in interpreting law, especially constitutional law. The requirement of standing cannot be used to alter the separation of powers. And in any event, we have concluded that the Commissions' authority is not absolute.
It follows that injury to the interest in obtaining a home equity loan resulting from the Commissions' alleged misinterpretations of Section 50 is sufficient for standing. The parties agree (though the Commissions still do not concede that their interpretations are subject to judicial review).
They disagree only over whether the Homeowners have sufficiently pleaded the requisite interest. The Homeowners alleged in their pleadings that each “took out a home equity loan” and that the Commissions “have adopted interpretations and rules in violation of the Texas Constitution which interfere with or impair, or threaten to interfere with or impair, a legal right or privilege of Plaintiffs.”
The Commissions' Response Brief Addressing Jurisdiction 1 (stating that an “inten[t] to acquire an additional home equity loan ... is all that is required to establish standing in this case”); Texas Bankers Association's Post–Submission Response Brief 6 (“This Court should hold that, as Texas homeowners eligible to obtain future home equity financing, the Homeowners have standing to challenge the Commissions' interpretative rules.”); Homeowners' Response to Supplemental Brief on Jurisdiction 1 (“All parties agree that if [Homeowners] have an interest in obtaining a home equity loan in the future, they have standing....”).
The Commissions argue that “[a]dding one simple allegation ... should suffice to establish jurisdiction: ... an intent to acquire an additional home equity loan.”
The Commissions' authority to interpret Section 50 is subject, under Tex. Fin.Code §§ 11.308 & 15.413, to the Administrative Procedure Act, which permits judicial review of a rule adopted by a state agency “if it is alleged that the rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Tex. Gov't Code § 2001.038(a). The Homeowners' pleadings track this language and thus allege the injury required by the Act for judicial review. The Act does not purport to set a higher standard than that set by the general doctrine of standing, and it cannot be lower, since courts' constitutional jurisdiction cannot be enlarged by statute. In re Allcat Claims Serv., L.P., 356 S.W.3d 455, 462 (Tex.2011) (“If the grant of jurisdiction or the relief authorized in the statute exceeds the limits of [the Constitution], then we simply exercise as much jurisdiction over the case as the Constitution allows....”). We treat the Act's requirement as but another expression of the general doctrine of standing.
The Homeowners respond that their prospective interest in home equity loans, sufficient for standing, is implicit in their pleadings,
The Commissions' Supplemental Brief Addressing Jurisdiction 8. The Commissions also argue that the case should not be dismissed but should be remanded to the trial court for the Homeowners to amend their pleadings, and in remanding this Court “should address both the standing requirement and the merits of the [Homeowners'] claims in order to provide guidance for the trial court”. Id. at 9. This, the Commissions contend, “is the best way to capitalize upon (and avoid squandering) the substantial judicial resources that have already been spent by this Court, the lower courts, and all of the parties in litigating the substantive challenge to the Commissions' interpretations over the past seven years.” Id.
liberally construed as they must be when standing is questioned for the first time by an appellate court.
Homeowners' Response to Supplemental Brief on Jurisdiction 1 (“While the Homeowners' live petition does not expressly state each Homeowner has an interest in obtaining a home equity loan in the future, this is fairly implied if the petition is construed liberally toward the pleader's intent.”).
Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993) (“When an appellate court questions jurisdiction on appeal for the first time ... and reviews the standing of a party sua sponte, it must construe the petition in favor of the party [seeking to invoke the court's jurisdiction], and if necessary, review the entire record to determine if any evidence supports standing.”).
Texas Bankers Association's Post–Submission Response Brief 2 (“The Homeowners have alleged they are Texas homeowners. Under the Texas Constitution they are, therefore, the class of people eligible to obtain home equity financing—or refinancing. As a result, they are subject, prospectively, to the Commissions' interpretations of the Texas Constitution's home equity lending provisions. This Court could correctly conclude the Homeowners have standing to challenge the Commissions' interpretative rules.”). Alternatively, the TBA joins the Commissions in urging that the Court allow the Homeowners to cure their pleadings and address the substance of the Homeowners' challenges either in the process of doing so or afterward. Id. at 7–8 (“Alternatively, if the Court determines the Homeowners have not established on the trial record that their challenge to the Commissions' interpretative rules is a live controversy that they have standing to litigate, Texas Bankers Association supports the Commissions' request that the Court give the Homeowners the opportunity to do so. If the Court is not inclined, as the Commissions propose, to decide the merits of the Homeowners' constitutional challenges before resolving whether they have standing to litigate those claims, the Court could, alternatively, abate this appeal; remand to the trial court to allow the Homeowners to amend their pleadings or present additional evidence to support standing and a live controversy; and then, once they have established those jurisdictional elements, lift the abatement and decide the merits of their constitutional challenges.”).
So do we. The Homeowners' allegation that the Commissions' interpretations “threaten to interfere with or impair [their] legal right[s]” cannot be true unless they have a prospective interest in considering home equity loans. And such interest is unquestionably affected by the Commissions' interpretations. The TBA confirms what should come as no surprise: that whenever home equity loans are made, “[b]ecause the banking industry has conformed its practices to the Commissions' interpretative rules to obtain the Texas Constitution's safe harbor protections, there is no doubt Texas homeowners will find the terms of home equity loans still governed by the Commissions' rules.”
Even if the Homeowners' interest were solely in refinancing existing home equity loans, the refinancing would have to satisfy the requirements of Section 50.
Id. at 6–7.
.Tex. Const. art. XVI, § 50(f) (“A refinance of debt secured by the homestead, any portion of which is an extension of credit described by Subsection (a)(6) of this section, may not be secured by a valid lien against the homestead unless the refinance of the debt is an extension of credit described by Subsection (a)(6) or (a)(7) of this section.”).
The Homeowners need not allege a more imminent impairment to their rights or allege a threat with more specificity. While the certainty and extent of injury would become clearer as the time for closing a home equity loan approached, the terms were fixed, and the application of the Commissions' interpretations became apparent, to require a homeowner to wait to that point to challenge an interpretation would be to deny review or deny credit, or both. This case was filed more than nine years ago. Changes in values and rates, and in lenders' and borrowers' individual circumstances, ordinarily require that loan closings occur in a matter of weeks, not years. And hard as it may be to foretell obtaining a loan, predicting the terms is completely impossible.
Importantly, impairment of the Homeowners' rights is threatened not only by having to close a home equity loan under misinterpretations of constitutional requirements but also by having to decide whether to seek credit in such a situation. The decision whether to apply for a home equity loan is necessarily influenced by its terms, and to return yet again to the fee cap example, its cost. Knowing that fewer fees are capped obviously discourages borrowers. The homeowner who does not intend to apply for a home equity loan and will probably not obtain one, all because of incorrect interpretations of Section 50, is no less injured than the homeowner whose loan is closed under such misinterpretations. The influence of the Commissions' interpretations on whether even to apply for a home equity loan is injury enough to give the Homeowners standing.
The dissent does not disagree and “recognize[s] that the circumstances before us are unusual”,
but regards the Homeowners' allegation that the Commissions' interpretations “threaten to interfere with or impair [their] legal right[s]” as insufficiently factual. We think that to insist on greater specificity is unreasonable, as we have explained. How the fee cap will operate for any particular loan cannot be predicted with any accuracy until the underwriting is complete. Nor can a prospective borrower predict how he or she may be impacted by other misinterpretations asserted by the Homeowners: the requirements that closing occur away from the borrower's home and that the borrower be shown to have the required notice. The dissent suggests that the Homeowners could allege that the asserted misinterpretations adversely affected them when they obtained their home equity loans in the past, if such were the case. But the dissent misunderstands the nature and effect of the safe-harbor provision, characterizing it as “protect[ing] lenders from liability for their lending actions much as statutes of limitations protect parties from liability for stale claims.”
Post at 593.
A lender's compliance with a misinterpretation of Section 50 is not an injury for which a borrower is barred from seeking redress; it is no injury at all. It would certainly be a perverse application of the standing doctrine to require pleading of a non-existent injury.
Post at 593.
Section 50(u) creates an exceptional context in which to assess standing. So do voting rights, as we acknowledged in Andrade. In that case, there was only a possibility that the plaintiffs would vote in the future, and if they did, there was no proof at all that the machines to which they objected would be used, would be improperly programmed, or would malfunction, or that their votes would be inaccurately counted. Though the standing doctrine would insist on a more substantial injury in other contexts, voting rights present a special situation. The same may be said of this case. Section 50(u) is unique to the Texas Constitution. Its preclusion of the injury typically required for standing requires application of the doctrine in context. The alternative, as we have noted, is to allow the doctrine to be used to alter what it is designed to maintain—the proper separation of powers.
To return to Justice Frankfurter's observation, the substantive issues are certainly appropriate for judicial decision—including whether judicial review of the Commissions' interpretations is permitted—and the hardship of withholding decision is significant, given the parties' unity in urging a resolution on the merits. Having raised the issue of standing at the tail end of eight years of litigation, the Court must construe the record liberally, and in the context of an exceptional constitutional provision. Doing so, we conclude that the Homeowners have standing.
IV
We come at last to the Homeowners' substantive challenges. We begin by determining the appropriate standard of review, then move in turn to each challenge.
A
“Construction of a statute by the administrative agency charged with its enforcement is entitled to serious consideration, so long as the construction is reasonable and does not contradict the plain language of the statute.”
The Commissions argue that courts must give at least this much deference to their interpretations of Section 50(u). But as the Commissions themselves assert, Section 50(u) puts their interpretations “on equal footing with those issued by courts of appeals”.
Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.1993).
As we have explained, we agree that this reading of Section 50(u) is correct. This Court does not defer to a court of appeals' interpretation of the Constitution but reviews it, as all matters of law, de novo.
Commissions' Brief 14.
Indeed, the courts of appeals do not even defer to each other's constitutional interpretations. By giving agency interpretations the same stature as those of appellate courts, Section 50(u) requires that courts give the one no more deference than the other.
E.g., Harris Cnty. Hosp. Dist. v. Tomball Reg'l Hosp., 283 S.W.3d 838, 842 (Tex.2009).
The Commissions argue that the history of Section 50(u) shows that their interpretative authority was intended to be “definitive”, but this is true only in comparison to the Regulatory Commentary, which was merely advisory, and issued prior to Section 50(u).
Nothing suggests their authority under Section 50(u) is to be more definitive than an appellate court's interpretation.
Stringer v. Cendant Mortg. Corp., 23 S.W.3d 353, 357 (Tex.2000) (noting that the Commissions' Regulatory Commentary released prior to Section 50(u)'s enactment “is advisory and not authoritative”).
The Commissions argue that their interpretations are entitled to greater deference because Section 50(u)'s delegation of authority is unique, but it is only the delegation itself that is unique, not the interpretative authority delegated. Nothing suggests that the framers and ratifiers had anything in mind other than ordinary constitutional interpretation, assuming that a more expansive power were even possible under the Constitution. The Commissions argue that they were chosen because of their expertise in lending markets, which should be entitled to deference in any review. But the power to interpret the constitutional text is unrelated to an agency's expertise in an industry, or to its regulatory power, which is ordinarily quite broad. In interpreting Section 50, the Commissions must give effect to the constitutional text, regardless of whether it comports with their expertise or regulatory judgment. The Commissions cannot use their authority under Section 50(u) and the enabling legislation to set policy. They can do no more than interpret the constitutional text, just as a court would.
The Commissions contend that de novo review of their interpretations “undermines the entire purpose of [Section 50(u) ], as Texans could not rely upon the Commissions' interpretations with any confidence that they were valid, and that compliance therewith would protect the enforceablilty of their loan transactions.”
But this is simply not true. Under Section 50(u), compliance with any interpretation or judicial decision, even one later overturned, is compliance with the Constitution itself. Review of the Commissions' interpretations may alter what lenders must do going forward, but it does not expose them to liability for past conduct.
The Commissions' Brief 19.
In essence, the Commissions argue for interpretative authority that is not only unreviewable but greater than that exercised by the Judiciary. Such a grant of power cannot be found in Section 50(u). Rather, the Commissions' interpretative authority is the same as the Judiciary's, which we have described as follows:
In construing the Constitution, as in construing statutes, the fundamental guiding rule is to give effect to the intent of the makers and adopters of the provision in question. We presume the language of the Constitution was carefully selected, and we interpret words as they are generally understood. We rely heavily on the literal text. However, we may consider such matters as the history of the legislation, the conditions and spirit of the times, the prevailing sentiments of the people, the evils intended to be remedied, and the good to be accomplished.
And their interpretations are to be reviewed as judicial decisions are.
Harris Cnty. Hosp. Dist. v. Tomball Reg'l Hosp., 283 S.W.3d at 842 (citations and internal quotation marks omitted).
B
Section 50(a)(6)(E) provides that a home equity borrower may not be required to pay, “in addition to any interest, fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, three percent of the original principal amount of the extension of credit”. According to the Commissions, the meaning of “interest” is “as defined in the Texas Finance Code § 301.002(4) and as interpreted by the courts.”
The fatal difficulty with the Commissions' interpretation is that it does not merely adopt the substance of the statute at the time the interpretation became effective; it adopts whatever definition of “interest” the Legislature may enact from time to time by amending Section 301.002(4). The Commissions acknowledge that the Legislature can change the effect of their interpretation and the meaning of Section 50(A)(6)(E) simply by amending the statute,
and this in fact is what has happened. When the interpretation became effective in January 2004, Section 301.002(4) stated: “In this subtitle ... ‘Interest’ means compensation for the use, forbearance, or detention of money. The term does not include time price differential, regardless of how it is denominated.”
The Commissions' Brief 22. The TBA agrees. Brief on the Merits of Texas Bankers Ass'n 13.
The following year, the Legislature amended the provision to add a third sentence: “The term does not include compensation or other amounts that are determined or stated by this code or other applicable law not to constitute interest or that are permitted to be contracted for, charged, or received in addition to interest in connection with an extension of credit.”
Act of April 23, 1999, 76th Leg., R.S., ch. 62, § 7.18, 1999 Tex. Gen. Laws 127, 222.
In effect, the Commissions, creatures of the Legislative Department appointed by the Executive, have used their interpretative power under Section 50(u) to give the Legislature the unfettered authority to alter as it chooses the constitutional fee cap, a critical part of the protections built into Section 50. In the Commissions' view, they are empowered not only to interpret Section 50(a)(6)(E) but, in so doing, to authorize the Legislature to redefine the provision's terms. The Commissions' interpretation of the fee cap, tying its meaning to a statute, utterly defeats the clear purpose of constitutionalizing it, which was to place the limitation beyond the Legislature's power to change without ratification by the voters. For this reason alone, the Commissions' interpretation is invalid.
Act of May 29, 2005, 79th Leg., R.S., ch. 1018, § 2.01, 2005 Tex. Gen. Laws 3438, 3439–3440.
The Commissions nevertheless insist that “interest” in Section 50(a)(6)(E) should mean “compensation for the use, forbearance, or detention of money”, as defined in Section 301.002(4) at the time the constitutional provision was adopted, and as understood under Texas law since at least 1879.
But that broad definition has generally been used in the context of prohibiting usury. Thus, for example, the 2005 amendment to Section 301.002(a)(4) excepts from the definition for the first time certain lender-charged fees allowed by law.
.Tex.Rev.Civ. Stat. Ann.. art. 2972 (1879) (“ ‘Interest’ is the compensation allowed by law or fixed by the parties to a contract for the use or forbearance or detention of money.”); see also Battaglia v. Alexander, 177 S.W.3d 893, 907 (Tex.2005) (“ ‘Interest’ has long been defined by the Legislature as ‘compensation for the use, forbearance, or detention of money.’ ” (citations omitted)); Galveston & Hous. Inv. Co. v. Grymes, 94 Tex. 609, 63 S.W. 860, 861 (1901) (citing the same text in Tex.Rev.Civ. Stat. Ann.. art. 3097 (1895)).
The ostensible purpose of that legislation was to relax restrictions on usury, but if “interest” in Section 50(a)(6)(E) has the same meaning, the exception for such fees places them back under the three-percent cap. Nothing suggests that the Legislature intended the 2005 amendment to do both.
Act of May 29, 2005, 79th Leg., R.S., ch. 1018, § 2.01, 2005 Tex. Gen. Laws 3438, 3439–3440.
The functions of “interest” in applying the constitutional fee cap for home equity loans and in prohibiting usury are inversely related. If the word is given the same meaning in both contexts, then including lender-charged fees in “interest” strengthens usury laws and weakens the fee cap, though both are designed to protect consumers. That this was the intent of the framers and ratifiers of Section 50(a)(6)(E) is simply implausible.
The Commissions point out that Section 50(u), giving them interpretative authority, was adopted after they had already suggested in their Regulatory Commentary that “interest” in Section 50(a)(6)(E) should have the same meaning as in Section 301.002(a)(4) of the Finance Code, indicating that the Legislature acquiesced in that view, as confirmed by the Legislature's later refusal to enact bills that would have narrowed their interpretation. But as we have seen, the Legislature quickly amended Section 301.002(a)(4). The Legislature cannot be said to have acquiesced in anything other than the Commissions' view that it should be authorized to alter the constitutional provision by statute.
The Commissions' position is that in capping “fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service” a home equity loan, the framers and ratifiers intended to cap only fees to any person other than the lender. But had that been their intent, surely the simplest and clearest way to express it would have been to use those four words, rather than the oblique phrase, “in addition to any interest”. This is especially true because there is another, well-understood meaning of “interest”: the amount equal to the loan principal multiplied by the interest rate. Applied to Section50(a)(6)(E), that definition allows “any person” to mean just that.
We conclude that consistent with the history, purpose, and text of Section 50(a)(6)(E), “interest” as used in that provision means the amount determined by multiplying the loan principal by the interest rate.
This narrower definition of interest does not limit the amount a lender can charge for a loan; it limits only what part of the total charge can be paid in front-end fees rather than interest paid over time. In so doing, it incentivizes lenders to determine borrowers' creditworthiness more carefully and helps borrowers better assess the costs of credit.
C
Section 50(a)(6)(N) provides that a loan may be “closed only at the office of the lender, an attorney at law, or a title company”. The Commissions acknowledge, and the Homeowners agree, that “[t]his provision was intended to prohibit the coercive closing of an equity loan at the home of the owner.”
Nevertheless, the Commissions' interpretations allow a borrower to mail the required signed consent to the lender
29 Tex. Reg. 84, 90 (2004).
and to close through an attorney-in-fact.
.7 Tex. Admin. Code § 153.15(3) (“A lender may receive consent required under Section 50(a)(6)(A) by mail or other delivery of the party's signature to an authorized physical location and not the homestead.”).
Both these interpretations permit coercion in obtaining the required consent and a power of attorney at the borrower's home, allowing the final closing to occur later at one of the prescribed locations, thereby defeating the purpose of the provision.
Id. § 153.15(2) (“A lender may accept a properly executed power of attorney allowing the attorney-in-fact to execute closing documents on behalf of the owner.”).
Closing a loan is a process. It would clearly be unreasonable to interpret Section 50(a)(6)(N) to allow all the loan papers to be signed at the borrower's house and then taken to the lender's office, where funding was finally authorized. Closing is not merely the final action, and in this context, to afford the intended protection, it must include the initial action. Executing the required consent or a power of attorney are part of the closing process and must occur only at one of the locations allowed by the constitutional provision.
Whether so stringent a restriction is good policy is not an issue for the Commissions or this Court to consider. That the issue should arise counsels against constitutionalizing minutiae, placing them beyond regulatory or legislative adjustment. But the purpose of the provision is indisputable, and the Commissions' interpretations in derogation of that purpose can be justified only by reading “closing” to mean some aspect of the closing process. The court of appeals concluded that the use of the mail to transmit documents and of a power of attorney to facilitate execution are so commonplace that had the framers and ratifiers of Section 50 intended to preclude these practices, they would have said so with more specificity.
The court pointed to Section 50(a)(6)(Q)(iv), which prohibits using a borrower's power of attorney to facilitate obtaining a judgment against a debtor, should he default. But it is precisely the common use of the mail and powers of attorney in closing transactions that gives rise to the danger of coercion Section 50(a)(6)(N) was intended to prevent.
.303 S.W.3d at 417 (citations omitted).
We conclude that the Commissions' interpretations of Section 50(a)(6)(N) contradictthe purpose and text of the provision and are therefore invalid.
D
Finally, Section 50(g) requires that a loan not be closed before the 12th day after the lender provides the borrower the prescribed notice.
In giving meaning to “provides”, the Commissions have determined there is a rebuttable presumption that notice is received three days after it is mailed.
.Tex. Const. art. XVI, § 50(f).
The Homeowners insist that a lender must establish actual receipt of notice in each case. But the Commissions' interpretation does not impair the constitutional requirement; it merely relieves a lender of proving receipt unless receipt is challenged. We agree with the court of appeals that the interpretation is but a reasonable procedure for establishing compliance with Section 50(g).
.7 Tex. Admin. Code § 153.51(1), (3) (“(1) If a lender mails the consumer disclosure to the owner, the lender shall allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.... (3) A lender may rely on an established system of verifiable procedures to evidence compliance with this section.”).
The judgment of the court of appeals is affirmed in part and reversed in part, and judgment is rendered. Justice JOHNSON issued an opinion concurring in part and dissenting in part, and dissenting from the judgment.
Justice JOHNSON, concurring in part and dissenting in part, and dissenting from the judgment.
I dissent from parts III and IV of the Court's opinion and from its judgment.
Six homeowners filed suit in this case three weeks after the Finance and Credit Union Commissions' interpretations of the home equity lending provisions in Section 50 became effective. The Homeowners challenged seventeen of the interpretations, but did not allege that any of the interpretations impacted a loan they applied for or considered applying for, or that they had been discouraged from applying for a loan by the interpretations. Nor does the record contain facts showing how any one, much less all, of the interpretations caused the Homeowners an actual, imminent, potential, or even hypothetical particularized injury.
In post-submission briefing the Commissions argue that the matter should be remanded to the trial court to give the Homeowners the opportunity to replead so they can show jurisdictional facts. Instead of giving them that opportunity, the Court concludes the Homeowners have standing to challenge all the interpretations because their pleadings implicitly allege injury to their “prospective interest” in home equity loans. It then addresses the merits in what I view as an advisory opinion. For the reasons expressed below, I would remand the case to the trial court to allow the Homeowners to replead or otherwise attempt to show jurisdiction.
The Commissions' interpretations of the lending provisions became effective on January 8, 2004. See7 Tex. Admin. Code §§ 153.1–.96. Approximately three weeks later the Homeowners sued the Commissions under provisions of the Administrative Procedures Act (APA), Tex. Gov't Code § 2001.038, and the Declaratory Judgments Act (DJA), Tex. Civ. Prac. & Rem.Code §§ 37.001–.011, seeking a declaratory judgment invalidating seventeen interpretations that addressed nine substantiveprovisions of section 50. The Homeowners alleged they were Texas homeowners who had each taken out a home equity loan. They asserted that the substance of the challenged interpretations either contradicted the plain meaning and intent of the Constitution or amounted to rules the Commissions had no authority to enact and referenced home equity lending practices outside of Texas that led to alleged adverse experiences for borrowers. The Homeowners' petition set out in a brief and conclusory nature their relationship to the interpretations they challenged:
VI. CAUSES OF ACTION
[The Commissions] have adopted interpretations and rules in violation of the Texas Constitution which interfere with or impair, or threaten to interfere with or impair, a legal right or privilege of Plaintiffs. Pursuant to Section 2001.038 of the Texas Government Code, and Chapter 37 of the Texas Civil Practice & Remedies Code, Plaintiffs seek a declaratory judgment to invalidate the following rules and interpretations: Rules 153.1(11); 153.5(3), (4), (6), (8), (9), (12); 153.12(2); 153.13(4); 153.15(2), (3); 153.18(3); 153.20; 153.22; 153.51(1), (3); and 153.84( l ).
In none of their four amended pleadings filed over the next year and a half did the Homeowners explain or allege facts showing (1) how any one—much less all—of the challenged interpretations affected any of them in the past, (2) how any of the interpretations probably would affect any of them in the future, (3) that any of them were considering obtaining a home equity loan to which any of the interpretations would apply, or (4) that one or more of the challenged interpretations caused any of them to be discouraged from considering seeking a home equity loan. See Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993) (explaining that to show subject-matter jurisdiction the pleader must “allege facts that affirmatively demonstrate the court's jurisdiction to hear the cause”).
The Texas Banker's Association (TBA) intervened in support of the Commissions and the parties filed cross-motions for summary judgment. The trial court signed a final judgment on April 29, 2006—over two years after the plaintiffs filed suit. The judgment invalidated all or parts of thirteen rules interpreting seven constitutional provisions and upheld four rules interpreting two.
The Commissions repealed the invalidated interpretations as to three constitutional provisions, but appealed, along with the TBA, as to rules interpreting four provisions. The Homeowners appealed as to two interpretations the trial court upheld. The court of appeals addressed the merits of the appeal. It affirmed in part and reversed and rendered in part. 303 S.W.3d 404, 418.
The trial court invalidated the following Rules: 153.1(11); 153.5(3), (4), (6), (8), (9), and (12); 153.12(2) as to orally submitted loan applications; 153.13(4); 153.18(3), 153.20; 153.22; and 153.84(1). It denied the plaintiffs' challenge to the following Rules: 153.15(2) and (3); and 153.51(1) and (3).
Neither the parties nor the lower courts addressed jurisdiction. But courts must have jurisdiction in order to address the merits of a cause, and this Court requested post-submission briefing on the question. See, e.g., Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 553–54 (Tex.2000) (noting that a court must not act unless it has subject-matter jurisdiction).
One component of subject-matter jurisdiction is standing, which stems from constitutional separation of powers and open courts provisions. See Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex.2004); Patterson v. Planned Parenthood of Hous. & Se. Tex., Inc., 971 S.W.2d 439, 442–43 (Tex.1998); Tex. Ass'n of Bus., 852 S.W.2d at 443. The separation of powers provision in the Texas Constitution specifies that the powers of government are divided into three parts—the legislative, the executive, and the judicial. Tex. Const. art. II, § 1. It also specifies that persons of one branch shall not exercise any power properly attached to either of the others except as the Constitution expressly permits. Id. The Constitution does not afford courts jurisdiction to issue advisory opinions; those are a function of the executive department. Tex. Const. art. IV, §§ 1, 22 (specifying that the attorney general is part of the executive department and empowering the attorney general to issue advisory opinions to the governor and other officials); e.g., Valley Baptist Med. Ctr. v. Gonzalez, 33 S.W.3d 821, 822 (Tex.2000) (per curiam) (“Under article II, section 1 of the Texas Constitution, courts have no jurisdiction to issue advisory opinions.”); see also Patterson, 971 S.W.2d at 442 (“The constitutional roots of justiciability doctrines such as ripeness, as well as standing ..., lie in the prohibition on advisory opinions, which in turn stems from the separation of powers doctrine.”). And the open courts provision contemplates access to courts only for persons who have suffered an injury. Tex. Const. art. I, § 13 (“All courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law.”); see Tex. Ass'n of Bus., 852 S.W.2d at 444. Thus, standing requires a justiciable injury that gives rise to a real controversy which judicial action can resolve. Tex. Workers' Comp. Comm'n v. Garcia, 893 S.W.2d 504, 517–18 (Tex.1995); see Tex. Ass'n of Bus., 852 S.W.2d at 444 (recognizing Texas courts have no jurisdiction to render opinions that, rather than remedying an actual or imminent harm, decide abstract questions of law without binding the parties).
If the record presents a standing issue the parties have failed to raise, courts must do so sua sponte. See Garcia, 893 S.W.2d at 517 n. 15;Tex. Ass'n of Bus., 852 S.W.2d at 445–46. However, when the issue is addressed for the first time on appeal, plaintiffs do not have the same opportunity to replead and attempt to demonstrate jurisdiction or direct discovery to the jurisdictional issue as they have when standing is addressed in the trial court. So, when an appellate court is the first to consider jurisdictional issues, it construes the pleadings in favor of the plaintiff and, if necessary, reviews the record for evidence supporting jurisdiction. Tex. Ass'n of Bus., 852 S.W.2d at 446. If the appellate court determines that standing has not been alleged or shown but the pleadings and record do not demonstrate an incurable jurisdictional defect, the case is remanded to the trial court where the plaintiff is entitled to a fair opportunity to develop the record relating to jurisdiction and to replead. See Westbrook v. Penley, 231 S.W.3d 389, 395 (Tex.2007).
The APA authorizes declaratory judgment actions challenging agency rules or threatened applications of them. Tex. Gov't Code § 2001.038. The statute requires allegations that the “rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Id. The Court concludes that the Homeowners satisfied this requirement. 418 S.W.3d 566, 582. But persons seeking relief under section 2001.038 of the APA and the DJA must still meet constitutional requirements of a justiciable injury, and the Homeowners did not. See Lopez v. Pub. Util. Comm'n of Tex., 816 S.W.2d 776, 782 (Tex.App.–Austin 1991, writ denied).
The separation of powers issue as to the APA and the DJA was directly addressed in Lopez.Id. There, the court of appeals considered whether former section 12 of the Texas Administrative Procedure and Texas Register Act (APTRA)—the predecessor to section 2001.038—was subject to constitutional provisions precluding courts from making advisory decisions. See id. (analyzing Tex.Rev.Civ. Stat. Ann.. art. 6252–13a, § 12).
The court held that neither the DJA nor the APTRA could constitutionally authorize courts to decide cases when no justiciable injury existed:
The scope of APTRA § 12 is limited in all events by the separation-of-powers doctrine, a part of the checks-and-balances system of the State constitution. Under that doctrine, the Legislature may not confer upon the district courts a power that lies outside the “judicial power,” such as a power belonging to the legislative or executive (administrative) departments. Thus, the remedy afforded by the Uniform Declaratory Judgments Act cannot require the district courts to render advisory opinions. The same constitutional doctrine also curtails the permissible scope of APTRA § 12.
Id. (citations omitted).
Of course, a plaintiff without an existing actual injury caused by a rule may demonstrate a justiciable injury sufficient for jurisdiction by showing that the rule in reasonable probability will be applied to him in the future and its application will impair a particular, specific right. For example, in State Board of Insurance v. Deffebach, the court had jurisdiction because the plaintiff showed that an agency's enforcement of a rule would adversely affect him. See631 S.W.2d 794, 797 (Tex.App.–Austin 1982, writ ref'd n.r.e.). Deffebach, a credit life insurance agent, filed suit under APTRA section 12 seeking a declaratory judgment invalidating a Board of Insurance order. Id. at 796. The trial court found the Board's order would reduce premiums paid for credit life insurance and it would reduce Deffebach's income from commissions, then declared part of the order invalid. Id. On appeal, the Board argued that Deffebach lacked standing to sue. Id. The court of appeals disagreed, noting that under section 12, “one is not required to wait until the rule is attempted to be enforced against him before he may resort to declaratory relief.” Id. at 797. The court held that because implementation of the order would clearly affect Deffebach's future commissions as a credit life insurance agent, he had standing under section 12. Id.
The analyses of the courts in Lopez and Deffebach exemplify the axiom that statutes are subject to constitutional provisions. See Cramer v. Sheppard, 140 Tex. 271, 167 S.W.2d 147, 155 (1942) (“Certainly a statute cannot override the Constitution.”). When a litigant claims a hypothetical or possible impairment of rights because of a rule or its possible application—as opposed to claiming an existing or reasonably probable application that will cause particularized, specific injury—the claim calls for an advisory opinion. Thus, to have standing under section 2001.038, plaintiffs' pleadings must contain more than conclusory statements that their rights have been or probably will be impaired. The pleadings must allege, or the record must demonstrate, facts showing how a particular rule has already interfered with the plaintiffs' rights or how that rule in reasonable probability will interfere with the plaintiffs' rights in the future. See Tex. Ass'n of Bus., 852 S.W.2d at 446.
As noted above, the court of appeals addressed the issue of standing based on a potential injury in Deffebach. This Court also recently did so in Andrade v. NAACP of Austin, 345 S.W.3d 1, 18 (Tex.2011). There the jurisdictional question was whether registered voters had standing to challenge the use of electronic voting machines that did not produce a contemporaneous paper record of each vote. Id. at 4. The basis for the plaintiffs' claims was that the lack of such a record made it less likely their votes would be counted. Id. at 10. As the Court notes, our reasoning for concluding the plaintiffs had standing was that if use of the electronic machines produced a legally cognizable injury, the registered voter plaintiffs “are among those who have sustained it.” Id. Here, although the Homeowners challenged seventeen rules interpreting nine different constitutional provisions, they did not allege, nor does the record demonstrate, how any of the interpretations, even if invalid, has impaired, or probably will later impair, their individualized, particularized interests. In other words, they have not demonstrated even the type of situation this Court found sufficient for standing in Andrade where no existing injury was shown: the Homeowners have not actually or implicitly alleged or shown that if any of the Commissions' interpretations are invalid and applied then they are among those whose individual interests will be affected by that interpretation.
The Court concludes that “injury to the interest in obtaining a home equity loan resulting from the Commissions' alleged misinterpretations” is sufficient for standing. 418 S.W.3d at 582. It then concludes that a “prospective interest” in home equity loans is implicit in the Homeowners' pleadings because otherwise their allegation that the Commissions' interpretations threaten to interfere with or impair their legal rights cannot be true. But even if the Homeowners' pleadings are liberally read to include their having a prospective interest in a loan, such a reading necessarily concedes that the pleadings do not actually or implicitly allege an existing interest in a loan that will be impaired by any of the interpretations—only a hypothetical, potential one in the future. And because the Homeowners have home equity loans now does not mean that if the alleged interpretations are invalid, the Homeowners are among those who will have sustained injury from them. Having a potential or prospective future interest in a home equity loan simply is not the same as having an existing interest. A speculative injury by the interpretations to a possible or prospective interest is not sufficient for standing, even under the Court's conclusion that injury to an “interest in obtaining a home equity loan” is sufficient.
The Court asserts that section 50(u)—the “safe harbor” provision—“creates an exceptional context in which to assess standing.” 418 S.W.3d at 584. I recognize that the circumstances before us are unusual. Ordinarily, if a lender's actions do not conform to constitutional or statutory provisions and a borrower suffers detriment as a result, a controversy will exist between the borrower and lender for which the borrower can seek judicial redress. Here, the Constitution prevents that so long as the lender complies with the Commissions' interpretations of the provisions. Tex. Const. art. XVI, § 50(u). The Court asserts that under the safe harbor provision a lender's compliance with a misinterpretation can be no injury at all to a borrower. 418 S.W.3d at 584. But because a lender cannot be liable if it complies with the interpretations does not mean that a borrower is not in worse position than had the lender complied with the constitutional provisions. The safe harbor provision protects lenders from liability for their lending actions much as statutes of limitations protect parties from liability for stale claims. But because a defendant cannot be held liable for a claim barred by limitations, or because a lender cannot be liable for a claim covered by the safe harbor provision, that does not mean the injured party was not injured—it just means that the injuring party does not suffer legal consequences for its actions. But the Commissions are another matter; they do not claim to enjoy a safe harbor as to their interpretations.
I see no standing barrier to a homeowner seeking a declaratory judgment if the homeowner alleges or shows that a lender's actions conformed to an invalid interpretation and the homeowner is in a worse position than it would have been if the lender had complied with the applicable constitutional lending provisions. For example, if the Homeowners here had pleaded
facts showing that a Commission interpretation of the constitutional provision capping fees at three percent of the principal amount of a home equity loan (1) existed when they took out home equity loans or when they sought home equity loans and was incorporated into the lending process, or would in reasonable probability be incorporated into a new home equity loan they will seek, and (2) loans conforming to the interpretation resulted, or probably will result, in fees exceeding the constitutional limitations, then in my view they would have standing to sue the Commissions for a declaratory judgment that the interpretation is invalid. The same goes for a homeowner who would have applied for and obtained a home equity loan but for one of the other interpretations the plaintiffs challenged, or considered applying for one and was discouraged from doing so by one of the Commissions' interpretations. The problem is these Homeowners did not even allege that because of one or more of the alleged misinterpretations they decided not to apply for a home equity loan or that they probably will not apply for or obtain one in the future. If they had done so, then they reasonably would have pointed out one or two particular interpretations and specific facts and reasons underlying their claims. Then the courts could address a concrete, particularized injury and controversy.
Of course, the plaintiffs' pleadings would be subject to Tex.R. Civ. P. 13 that precludes fictitious suits to get an opinion of the court.
TBA candidly argues in its briefing that this Court should decide this case because “[i]t is important to the banking industry to have the questions regarding the constitutionality of the Commissions' home equity lending interpretations decided in this litigation.” There is no doubt that the questions presented are important. But the parties' desire for clarity cannot override constitutional mandates precluding courts from issuing advisory opinions. SeeTex. Const. art. I, § 13; id.art. II, § 1; see also Andrade, 345 S.W.3d at 18 (recognizing that “[a] desire to have the government act in conformance to the law is not enough” for standing to bring suit); Gen. Land Office v. OXY U.S.A., Inc., 789 S.W.2d 569, 572 (Tex.1990) (“[T]he fact that an important question of administrative law is involved, the resolution of which would aid the agency, is not sufficient impetus for this court to render an advisory opinion.”).
The Court acknowledges standing principles, then disregards them in determining these plaintiffs have sufficient “prospective interest” to confer standing despite their unquestioned failure to show a concrete, actual or imminent particularized injury, which is traceable to a particular interpretation, and that will be redressed by our decision. See DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304–05 (Tex.2008) (explaining that the standing doctrine has constitutional roots and requires that a plaintiff must be “personally aggrieved; his alleged injury must be concrete and particularized, actual or imminent, not hypothetical”) (citations omitted); Brown v. Todd, 53 S.W.3d 297, 305 (Tex.2001) (citing with approval federal requirements that to have standing the claimant must have an injury fairly traceable to the defendant's allegedly unlawful conduct, the injury must be concrete and particularized, and the injury is likely to be redressed by the requested relief).
I would hold that the Homeowners have not established standing to bring their claims. As a result, the trial court lacked jurisdiction to address the merits of the suit. See Inman, 252 S.W.3d at 304;State Bar of Tex. v. Gomez, 891 S.W.2d 243, 245 (Tex.1994); Tex. Ass'n of Bus., 852 S.W.2d at 443–44. Because the trial court lacked jurisdiction to decide the merits, the court of appeals likewise lacked it and so does this Court.
The Commissions suggest that if the Court were to determine the Homeowners do not have standing, the case should be abated and remanded to the trial court rather than dismissed because the Homeowners' pleadings did not affirmatively negate jurisdiction. See Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226–27 (Tex.2004). I agree in part. I would not abate the case, but would remand it to the trial court. The defect in the record is one of omission. The Homeowners failed to allege or demonstrate how any of the Commissions' interpretations interfered with or in reasonable probability will interfere with their rights, privileges, or interests. SeeTex. Gov't Code § 2001.038; Tex. Ass'n of Bus., 852 S.W.2d at 446 (stating that a pleader must allege facts that affirmatively demonstrate a court's jurisdiction). The Homeowners do not affirmatively negate jurisdiction. Their pleadings do not disclaim intent to seek or acquire additional home equity loans, nor disclaim that they have been discouraged from seeking a home equity loan because of the interpretations. And the Homeowners have not otherwise precluded themselves from alleging facts to show that the interpretations discourage them from seeking a loan, or if they attempt to or actually do take out loans, the Commissions' interpretations in reasonable probability will cause interference with their rights or privileges. If the Court were to remand to the trial court, the Homeowners could attempt to show jurisdiction. Then the trial court would have specific facts to consider in determining if the plaintiffs indeed have demonstrated standing to challenge the interpretations, and if they have, to decide the merits of those challenges. See Penley, 231 S.W.3d at 395;Cnty. of Cameron v. Brown, 80 S.W.3d 549, 559 (Tex.2002).
Supplemental Opinion on Motion for Rehearing
NATHAN L. HECHT, Chief Justice.
The Finance Commission and the Credit Union Commission have not moved for rehearing. Neither have respondent Homeowners. The Texas Bankers Association has moved for rehearing, in part seeking clarification of several matters. A number of amici curiae have filed briefs in support of TBA's motion.
They are AmeriFirst Financial, Inc.; Independent Bankers Association of Texas; PrimeLending, a Plains Capital Company; Texas Mortgage Bankers Association; United Services Automobile Association; and Robert Wisner.
Article XVI, Section 50(a)(6)(E) of the Texas Constitution caps “fees to any person that are necessary to originate, evaluate,maintain, record, insure, or service” a home equity loan, not including “any interest”, at 3% of principal.
In this case, we hold that “interest” as used in this provision does not mean compensation for the use, forbearance, or detention of money, as in usury context, but “the amount determined by multiplying the loan principal by the interest rate.”
.Tex. Const. art. XVI, § 50(a)(6)(E).
This definition provides the protection to borrowers the provision is intended to afford.
Ante at 588.
We added this note in the margin: “This narrower definition of interest does not limit the amount a lender can charge for a loan; it limits only what part of the total charge can be paid in front-end fees rather than interest paid over time.”
Focusing on the time payment is made, TBA and the amici question whether interest paid at closing falls outside the definition. For example, they explain, interest is sometimes paid at closing for part of a payment period, calculated per diem, until the regular payment date. Further, a borrower may pay discount points at closing to lower the interest rate for the term of the loan. The Homeowners respond that our opinion is clear: neither prepaid, per diem interest nor legitimate discount points are subject to the 3% cap. We agree with TBA, the amici, and the Homeowners that per diem interest is still interest, though prepaid; it is calculated by applying a rate to principal over a period of time. Legitimate discount points to lower the loan interest rate, in effect, substitute for interest. We also agree with the Homeowners that true discount points are not fees “necessary to originate, evaluate, maintain, record, insure, or service” but are an option available to the borrower and thus not subject to the 3% cap.
Ante at 588 n. 104.
We also hold that Section 50(a)(6)(N), which provides that a loan may be “closed only at the office of the lender, an attorney at law, or a title company”, precludes a borrower from closing the loan through an attorney-in-fact under a power of attorney not itself executed at one of the three prescribed locations. We reasoned that executing a power of attorney is “part of the closing process”, and that not to restrict the use of a power of attorney would impair the undisputed purpose of the provision, which is “to prohibit the coercive closing of an equity loan at the home of the owner.”
TBA and the amici object that closing is an event, not a process, and that to consider closing as beginning with the execution of a power of attorney leads to absurd results and problems in applying deadlines prescribed by the constitutional provisions.
Ante at 588.
By “process”, we did not intend something temporally protracted, though we agree that confusion is understandable. We agree with TBA and the amici that the closing is the occurrence that consummates the transaction. But a power of attorney must be part of the closing to show the attorney-in-fact's authority to act. Section 50(a)(6)(N) does not suggest that the timing of the power of attorney is important, or that it cannot be used to close a home equity loan if executed before the borrower applied for the loan. But as we have explained, we think that the provision requires a formality to the closing that prevents coercive practices. The concern is that a borrower may be persuaded to sign papers around his kitchen table collateralizing his homestead when he would have second thoughts in a lender's, lawyer's, or title company's office. To allowthe borrower to sign a power of attorney at the kitchen table raises the same concern. Requiring an attorney-in-fact to sign all loan documents in an office does nothing to sober the borrower's decision, which is the purpose of the constitutional provision.
TBA and the amici argue that requiring a power of attorney, like other closing documents, to be executed “at the office of the lender, an attorney at law, or a title company” works a hardship on borrowers for whom such locations are not readily accessible, such as military persons stationed overseas, others employed in other countries, the elderly, and the infirm. For the military, the Judge Advocate General Corps provides lawyers here and abroad. We recognize that JAG lawyers may not be as accessible to military personnel as civilian lawyers are to most people owning homes in Texas, but we also recognize that soldiers and sailors in harm's way are no less susceptible to being pressured to borrow money and jeopardizing their homes than people in more secure circumstances. TBA and the amici argue that the fiduciary duty owed by an attorney-in-fact affords sufficient protection against unfair pressure and unwise decisions, but a suit for breach of fiduciary duty may be a hollow remedy and certainly cannot recover a home properly pledged as collateral. In any event, “[w]hether so stringent a restriction [as limiting the locations where a home equity loan can be closed and, we think, a power of attorney executed] is good policy is not an issue for the Commissions or this Court to consider.”
Whether the constitutional provision's intended protection is worth the hardship or could be more fairly or effectively provided by some other method is a matter that must be left to the framers and ratifiers of the Constitution.
Ante at 588.
With these clarifications, we overrule TBA's motion for rehearing.