Credit unions in the Lone Star State are campaigning on behalf of two constitutional amendments that will be on the ballot on Nov. 7 — one that affects regulations of home equity loans in Texas, and one that would allow prize-linked savings accounts.
The upcoming election is the last step of a lengthy trek to give the public the opportunity for an up or down vote on these potential changes to the state’s constitution. Representatives from the Texas Credit Union Association and the Cornerstone Credit Union League (which represents Texas, Oklahoma and Arkansas) have produced materials to help credit unions make their members aware of the measures and get out the vote.
Historically, approximately 1 million Texans — a mere 10 percent of registered voters — turn out for constitutional amendment elections in the year after presidential elections. In a concerted effort to reach potential voters, the Texas CUA has created graphics credit unions can use on their websites and Facebook pages. In addition, pin-backed campaign buttons and stickers supporting propositions 2 and 7 are available. League officials are encouraging credit union staff to wear the campaign buttons or stickers when interacting with members or in lobby operations.
Proposition 2 updates the Home Equity Lending Law, which is in the Texas state constitution and can only be changed with voter approval. Prop 2 would make four significant changes to home equity lending:
- Homeowners would be able to refinance a home equity loan into a conventional loan.
- Borrowers would have more flexibility with advances on home equity lines of credit.
- Homeowners would have more access to these loans due to changes in fee classifications. Excluding fees paid to third parties, such as appraisals, from the 3 percent cap and dropping the cap to 2 percent are designed to make getting the loans easier, especially small loans.
- Farm and ranch homesteads would be eligible for home equity loans.
Proposition 7 would allow credit unions and financial institutions to offer prizes to encourage people to open savings accounts or save more in their accounts.
Jeff Huffman, president of the Texas CU Association, told Credit Union Journal 2017 marks the first time in Texas history that two amendments to the state constitution impacting credit unions are on the ballot.
“We have had feedback from our members that they were having some difficulties with the 3 percent cap on fees on home equity lending,” Huffman explained. “In Texas we have an unusual construct on home equity lending that requires a constitutional amendment. It is a much more challenging undertaking in Texas than in any other state as it requires a two-thirds vote in both houses and then adoption by voters.”
The last change to laws governing home equity lending took place 20 years ago, and “there have been many changes since then,” Huffman quipped.
Fee cap did not adjust for inflation
Perhaps most significant was the effect of the fee cap. Huffman pointed out if someone had a $20,000 home equity loan there was a limit of just $600 on fees. “The average charge for an appraisal is $400, so with that plus title fees and other mandatory fees, it was very difficult to meet the cap.”
As a result, making a home equity loan became a “high-risk undertaking,” Huffman said, because under Texas state law a lender that violated the fee cap can lose not only the interest earned from the loan but also the principle. He said the Texas CUA approached the legislature with its concerns, and lawmakers “recognized there is a problem and concurred home equity laws needed to be updated.”
“Everyone agreed to make good changes to the law, in part by addressing the 3 percent cap on fees by removing appraisals and other mandatory provisions in a loan from being counted against a cap, which now would be 2 percent.”
As for prize-linked savings, Huffman said in 2015 a bill was put forth that authorized CUs and banks to offer prize-linked savings. It passed, but then was vetoed by the governor due to possible violation of state laws concerning raffles. A new bill was passed, along with a constitutional amendment, and now voters need to approve the proposition.
Prize-linked savings is currently allowed by law in 22 states, and another six, including Texas, have bills drafted that would allow it.
The Texas CUA is employing a “variety” of campaign methods on behalf of the two propositions, Huffman said, including direct mail pieces, an e-mail campaign, websites and a Facebook campaign. “We are working with newspapers and other media outlets to get support. What we are finding is once voters understand what Prop. 2 and Prop. 7 are really about, they are supportive.”
“It will all be about voter turnout and if we are able to educate voters on the benefits,” he continued. “The turnout tends to be about 10 percent on these constitutional amendment votes. We are hopeful and we are working hard to make sure folks get educated about the benefits of these two proposals.”
Texas credit unions interested in obtaining web banners, campaign buttons and campaign stickers for their staff to support Prop 2 and Prop 7 are asked to contact Charlotte Spencer at firstname.lastname@example.org.