Texas Business and Commerce Code 26.02 (emphasis added)

(2) "Loan agreement" means one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make a financial accommodation. The term does not include a promise, promissory note, agreement, undertaking, document, or commitment relating to:
(A) a credit card or charge card; or
(B) an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.

(b) A loan agreement (see above) in which the amount involved in the loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party's authorized representative.

So, if we have a loan with a customer for $45,000 and then they come in the next week and get a $10,000 loan, we would need to give the notice since the aggregate is greater than $50,000? Assume all loans are closed end.

we default our system to produce the notice on all closed in notes. That way it does not become an issue. but for what it is worth, I beleive the law is based on each extension of credit not on aggregate.

That is my main question. Does loan agreement mean one loan, since the definition of loan agreement states one or more promissory notes, etc.?

I agree disclosing for all is the easiest way.

Yes, you are correct. You look at the customer's overall debt with the bank. Once they exceed $50,000.00 it triggers the requirement.

It means one transaction. It is confusing because of the definition of "loan agreement," but one transaction could be made up of "one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or otherwise extend credit or make a financial accommodation." If you look at the notice that the Banking Department requires, it is clearer that they are talking about one transaction. It says, "An agreement, promise, or commitment to loan more than $50,000 MUST BE IN WRITING AND SIGNED BY THE LENDER OR IT WILL BE UNENFORCEABLE." This is at 7 Texas Administrative Code Section 3.34.

Here it is in full:

§3.34. Posting of Notice in All Financial Institutions Regarding Requirements for Certain Loan Agreements To Be in Writing.

(a) Pursuant to the Business and Commerce Code, §26.02, all financial institutions must conspicuously post notices informing borrowers of the requirements that certain loan agreements be in writing. Additionally, the finance commission is required to prescribe the language to be used in the notice. This section provides the language for the notice and clarifies the manner and location of the notice within the financial institutions so as to fully inform borrowers of the requirements.

(b) Each financial institution shall post in the public lobby of each of its offices other than off-premises electronic deposit facilities, the public notice set forth in this subsection.

NOTICE TO BORROWERS
CERTAIN LOAN AGREEMENTS
MUST BE IN WRITING
TEXAS LAW (Section 26.02, Business and Commerce Code) requires that all financial institutions conspicuously post notices summarizing requirements that loan agreements be in writing. You should know that:



An agreement, promise, or commitment to loan more than $50,000 MUST BE IN WRITING AND SIGNED BY THE LENDER OR IT WILL BE UNENFORCEABLE.


The written loan agreement will be the ONLY source of rights and obligations for agreements to lend more than $50,000.


Oral agreements relating to loans over $50,000 are NOT EFFECTIVE either to establish a commitment to lend or to vary the terms of a written loan agreement.
As part of the documentation required for loans over $50,000, BORROWERS MUST BE PROVIDED AND MUST SIGN A NOTICE conspicuously stating that:



THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.


THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
The notice set forth above, which must be signed by both the borrower and the financial institution, can be in a separate document or incorporated in one or more of the documents constituting the loan agreement. The notice must be in type that is boldfaced, capitalized, underlined or otherwise set out from surrounding written material so as to be conspicuous.

(c) The finance commission shall provide the preceding notice in dimensions and print which it determines is appropriate to fully inform borrowers of the requirements of the Business and Commerce Code, §26.02.

Source Note: The provisions of this §3.34 adopted to be effective February 14, 1990, 15 TexReg 485; amended to be effective March 9, 2006, 31 TexReg 1643

Zi, I have received conformation from our state bankers association that your stance is correct. Thanks.

Is notice posted in the lobby required to have the Seal of the State of Texas on it or can the bank put their name and log on the notice?

And...is this notice a state bank requirement, or are national banks supposed to have this lobby notice posted, too? I will have to check our board.

It's Texas state law, so the notice requirement does apply to national banks, but in reality, no one is ever going to check for it.

Except compliance officers using my old signage checklist. http://home.roadrunner.com/~zavoina/signage.htm

My problem with National Banks taking the position that no one is going to look for this in a national bank is that a savvy plaintiff's lawyer representing a borrower might try to make something out of the fact that your bank doesn't have this posted. Maybe it doesn't have anything to do with the Plaintiff's allegations, but let's say that you are claiming that you gave the Plaintiff certain consumer notices that they are saying they didn't receive. A deposition might go something like this:

Q: How do you know that you gave Ms. Kardashian the consumer notice?

A: Because it is our practice to give the notice.

Q: Did you get Ms. Kardashian to sign the notice?

A: We are required to give the notice. We aren't required to get the borrower's signature.

Q: How do you know that you gave Ms. Kardashian the notice?

A: I know I gave it to her because I have a checklist and providing the Ms. Kardashian the notice is checked off the list.

Q: So, you follow consumer protection laws to a T.

A: Yes, we take compliance with consumer protection laws very seriously.

Q: Let me ask you about some consumer protections. Are you familiar with the requirement to post a notice about Written Agreements.

A: Yes.

Q: Do you have the notice posted in your lobby?

A: No.

Q: Are you required to have it posted in your lobby?

A: Yes.

Q: Why isn't it posted in your lobby?

A: Because we're regulated by the OCC, which is a federal agency and they don't concern themselves with state consumer protection laws.

Q: So, you take state consumer protection laws seriously, but only when your regulator concerns themselves with them. Is that correct?

A: Well, uh, uh...

Q: What other state consumer protection laws does the OCC not concern themselves with and you therefore choose to ignore?

A: Uh, that's not what I meant...

Q: Does the OCC look at every loan file to make sure the notice you were supposed to give Ms. Kardashian was given?

A: No, but I gave that notice to her...

Q: Because the OCC wasn't likely to check the file and you weren't going to get caught, isn't it likely that you decided that you just didn't need to give this notice?

In other words, national banks can ignore this law at their own peril. Don't ignore any law that your bank is required to comply with regardless of whether your bank's regulator looks for it. You do not want the reputation of only complying with those laws that your regulator is interested in. You want to be a bank that is interested in complying with all laws regardless of the chances of getting caught.

LOL! That was pretty good, Zi. We are good. Just one of those notices I forgot we had with all the other things going through my brain at this time. I should have checked it out before I posted.

Thanks for taking the time to make a VERY good point, though. Partial compliance is not really compliance.

Which we always have - whether at a national bank or now a state bank!

Do you know the name of the attorney at the bankers association that concured?

Updated today to allow for a new NLRA signage requirement taking effect 11-14-11.

So how crucial is the "seal" that's shown on the model notice? If not critical, we'd like to leave it off. Makes it more difficult to create a nice looking disclosure board for our lobbies.

Read these and determine what you need:

7 Texas Administrative Code Section 3.34

Business and Commerce Code, §26.02

Will do. Thanks!

If you give the Disclaimer of Oral Agreement notice at the beginning of the loan, must you give it again at the balloon as you process your modification and extension docs? Or does the original suffice for each modification or extension term? Same original loan under same terms. Ex: 36/180 month amortization.

We include the disclaimer language in bold print just above the signature lines on our modification & extension document.

New debate here going on this morning. It is my understanding that ALL debtors in a transaction (borrower, co-signer, guarantors, etc.) and the secured party (lender) must sign this form for each new transaction > $50,000. Does this also apply at the time of a renewal/extension/modification (the balloon)? We include the language in our extension document which signed by the borrower, but do not get all guarantors to sign every time.

Input is greatly appreciated!

You just have to give it to the debtor or obligor. If you incorporate it into the loan agreement, so long as it is in type that is boldface, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous, you should be OK. If you don't put it in your loan agreement, then you need to give it to each debtor or obligor.

Texas Business and Commerce Code §26.02(e) In a loan agreement subject to Subsection (b) of this section, the financial institution shall give notice to the debtor or obligor of the provisions of Subsections (b) and (c) of this section. The notice must be in a separate document signed by the debtor or obligor or incorporated into one or more of the documents constituting the loan agreement. The notice must be in type that is boldface, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous. The notice must state substantially the following:

"This written loan agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.

"There are no unwritten oral agreements between the parties.

_________________ ______________________
"Debtor or Obligor Financial Institution"

Arkansas Bank originating a loan for a Texas Company and the collateral is in Texas. Does the Oral Agreement apply or is it only for Texas Banks?

That would probably depend on where the transaction is taking place. Did you actively seek business in Texas or did they just come to you in Arkansas? In other words, it probably depends on the nexus of the loan--Arkansas or Texas--not the location of the collateral.

That's my legal guess and I have a law license. Which shouldn't mean squat to you because I'm not your attorney and I may be wrong. You could just give it as an abundance of caution. Or you could talk to the bank's lawyer. Or you can tell your bank some guy claiming to be a lawyer on BankersOnline said we don't need it.

PS. If the collateral is the only connection to Texas (even if the borrowers live in TX), I don't see how it would apply. If there's more of a TX connction, that could change everything.