The recent Texas Supreme Court decision in Finance Commission of Texas v. Norwood, 2013 WL 3119481 (Tex. June 21, 2013) redefines interest for the purpose of fees and limits the locations where powers of attorney may be executed in connection with home equity loans authorized by Article XVI, Section 50(a)(6) of the Texas Constitution. We previously sent our clients an email alert regarding the Norwood opinion, advising of its effect on discount points for the purposes of the three percent fee cap in section 50(a)(6)(E) and the new limitation where home equity powers of attorney must be executed. The email alert may be found on our website under Articles. This follow-up memorandum provides additional information that has come to our attention since the issuance of the Norwood decision. 1. Three Percent Fee Cap and Per Diem Interest: Based on Norwood’s definition of interest (“the amount determined by multiplying the loan principal by the interest rate”), bona fide discount points are now fees subject to the three percent fee cap in section 50(a)(6)(E). How per diem interest is to be treated under this definition for purposes of the three percent fee cap is an open question. This is because Norwood’s definition of interest contains the following footnote: FN 104. 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. Download complete memorandum below

Complete Memorandum