Overall Vote Recommendation

Vote Yes; Amend

Principle Criteria

Free Enterprise

Property Rights

Personal Responsibility

Limited Government

Individual Liberty

Digest

HB 3805 adds new enforcement mechanisms to the Texas Finance Code, specifically targeting individuals associated with money services businesses (MSBs) such as money transmitters, currency exchangers, and similar financial entities. The bill authorizes the Texas Banking Commissioner to issue removal or prohibition orders against current or former key individuals, employees, or control persons of MSBs if they are found to have engaged in certain forms of misconduct. These include intentional violations of financial laws, dishonesty, regulatory violations, and making false entries in financial records.

The bill also permits the commissioner to immediately remove or prohibit individuals who have been finally convicted of felony offenses involving dishonesty, money services businesses, or breach of trust, without needing to first conduct a hearing. Individuals subject to such orders are allowed to request a hearing within 30 days to demonstrate that their continued involvement in MSBs would not harm customers or public confidence. Additionally, the bill provides a process by which individuals may petition for release from a final prohibition order after 10 years, though the commissioner retains discretion over whether to grant such requests.

These changes are codified by adding new Sections 152.411 through 152.413 to Chapter 152 of the Texas Finance Code. The bill expands the commissioner’s authority to act not only against misconduct but also proactively to protect the integrity of financial services, particularly when bad actors pose a risk to licensees or the public.

The originally filed version of HB 3805 and the Committee Substitute are largely consistent in structure and intent, but the substitute makes key refinements to terminology and regulatory scope that clarify and tighten the enforcement mechanisms provided to the Texas Banking Commissioner over money services businesses (MSBs). Both versions create new Sections 152.411–152.413 in the Texas Finance Code, granting the commissioner authority to remove or prohibit individuals from participating in MSBs under certain misconduct or criminal circumstances.

One of the most notable differences is in the terminology used to define the reach of the prohibition. The original version allows the commissioner to prohibit a “control person or other person from further participation in the money services licensee,” while the substitute broadens this slightly to prohibit participation in “the money services licensee or any other entity chartered, registered, permitted, or licensed by the commissioner.” This addition expands the scope of the order beyond just MSBs to other regulated entities under the commissioner’s purview, ensuring that bad actors cannot simply shift to another financial service sector regulated by the same agency.

Another refinement in the substitute relates to the evidentiary basis for action. In Section 152.411(a)(1)(B), the original bill states that a person must have “engaged in conduct described by Section 152.403,” while the substitute tightens the language to require that the person “intentionally committed, participated in the commission of, or caused a money services licensee to commit” an act described by that section. This change raises the threshold for enforcement and helps protect against overly broad interpretation.

Finally, the effective date differs. The originally filed bill set the default effective date as September 1, 2025, without any conditional early effectiveness. In contrast, the Committee Substitute adds a clause stating that the Act may take effect immediately if it receives a two-thirds majority in both chambers, thus potentially accelerating implementation.

Overall, the Committee Substitute makes the bill more precise, slightly broader in regulatory reach, and more responsive to due process considerations, while preserving the core structure and objectives of the originally filed bill.

Author

Stan Lambert

Sponsor

Nathan Johnson

Co-Sponsor

Royce West

Contact the Author

Rep. Stan Lambert

Capitol Phone:

(512) 463-0718

Capitol Office:

EXT E2.818

E-Mail:

[email protected]

Visit Official Website

Fiscal Notes

According to the Legislative Budget Board (LBB), HB 3805 is not expected to have a significant fiscal impact on the State of Texas. The Department of Banking, the primary agency affected by this legislation, operates as a self-directed, semi-independent (SDSI) agency. This means it generates and manages its own funding, rather than relying on general revenue or legislative appropriations. As a result, any administrative or enforcement costs associated with the implementation of the bill will be covered by the agency itself and will not impact the General Revenue Fund.

Additionally, the fiscal note assumes that any additional responsibilities that may fall on the Office of the Attorney General (OAG), for instance, legal support related to enforcement orders, can be absorbed within the agency’s existing appropriations and staffing levels. There is no projected need for new personnel, additional facilities, or expanded administrative resources within the OAG as a result of this bill.

At the local level, the bill is also expected to have no significant fiscal impact. It does not create mandates or responsibilities for local governments or their regulatory bodies, nor does it alter funding streams or revenue mechanisms for local jurisdictions.

In summary, HB 3805 is designed to expand enforcement tools for state-level financial regulation without incurring new costs for the state or local governments, thanks to its reliance on SDSI agency funding and existing governmental infrastructure.

Vote Recommendation Notes

HB 3805 expands the Texas Banking Commissioner's enforcement authority by allowing the issuance of removal or prohibition orders against individuals affiliated with money services businesses (MSBs) who have engaged in specified forms of misconduct or financial crime. This represents a meaningful regulatory refinement that aligns with several liberty principles, particularly those supporting personal responsibility, honest enterprise, and the protection of consumers from fraudulent actors in sensitive financial sectors.

The bill provides the commissioner with the ability to prohibit individuals from further participation in MSBs, or any other entity chartered or licensed by the commissioner, based on findings of dishonesty, regulatory violations, or felony convictions related to financial conduct. This authority fills a gap in current law, which does not currently extend such enforcement tools to MSBs. The bill also incorporates procedural pathways for due process, including the right to a hearing and a petition for release from prohibition orders after 10 years. These provisions help balance enforcement with individual protections and accountability.

However, the bill raises some concerns about the scope and limits of administrative discretion. While it does not grow the size of government or impose costs on taxpayers, the Department of Banking is a self-directed, semi-independent (SDSI) agency; the bill does expand the scope of governmental authority over individuals. It allows the commissioner to impose indefinite or immediate prohibition orders, which may take effect without a formal hearing if not timely contested. While targeted at those engaged in demonstrable misconduct, the language could be clarified to reinforce thresholds of evidence and ensure that those subject to such orders are afforded robust due process protections, especially in non-criminal contexts.

Furthermore, although the bill does not increase the regulatory burden on businesses, it does introduce a narrowly applied burden on individuals, particularly those who may be accused of, but not yet convicted of, financial wrongdoing. The breadth of discretion to act on “other credible evidence” and the absence of a requirement for judicial oversight in some instances may merit reconsideration. Adding provisions to require periodic review of long-term prohibition orders, clearer definitions of applicable evidence standards, and stronger procedural safeguards would enhance the bill’s alignment with principles of limited government and individual liberty.

Despite these concerns, the core purpose and structure of HB 3805 promote sound financial regulation and consumer confidence in the financial services industry. The bill is a good-faith effort to close a regulatory loophole and hold bad actors accountable. Therefore, Texas Policy Research recommends that lawmakers vote YES on HB 3805 while also considering amendments to strengthen the bill to clarify its scope, reinforce procedural fairness, and narrow discretion to better preserve constitutional protections and ensure proportional regulatory enforcement.

Individual Liberty: The bill raises concerns regarding individual liberty due to the discretionary authority it grants the banking commissioner to issue removal or prohibition orders without always requiring prior judicial determination or a formal hearing. While it includes a process for individuals to request a hearing and petition for release after 10 years, there is no guaranteed judicial review if the order becomes effective by default. Additionally, the commissioner may act on "credible evidence" rather than formal adjudication in some cases, raising the risk of preemptive punishment without full due process.
Personal Responsibility: The bill advances personal responsibility by holding individuals accountable for willful misconduct, financial fraud, or breaches of regulatory trust in money services businesses. It creates clear consequences for those who abuse positions of trust within regulated industries. This promotes a culture of ethical responsibility and trustworthiness, particularly in financial markets where consumer harm from bad actors can be substantial.
Free Enterprise: The bill supports free enterprise by improving the integrity of licensed money services businesses and protecting consumers from exploitation. By removing or prohibiting individuals who have committed serious violations, the bill increases market confidence and deters fraud. However, it also introduces a regulatory burden on individuals, not businesses generally, which could deter entry into the industry if not properly balanced with fair review mechanisms.
Private Property Rights: The bill does not directly address physical or intellectual property rights, but it indirectly supports them by protecting consumers’ financial assets from mismanagement or fraud within MSBs. Ensuring trustworthy stewardship of money services businesses contributes to safeguarding individual property and financial security.
Limited Government: The bill modestly expands the scope of government authority, not its size, by granting the commissioner new powers over individuals affiliated with any entity regulated by the Texas Department of Banking. While these powers are intended to prevent harm and bolster oversight, the lack of clear limits or required judicial involvement in some cases could allow for executive overreach.

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