Tag: credit services organization

19
Oct

Texas CSO Credit Services Organization Transition to CAB Credit Access Business, January 1, 2012

If you have an interest in the Texas payday loan CSO Credit Services Organization transition to the new CAB Credit Access Business Model read on! Delete this now if not!!

Texas (CSO) Credit Service Organizations are facing a new phase of payday loan regulation as they are forced to transition to the Credit Access Business (CAB) model.

Texas has mandated several new requirements to obtain this new CAB license. As a result, many existing CSO’s are scrambling to make the January 1, 2012 deadline for implementation.

A new company called C.A.B Consulting & Brokerage, formed by a group of highly experienced payday loan executives (full disclosure: In addition to Michael Brown, Jer  with Trihouse is one of the founding members :o), is now available to help you with this transition!

C.A.B Consulting and Brokerage is the most informed consultancy in the payday loan – micro-lending space regarding the new Texas CAB laws. C.A.B.’s strategy is to focus exclusively on assisting existing CSO’s and new CAB’s through this transition.

http://www.CreditAccessBusiness.com offers free information, packets, manuals, consultant arrangements and a Credit Access Business Blog. Contact C.A.B today to discuss options and transition services to move your business into this new era of lending in Texas. Sign up for the Newsletter via Email or an RSS feed for daily posts.

If you’re lending in Texas now, or you plan to enter the Texas micro-lending space, you need this new C.A.B. resource!

Michael Brown
Jer Ayles-Ayler
C.A.B. Consulting and Brokerage
“Compliance, Capital, and Collections”
http://www.CreditAccessBusiness.com

Email Michael: Michael@CreditAccessBusiness.com
Call Michael: 214-293-8676
Fax Michael: 888-561-0986

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22
Feb

Texas CSO Credit Services Organization – Payday Loans

On Tuesday, February 22, the Texas Senate will hear testimony on Senate Bill 253 to discuss the CSO Credit Services Organization payday loan model.

In Texas, it’s estimated there are more than 3,700 payday loan lenders. Two new pieces of legislation — Texas SB 253 and Texas HB 410 — have been introduced as a way to limit this short-term lending. Both of these bills seek to redefine “Credit Service Organization” to exclude payday loan stores.

The two bills that have been introduced in the Texas legislature re-define “Credit Service Organization” to specifically exclude payday loan stores. This would limit the fees that these payday loan and car title loan stores can charge based on an annual percentage rate.

If this issue is critical to your success, you, your customers, and your employees MUST contact your representative and educate them! TODAY!!

The payday loan Industry estimates that roughly between 3,200 and 6,500 of the 7,800 employees at payday loan stores in Texas could lose their jobs. Not only that, but redefining the Texas Credit Services Organization would reduce consumer access to small, non-collateralized loans and shutter hundreds of stores in retail strip malls.

Texas payday loan lenders have voiced their reservations about Texas SB 253 and HB 410. They have said they do welcome further regulation and oversight. Payday Loan and other short-term credit products are not typically offered to consumers by banks, credit card companies and credit unions.

Texas lawmakers have expressed concern over the interest rates charged by payday loan and car title lenders.

The sponsor of SB 253 has posted the following Bill Analysis:

http://www.legis.state.tx.us/tlodocs/82R/analysis/html/SB00253I.htm
BILL ANALYSIS Senate Research Center
S.B. 253
82R1518 ATP-F
By: Davis
Business & Commerce
2/18/2011-As Filed

AUTHOR’S / SPONSOR’S STATEMENT OF INTENT
Current law defines a credit services organization (CSO) and permits such organizations to receive payment for the service of obtaining an extension of consumer credit for a consumer.  Texas law governing CSOs was originally adopted in 1987.  The intent, according to the House Research Organization bill analysis, was “consumer protection legislation that would address the problem of certain credit-repair services taking advantage of consumers.”

Though intended as a consumer protection measure to address problems with credit-repair services, the laws governing CSOs are currently being used by payday, auto title, and other consumer loan businesses to obtain extensions of consumer credit for consumers.  According to the secretary of state, there were 3374 registered CSO locations in Texas as of October of 2010.  By operating under the CSO laws, these businesses can avoid the rate and fee caps that govern consumer loans under Chapter 342 (Consumer Loans), Finance Code, under which all other lenders function.  Using the CSO model, these businesses obtain loans for customers through third-party lenders.  The lenders often provide the loan at 10 percent interest, the statutory limit on loans made by unlicensed lenders.  The CSOs then charge the customer a fee to arrange and to guarantee the loan.  Typically, the fee ranges from $20 to $30 for each $100 borrowed and customers must pay these fees every loan period, usually every two weeks to one month, until the loan is paid off in full.  These loan charges amount to an annual percentage rate that often exceeds 500 percent, and the recurring high fees can cause a mounting cycle of debt.

The activities and fees of CSOs are not regulated by the state through licensing or agency oversight, which prevents the ability of the state to collect consumer data or properly investigate and respond to complaints.  Federal legislation is already in place to restrict short-term payday and car title loans for active military personnel; however, as payday and auto title loan businesses are operating as credit services organizations, the Texas state agency that oversees consumer lending does not have the authority to ensure compliance with the federal law.

This business model was challenged in federal court, alleging usurious interest rates.  In 2004, the United State Fifth Circuit Court of Appeals ruled in Lovick v. Ritemoney Ltd. 378 F.3d 433 (5th Cir. Tex. 2004), that the fees charged by CSOs in connection with obtaining an extension of consumer credit for a consumer do not constitute usury, because neither the Credit Services Organization Act (CSOA) nor other provisions in the Texas Finance Code expressly attribute the fees charged by CSOs to the loan interest rate for usury purposes.

S.B. 253 seeks to reverse the effect of the Fifth Circuit ruling in Lovick v. Ritemoney Ltd. and to clarify that lenders providing extensions of consumer credit cannot evade Texas usury laws by simply using loan brokers or brokers registered under CSOA.  It amends Chapter 302 (Interest Rates), Finance Code, to expressly prohibit third-party fees for arranging or guaranteeing consumer credit and deems those fees as interest for usury purposes.  It also prohibits a CSO from obtaining an extension of consumer credit for a consumer.  These measures respect the intent of usury limits in state law, promote financial stability for families, and ensure a fair playing field for consumer lenders in Texas.

As proposed, S.B. 253 amends current law relating to the regulation of activities with respect to certain extensions of consumer credit.

RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subchapter A, Chapter 302, Finance Code, by adding Section 302.003, as follows:

Sec.  302.003.  PROHIBITION ON THIRD-PARTY FEES TO ARRANGE OR GUARANTEE CERTAIN EXTENSIONS OF CONSUMER CREDIT.  (a)  Prohibits a fee paid or to be paid to a third party to assist a consumer in the transacting, arranging, guaranteeing, or negotiating of an extension of credit from being contracted for, charged, or received by a creditor or third party in connection with the extension of credit if the extension of credit is secured by a non-purchase money security interest in personal property or is unsecured, and the proceeds of the extension of credit are used for personal, family, or household purposes.

(b) Provides that the amount of a fee contracted for, charged, or received in violation of Subsection (a) is considered interest for usury purposes under state law.

SECTION 2.  Amends Section 393.001(3), Finance Code, by redefining “credit services organization.”

SECTION 3. Amends Subchapter D, Chapter 393, Finance Code, by adding Section 393.308, as follows:

Sec.  393.308.  OBTAINING EXTENSIONS OF CONSUMER CREDIT PROHIBITED.  Prohibits a credit services organization from obtaining an extension of consumer credit for a consumer or assisting a consumer in obtaining an extension of consumer credit.

SECTION 4.  Effective date: September 1, 2011.

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10
Apr

Payday Loans and the Hypocrisy of Their Competitors

Texas Credit Union League Headline:

“Texas Regulator Bid To Cap Payday Loan Fees Comes At Bad Time.”

I attended my first national payday loan convention in 1997. As long as I can remember, the payday loan product has been attacked by banks and credit unions. After all, they want our customers! In the past they’ve simply failed to figure out how to properly serve our customer with the right products and still make money.

In Texas, as in many locales, credit unions are aggressively developing products to compete with payday loans; the majority of which are offered under the CSO Model ( Credit Services Organization ). In a nutshell, under the CSO Model, a payday loan company simply fills out a one page form required to register as a CSO along with a bond and they’re in business. (There are a few other details…like forming two entities “at an arms-length-relationship” to (1)act as a “CSO and (2) a “Lender.”)

Anyway… a few Texas Credit Unions have launched a new payday loan product just as the Texas State Credit Union Department has proposed new limits on fees for payday loans.The Texas State Credit Union proposal would limit fees at $20 for unsecured loans less than $1000 for a maximum of 6 months. Additionally the new credit union proposal would limit CU’s to a maximum of 20% of their portfolio.

Now, you readers in Texas don’t need to freak-out! This proposal only relates to Texas credit Unions, not the CSO Model. It’s still an interesting read if I do say so myself!

So… I was incredulous when I read this statement by Jeff Huffman, chief lobbyist for the Texas CU League, “We think that credit unions’ boards and management are really in the best position to determine the fees based on their individual situations.” He continued by saying, “Market conditions vary across the state. We don’t think the regulator should get involved [in setting the fees].”

“They ought to get off the backs of credit unions,” he said. “It’s just a rule that’s unnecessary.”

WHAT THE HECK HAVE WE BEEN SAYING!

Whoa! Credit unions and banks spend tons of cash lobbying against payday loan companies while extolling the virtues of protecting our customer from “a cycle of debt” and “poor disclosure.” They would like nothing better than to eliminate payday loan companies. They do their best to regulate us out of business by lobbying for legislation on both a state and federal level.

Those of us in the payday loan industry respond by simply pointing out that our product is in huge demand. Our customers continue to support us by choosing our payday loan products. They choose us because we fully disclose exactly what our product will cost them and when our product is appropriate. If you, the reader doubt this, go into a typical payday loan store and look! In spite of what the media reports, we do fully disclose EVERYTHING; unlike bank, credit union and credit card NSF fees, overdraft fees, late fees… Who can understand all their fees?

Sorry about the rant… I go crazy when our competitors attempt to portray us as loan sharks and themselves as protectors of the people! As they say, “Follow the money.”

So… “Texas Regulator Bid To Cap Payday Loan Fees Comes At Bad Time”? All I can say is, “Poor babies!”

Check back with PaydayLoanIndustryBlog.com for updates on this proposal. Page 14.

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04
Apr

Arizona Payday Loan Law Update

Arizona payday loan operators still have a shot at continuing to offer their product; albeit a long one.

Many payday lenders have other lines of business, including car title loans, check-cashing services, scrap gold buying and acting as agents for the Motor Vehicle Division to register vehicles. Rapid tax refunds (RALS) are in the mix as well.

So, while operators try to develop a strategy for remaining in the payday loan business, Arizona legislators are prepared to debate legislation next week that could change existing payday loan laws to allow lenders to impose an “origination fee” of up to 7.5 percent for loans up to $1,000.

Additionally, Arizona payday loan operators could charge a $10 fee for preparing documents and obtaining a credit report on the Arizona payday loan applicant.

We’re a creative bunch! Those payday loan operators who remain flexible and informed will survive and prosper. Installment loan products, CSO ( Credit Services Organizations) Models, Internet offerings and more will appear to help Arizona residents gain access to credit. Regulating payday loan operators out of existence does NOT cause demand for our product to disappear. Every independent study conducted emphasizes the need for the existence of small, no hassle, non-collateralized loans. Payday loan consumers are actually a pretty bright bunch – in spite of what our government bureaucrats think.

And, it’s important to note that it was NOT payday loan consumers, those middle-class folks who ACTUALLY used our product, who complained about the payday loan industry. As usual, it was the elitists who THINK they know what’s best for everyone else who restrict our financial choices.

Wait until they attack your business! You sell some type of product or service? Maybe you run or are employed by a business that, so far, has escaped the busy bodies who lurk in the entrepreneurial trenches? Wait until THEY decide you should not be allowed to sell french fries, cokes, sell two cheeseburgers to your customer rather than one. Maybe you’re involved with the automobile industry, you’re a hair stylist, … Then, when your business is attacked you’ll finally join our bandwagon and fight to keep government out of our pockets and our businesses.

Oh! Come to think of it, THEY already have their hands on your entrepreneurial throat! What are you going to do about it?

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22
Feb

CSO-Credit Services Organization for Payday Loans & Car Title Loans

The Credit Services Organization, often referred to as a CSO, is becoming popular in states like Texas for offering payday loans and car title loans. The reason? The state of Texas simply requires a “registration” of a business as a CSO rather than applying for a payday loan or car title loan license.

Additionally, the rates one can charge are not prescribed by Texas statute, unlike a payday loan or car title loan. CSO’s are not subject to the state’s small loan laws or regulation by the Office of Consumer Credit Commissioner! Typical rates for these “loans” are currently in the $20 to $30 per $100 loaned.

What is a CSO or Credit Services Organization? It’s simply a broker that, after reviewing a consumer’s ability to pay, issues a letter of credit on behalf of the consumer to a third party “lender.” The CSO or Credit Services Organization services the “loan”, markets the “loan”, and helps the consumer improve their credit by reporting their payment history to a sub-prime credit reporting agency.

For a thorough description of the step-by-step procedures for setting up a Credit Services Organization – CSO Model including sample contracts, click here to review our 50 page CSO Report.

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