The Texas Constitution mandates a 10 % cap on the amount of interest that can be charged on personal loans.
But, via a perfectly legal entity called a CAB – CSO, Texas and Ohio lenders can charge much higher interest rates; 400% to 800% and higher APR’s are not unusual.
And Texas accounts for roughly 54% of the U.S. annual profits delivered to the payday and auto title industries; California is a close second.
How is this possible? CAB’s and CSO’s. Lawful entities backed up by years of legislation and regulation by both Texas and Ohio
Texas and Ohio lenders incorporate their brick-n-mortars and their Internet loan platforms as separate entities that collect 10% interest on behalf of a 3rd party lender and then are allowed to charge additional fees fees and interest for the services that they provide by referring consumers to the lender and servicing the loan.
Typically, these CAB’s and CSO’s charge the borrower for marketing, underwriting and servicing the loan on behalf this “lender.”
In Texas and Ohio, payday and auto title lenders register as a Credit Services Organization (CSO) Credit Access Businesses (CAB).
Texas and Ohio do not limit fees, interest rates, loan amount size, or refinances and do not require the CAB to assess ability to repay based upon the consumer’s income; at least not at the time of this writing. The CFPB has much to say about this situation.
Accordingly, for single payment products, CAB’s/CSO’s typically charge an “origination fee” ranging from $22 to $30 per $100 borrowed and, if the borrower is unable to repay the loan by the due date, a “refinance fee” that is usually identical to the amount charged as an origination fee.
Again, because of the CSO/CAB 3rd party lender model, CAB’s/CSO’s also charge consumers an additional 10 % annual interest rate while the loan is in repayment on the lender’s behalf. Most CAB’s share late fees and application fees with the 3rd party lender as well. Thus, it’s not uncommon for a “lender” in this 3rd party arrangement to achieve a 12% – 18% ROI on their money.
Per The Texas OCCC, Texas CSO’s/CAB’s grossed approx. $930 for a $325 consumer loan. Borrowers averaged several thousand dollars in fees for a $1000 car title loan.
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