“37% of Texas consumers said they could not cover a $400 emergency with current savings.”

[This stat varies depending on who paid for the study and their agenda, the specific state, etc.]  

[Excerpts from the 2023 Texas OCCC, which regulates payday loans, car title loans, Texas CABs… Link at bottom]

In Texas, small consumer loan originations (342-F) have declined 30% since 2019.

Regulatory tightening lending standards, as lending costs rise, could also limit the availability of small-dollar loans.

Three of the most common credit products offered by licensees of the OCCC are motor vehicle retail installment sales, small installment consumer loans, and large installment consumer loans.

These products have rate ceilings and fee limitations and generally cannot pass on market increases to borrowers.

When the cost of borrowed funds (evidenced by the federal funds rate) and operating expenses (inflation) increase, lenders must make decisions as loans become less profitable.

Economic theory and consumer lending studies point to credit rationing or lower availability, especially to riskier borrowers, when market rates approach rate ceilings. (Vandenbrink, 1982) (Garon, Braga, Oglesby-Neal, & Martire, 2023)

Lending Volumes Non-real estate loans account for most consumer loans (Installment Loans, Pawn Loans, and Payday/Title Loans).

OCCC licensed lenders and financial service providers profiled in this report made 12,310,0003 loans for $10.8 billion in 2022.

This number does not reflect the number of borrowers as they may take out several loans during a year by refinancing a loan or receiving multiple loans throughout the year.

Texas Credit Access Businesses (Payday and Title Loans) Chapter 393

Overview

Credit access businesses (CABs) obtain credit for a consumer from an independent third-party lender in the form of a deferred presentment transaction or a motor vehicle title loan, more commonly referred to as “payday loans” or “title loans.”

 In Texas, the actual third-party lender is not licensed; the credit access business that serves as the broker is the licensee in this regulated industry.

Credit access businesses charge a fee to the consumer for obtaining a third-party loan.

Fees are usually calculated as a percentage of the loan amount, either paid at the loan’s inception or accrued daily while the loan is outstanding.

All payments are made directly to the CAB, and the borrower will generally not have direct contact with the lender.

The CAB provides the borrower with a check for the proceeds issued from the lender’s account.

Borrowers can obtain these loans in high-traffic areas and increasingly online.

Type of Customer

Payday loan customers need an active bank account, and lenders will advance money to the consumer based on the expectation that money is regularly deposited in that bank account.

Title loan customers must have an unencumbered motor vehicle title to offer as security.

Both types of customers could have average to poor credit scores and choose these loans for convenience or eligibility reasons.

Typical Rates

The majority of the loan cost is not capped.

Fees charged to borrowers by the CAB typically depend on the amount of the loan and the length of the term.

CAB agreement terms are limited to 180 days or less. The entire loan may be due in a matter of days, or the loan may be due over several equal payments.

Refinancing or renewing payday and title loans is very common and can add to the cost.