The CSO or Credit Services Organization model for offering payday loans has been picking up steam in several states, most prominantly in Texas. There, the model has been confirmed by the courts and virtually every astute operator in Texas has adopted it.
If you’re not famialiar with the CSO payday loan model it essentially consists of a “servicer” that markets the product, services the product, and accepts the risks associated with the product by issuing a “letter of credit” on behalf of the “borrower” to a “lender”. A Credit Services Organization typically charges the consumer $20 – $30 per $100 loaned for 7 to 31 days. The CSO Credit Services Organization is “registered” with the state rather than “licensed” by the state. The state does not “regulate” the CSO.
The “Lender”, by not charging an APR in excess of 10% is not required to be licensed in Texas. Generally, the “lender” participates in any NSF Non-Sufficient Funds and late fees collected by the CSO Credit Services Organization. Thus we see “lenders” achieving 15% – 17% annual returns with zero risk!
The CSO Credit Services Organization model yields much better returns than the typical payday loan-cash advance-deferred deposit statutes existing in various states (Texas, Florida, Oregon… ) and provinces without all the licensing and regulation. It’s no wonder the use of the CSO Credit Services Organization model is on the rise throughout the country.
So, it was certainly a blow to the payday loan-cash advance industry when EZCORP was forced to abandon the CSO model in Florida.
The Florida Office of Financial Regulation had previously filed an administrative action against EZCORP alleging that the Florida business model used in the eleven EZMONEY stores was in violation of the state usury law. On March 25, an administrative law judge recommended that the Office of Financial Regulation issue a cease and desist order against EZMONEY’s credit services operations in Florida. This was issued on Thursday, June 12, by the Office of Financial Regulation and a requested Stay was denied on Monday, June 16, by the First District Court of Appeal.
Joe Rotunda, President & CEO of EZCORP, stated, “We disagree with the finding of the administrative law judge and the subsequent Office of Financial Regulation order. On June 13, we filed a Notice of Appeal with the First District Court of Appeal of Florida. Most disappointing is that a Motion for Stay Pending Appeal of the decision was denied. Consequently, we will close our eleven EZMONEY credit service organization stores in Florida pending the outcome of our appeal process.”
EZCORP http://www.ezcorp.com is primarily a lender or provider of credit services to individuals who do not have cash resources or access to credit to meet their short-term cash needs. In 462 EZMONEY locations, including the eleven Florida stores to be closed, and 73 EZPAWN locations open on March 31, 2008, the Company offers short-term non- collateralized loans, often referred to as payday loans, or fee based credit services to customers seeking loans.
As in Ohio and Arkansas, the Florida payday loan – cash advance industry is under attack. It will be very interesting to watch developments. Thousands of jobs are at stake in addition to state revenues being at risk and, most importantly, consumer demand for the payday loan product showing no signs of decline.
Consumers have a tremendous desire for our product. If they cannot drive down to their local payday loan store they will get it on the Internet or via a call center. Our consumer will not be denied!
For a thorough discussion of the CSO Credit Services Organization or the payday loan industry in general, visit PaydayLoanIndustry.com