Tag: credit services organization


Texas CAB, Credit Access Business, Credit Services Organization Loan Model

Why Use the Texas CAB/CSO Model to Lend Money to the Masses?

Texas CSO-CAB Lending Model

Texas CSO-CAB Lending Model

In the old n’ times lenders funding payday loans – nowadays often referred to as installment loan lenders –  in states not having specific payday loan “safe-harbor” legislation, lenders like Curo, Enova, Elevate, would partner with a state-chartered FDIC insured bank (Bank of Delaware is one example) in order to charge payday loan borrowers more than the maximum state usury rates allowed.

This was the case in Texas, Arkansas, Pennsylvania, New Jersey…  The payday loan company acted as a “marketer, a servicer and a processor for the bank. This loan model is referred to as the “bank-model.”  The “bank-model” was extremely popular for years and resulted in substantial profits for the companies utilizing it.

As an example, a dated study by the Texas Consumer Credit Commissioner estimated 1.81 million loans were made in Texas using the “bank-model.”  $626 million dollars were loaned.  The average loan was $338 with an average APR of 511%.

The Federal Deposit Insurance Corporation’s Revised Guidelines for Payday Lending, which took effect way back in July of 2005, adversely impacted those payday loan lenders using this “bank model” to export usury rates across state lines.  This edict forbids banks from providing payday loans to people who have had an outstanding payday loan from any lender for more than 3 months in the previous year.  The Revised Guidance limits the frequency of customer usage of payday loans and limits the period a consumer may have a payday loan outstanding from any lender to an aggregate of three months during the previous 12 month period.  Based on an average term of 15 days, this effectively limits the number of payday loans that may be made to any consumer to six during any 12 month period.  All payday loans made from any payday lender would count against this limit.

So in the state of Texas, and Ohio and a few others, the cunning payday loan operators conceived of employing the “Texas Credit Services Organization (CSO) / Texas Credit Access Business (CAB)” loan model.

Texas CAB-CSO-Credit Access Business

The Texas CAB/CSO Model Explained

By implementing this CSO Model, we payday loan/installment loan lenders can service the continuing, unabated consumer demand for our loan products while remaining profitable enough to earn a fair return on our investments, pay our employees a fair wage, pay our taxes and support our communities.

The bottom-line is demand for the payday loan/installment loan product has been clearly established.  The CAB/CSO model is on a firm foundation with specific case law to support it; it has already survived a federal court case.  Additionally, the CAB/CSO model can yield higher transaction fees and margins than the bank model or, as in the state of Texas, the “Regulated Lender” licensing model.

The multi-million dollar payday loan companies have spent millions of dollars in legal fees to research and refine the CSO/CAB model; follow their example.

Texas: Do you know just enough to be dangerous? Do you need an in-depth understanding of how the Texas CAB/CSO consumer loan model works? Are you wondering how the 3rd Party Lender fits into all this? Why it appears you must pay to lend your own money? How do you get licensed to offer loans in Texas? Do you need a 3rd Party Lender?

We’ve got you covered! Our newest Training Manual is our 88 page:

Texas CSO-CAB Lending Model

Texas CSO-CAB Lending Model

“Texas CSO/CAB Model & Analysis: the Credit Services Organization Ver. 10.0.”

Table of Contents

What is a CAB/CSO

How a CAB/CSO Works

Nuts & Bolts of 3rd Party Lender

Key CAB/CSO Characteristics

Why Use the CAB/CSO Model

Pros & Cons Regarding the CSO Model

Strategies for implementing the CAB/CSO Model

CSO/CAB Software Solutions

Advance America & the CSO Model

Payday Lenders Strike Back

Key Legal Authority

Typical CSO Documentation


A Typical Consumer Loan Agreement


Key Characteristics

Key references

Basic Program Documents and Materials

10% loans under Texas Finance Code Chapter 302

Texas Credit Services Organization Act (Tex. Fin. Code Chapter 393) 

79th Texas Legislature, Regular Session

Texas Finance Commission Review

Texas Attorney General Review

Other Background Information

Developments in Other States



Lovick versus RiteMoney LTD

You can get a PDF copy now! Immediate download available.


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”

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


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:

BILL ANALYSIS Senate Research Center
S.B. 253
82R1518 ATP-F
By: Davis
Business & Commerce
2/18/2011-As Filed

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.

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

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.


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.”


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.


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?