Texas CAB/CSO
Why Use the Texas CAB/CSO Model to Lend Money to the Masses?
In the old n’ days, 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, and 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.
For example, a study by the Texas Consumer Credit Commissioner estimated that 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, the cunning payday loan operators conceived of employing the “Texas Credit Services Organization (CSO) / Texas Credit Access Business (CAB)” loan model.
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, and pay our employees a fair wage, pay our taxes and support our communities.
The bottom line is the 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 does it appear 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 CAB/CSO Analysis. $50.00 delivered to your Inbox.
“Texas CSO/CAB Model & Analysis: The Credit Services Organization.”
- 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
- Resources
- A Typical Consumer Loan Agreement
- Introduction
- 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 the Other States
- CREDIT SERVICES ORGANIZATION: TYPICAL AGREEMENT
- TEXAS FINANCE CODE
- Lovick versus RiteMoney LTD
Temporary Inflation Fighter Discount
Texas Credit Access Businesses
Texas Credit access businesses obtain credit for a consumer from an independent third-party lender through 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. Rather, the credit access business that serves as the broker is the licensee in this regulated industry. The credit access business charges a fee to the consumer for obtaining the third-party loan; this fee is usually calculated as a percentage of the loan amount.
The borrower will sign a promissory note with the lender for the actual loan and a separate credit service agreement with the credit access business. Generally, all documents are signed at the credit access business location, and payments are made directly to the credit access business.
The Texas Credit Access Business (CAB) CSO Loan Model is a type of loan that is offered in the state of Texas by CABs, which are companies that provide loans to consumers who may have difficulty obtaining traditional loans from banks or other lending institutions. Under this model, the CAB acts as a Credit Services Organization (CSO), which means that it provides services to help consumers obtain loans from third-party lenders.
In the CAB CSO loan model, the CAB typically charges the borrower a fee, which can be a percentage of the loan amount or a flat fee, for its services. The CAB then uses this fee to pay the third-party lender, who provides the loan to the borrower. The CAB may also charge additional fees for other services such as credit counseling or loan processing.
The CAB does not actually lend money to the borrower, but instead acts as a facilitator between the borrower and the third-party lender. The third-party lender is responsible for underwriting and servicing the loan, and is also responsible for collecting payments from the borrower.
It’s important to note that the CAB CSO loan model is heavily regulated by the state of Texas, and CABs are required to be licensed and registered with the state. Additionally, CABs are subject to strict rules and regulations regarding loan terms, fees, and interest rates, and must disclose all fees and charges to borrowers in writing before the loan is made.
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