Texas CSO, CAB and 3rd Party Lender Metrics

Texas CAB and Texas CSO- How to Start a Texas or Ohio CSO – CAB lending Company

How Texas and Ohio Installment loan lenders and Payday loan Lenders Use CAB’s and CSO’s – Credit Access Businesses – to
Increase Their APR’s above the lower mandated small dollar loan caps.

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.

How to start a payday loan business


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Comments ( 10 )
  • Luis says:

    Im interested in obtaining a CAB license in Texas, but I’m not sure what banks or business is qualified as a third party lender. Can you please Help?

  • John says:

    That’s a fundamentally flawed answer especially when coming from “ payday loan guy”. 

    Each state has its own right to create laws regulating industry. Some states are closely aligned to one another in what laws they passed with regards to usury rates and regulations if any regarding the industry. While Texas was similar to Ohio (Ohio has now been regulated out) it was vastly more complicated than any other state in the country. 

    As for California it’s just like any other. There’s regulation and there isthe get around. For California, loans up to $300 and then again over $3,000 are ok but still fall under heavy regulatory burden. I think I’m recalling that correctly. Been a few years since I left the industry so Its a little fuzzy to me now. Was in it for 21 years. 15 of which as a Senior Vice President for one of the big 3 guys out there.

    • PaydayLoanGuy says:


      In what way is my analysis flawed?

      The Texas CAB consumer loan product is EXACTLY as I have described it.
      And, I did point out “that at the time of this writing, Texas and Ohio had similar loan models.
      As you correctly point out, Ohio did pass unfavorable CSO legislation AFTER my piece was written.

      Regarding the ability of each state to pass interest rates caps and regulations; of course! My piece made no argument for any other approach.

      California? I made no mention of Calif! However, since you choose to bring it up, effective Jan. 2020, CFL license holders cannot exceed a 36% APR for loan principals between $2500 and $10,000 unless real estate related. [MY TEAM ALREADY HAS A SOLUTION FOR THIS!] At this time, payday loan lenders in Calif. may still charge 15% of the face amount of the loan principal up to $300. [Actually, the fees are deducted from the loan principal so the borrower receives $255.00. [Perhaps you remember…?]

      Too bad you left the industry! It would appear you could be a valuable asset.
      Things have changed. The sovereign Nation Model via federally recognized Native American Tribes in conjunction with Online, Artificial intelligence (AI) same day funding, instant bank verification, and automation have changed the game dramatically!

      Results? Lower customer acquisition costs, lower underwriting costs, lower first-time payment defaults, lower P& L line item costs resulting in superior lender margins and a lower interest/fee rate charged to borrowers. It’s a new world, John!

      Thanks for your input! Jer the PaydayLoanGuy TrihouseConsulting@gmail.com 702-208-6736

  • money says:

    I’m in Texas. Do I need a bond? I’ve heard I do. Is it $25,000? So, do I have to put up $25K with the state of Texas? What about Ohio?

    Thanks for what you do, Jer!

  • mob home says:

    Why just Texas & Ohio? I’m in California. Our interest rates charged to borrowers are 15% of the face amount of the loan. BUT, the maximum payday loan is only $300. I’d love to be able to use this Texas and Ohio loan model!!

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