22
Feb

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:

http://www.legis.state.tx.us/tlodocs/82R/analysis/html/SB00253I.htm
BILL ANALYSIS Senate Research Center
S.B. 253
82R1518 ATP-F
By: Davis
Business & Commerce
2/18/2011-As Filed

AUTHOR’S / SPONSOR’S STATEMENT OF INTENT
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.

RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS

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.

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Comments ( 8 )
  • rachael says:

    You people complaining about the loss of a job due to these horrible pay day loan and car tittle companies are no better than drug dealers. These companies take advantage of a situation and get people hooked, then by the time the mistake is realised there is nothing left to do but go back time and time again. Like I said, no better than drug dealers. All these companies either need to be forced to shut down or lower their rates to something reasonable, such as maybe 20%. At this point anything below 100% would be wonderful. True it is the person who applies for these loans that the brunt of the responsibilty falls upon, but if there weren’t meth labs then there wouldn’t be meth addicts either. The phrase “sell your soul to the devil” comes to mind when I think of these places, and I’m not talking about the meth labs anymore. At least there’s a rehab for drugs, where’s the help to get away from the loan dealers? Take it from me, it may seem as though one of these places are your only option, but please find another way. Even if you have to humble yourself and ask for help from a friend or family member, that is a much better option. Just say no to these loan companies.

  • jenna says:

    I am just getting out of my payday loan nightmare. 4 yrs of my life has past working every day of the week to get to the point of paying these off…Total with fees and the dead end cycle of loans, i paid a total of close to $20,000…I am soo ashamed to admit that to anyone i know. At one point i thought of suicide because i believed there was no way out..I went into a severe depression…My whole paycheck went to these loans, ignoring all my other things like credit cards cause i had no money left to pay them, so my credit i was hoping to correct went downhill even worse, my life was spent working for these loans,But with hard hard work, and a now critical lab work result i just got back from my doctor today with a severe vitamin D deficiency,( thats means from lack of sunlight ) i paid each and every one of them off…Would i do this again, NOOOO!!!! Nor would i ever recommend them to anyone..I was fortunate to have a good job where i work 3 twelve hour nite shifts a week and was able to work the other 4 nites at another job, but still even with working everyday, it took me 4 yrs to get out of this mess…Never will i be soo desperate to do this again…I fell to illness and had no more work pto left when i took out my first payday loan, and just like everyone else, you end up taking out another loan to cover the other, and so on and so on, it never ends…The only choices you have are kill yourself, borrow from family or friends, which was not an option for me, borrow from a bank, which we all know the ones who take out these loans cannot get a conventional loan from the bank, or default on the loans and make payment arrangement and have them hound your work place hoping you lose your job as revenge, or work 7 days a week for however long it takes to pay them off…These loans were my responsibility and i planned on paying them off….How ironic, the ppl defending these loans are talking about the 1000’s of employees that will be out of work if the govt closes them down or restricts loan policies, yet i wonder how many have lost their jobs by these loan sharks who called their jobs and got them fired…So frankly speaking, get another job, where would these ppl be working if there were no payday loan places, they obviously would be working elsewhere wouldn’t they…Where would i be working if i didn’t have my job, obviously, SOMEPLACE else. Its hard to feel sympathy when i have read the horror stories on how ppl are hounded at there job, one lady was diagnosed with Cancer and tried to make payment arrangements but the loan store would not allow it and she was threatened by lawsuit, wage garnishments, and they even came to her job, god help all your souls if thats the collection tactics you use on a Cancer woman, did you care about her job, her life???? Her story was motivation for me to buckle down and pay these off as soon as i could…Unfortunately, life happens, i’m sure this woman did not expect cancer did she?? She came to tell her story in hopes someone could tell her where to turn to for help, she wanted to pay the loan back, only could not for the amount the payday loan place wanted….Pure profit is what you people make….I hope Texas finally steps up like other states who banned these loans…They prey on desperate ppl, and i admit i was one of them, lesson learned of course.

  • troy flora says:

    How to get out of the Payday loan / Cash advance loan rut[58]

    Excert from the book ‘Getting Control the Complete Guide to getting yourself out of Horrible debt by Troy Flora – chapter 2
    reference http://www.amazon.com/Getting-Control-Complete-yourself-Horrible/dp/1453603891/ref=sr_1_1?s=books&ie=UTF8&qid=1285166034&sr=1-1

    NEVER ENDING PAYDAY LOAN TRAP CYCLE

    (diagram not displayed)

    I understand that recently the state and federal governments have been putting policies together that is becoming a fight for the cash advance companies to continue with business as usual with 300% interest and fees and the government looking for a fair middle ground to help protect the people. The following steps are in place from where I had done the process to get out. I show my old steps and will input information that is relevant to new policies. Keep in mind to check your local, state and government policy before you do the process as I did.

    Most cash advance companies have a policy that if you cannot pay off your total balance all at once, they will not take a partial payment or any payment at all. I know it sounds funny. When I had 10 cash advances most of the companies I dealt with had a policy that they had to deposit your check. It had to be returned to them by your bank and after they received back the bad check, then they would then make a payment arrangement with you. I did work with a few of them that would just make payment arrangements with out depositing the known bad checks. If they will work with you with out cashing the bad check then great. If they don’t work with you before cashing the bad check follow the steps below.

    Steps to take to get out of the cycle (if the loan company will not work with you on a payment plan)
    Try to work out a deal with the cash advance to make out a payoff arrangement program, this is a new program that I know of that had been implemented since I created the following steps.

    The cash advances cut up the entire total you owe by 4 equal payments. So if you get paid weekly it is four weekly payment installments to pay it off for good. If you get paid monthly then it will be 4 equal monthly payments. Most will not loan you another loan if you do this program, but that is cool too. Why would you want to after following the information in this book? If you got paid every two weeks, then it will be 4 equal payment installments paid every two weeks. So if you owed $300.00 it would be 4 payments of $75.00 until it is paid off.

    The following is the way I set the plan up using the old way. If any part of it applies to your situation then use it. Some modification maybe made to your individual situation.

    1. Open up a new bank Account.

    This can either be with your current bank or another bank you trust. I recommend that you find one that is free checking. I used a bank called SunTrust. They had at the time, a plan for every new account you opened, you would get a $50.00 visa gift card and I used the money /gift card to my advantage. The last time I checked they still have that program. Many banks have similar programs. I know bank of America also has a cash deposit bonus for new accounts from time to time.

    2. Wait until your Direct Deposit is going into the new bank account. It is even better if you have a new set of checks and bank statement from your new bank account.

    You continue business as usual with your loan cycle. If you can lessen it at all then do so. Setting this up simply eliminates any future problems with your current or old bank account from causing problems with your direct deposit messing up your paychecks. The last thing you want is bounced checks messing up your income on top of the cash advance problem itself. This process lessens the fees from your bank. That is all.

    3. Once you have your new bank account all in order and you know your paycheck won’t be affected by any complications from any transactions. NOW IT IS TIME TO GET OUT OF THE HORRIBLE DEBT.

    4. You first go to your bank with the old bank account and tell them the truth (mostly) you tell them as little as possible. I simply stated to my bank that I had ran into some personal financial troubles and was going to have many bad checks come in and wanted to lessen the damage. If I put a stop check on all of the checks. The bank charges like 35 dollars per check. I had about 8-9 bad checks coming at once. I stated that I wanted to close the old bank account. (Keep in mind your banks policy on time frame from pending transactions SunTrust is 3 days. So don’t wait until your due day to do this, give your self at least a week for transactions, just to be safe).

    5. Now that you have a new bank account open, old bank account closed and some time until your next cycle of rut is due, you Honestly tell all your cash advances the same brief explanation to them that you told the bank. You have run into some personal financial troubles and can’t pay them at this time. Some may extend your deal for another 2 weeks or other deals. Just stay by your guns and state that even at that time you can’t come up with the whole amount but you will work out a payment plan.

    Note: Many Cash Advance loan places have a policy that they had to have the check sent to your bank and returned before they will work a payment plan with you. That is o.k. If you tell them up front that there are no funds in the bank to cover it. Then it doesn’t look like you did it on purpose. You need to make it look as if you did not do it on purpose. That is illegal, and you don’t need to add some type of check fraud to your problems. The cash advances deal with hundreds of people a day who don’t pay them on time, or at all. They are a business but dealing with people and money problems they are also not stupid, they know that problems come up. If you work a deal to pay them, and are talking with them and not hiding from them then they will work with you. If you are not answering their phone calls, then what are they to think? Then you just ripped them off. But if you talk with them and give them some money to pay off your debt, which they may even have sent to a third party collection agency, then you will be in a great position. Key is to use the golden rule. Treat the debt like you would want to be treated if you were in their shoes.

    Some of the tellers at your favorite cash advance go into detail about details on why you can’t live up to your earlier responsibility. If they kept on with persistence I would make up some believable story like my wife got laid off and that loss of income is why I can’t come back to pay it in full at this time. Or my wife left my kids and me. Or my wife went to jail. Or a death in the family and she has to go to take care of it and it is out of state.

    6. Finally Payday is here and your paycheck is on its way to being yours again.

    In my case most of my cash advances were maxed out. That means I borrowed $500 and had to pay back $575. Every two weeks, that means I was paying $75 to 1 of them every two weeks. I had 10. I was paying $150 a month to 1 of 10. I keep stating this for a reason. This is the best part of the plan.

    With that same cash advance, I told them I could not pay all of it at this time. But I wanted to make good on my debt with them and showed them that I was not just talk. I paid them $50.00, every two weeks. I did the same deal with most of them. They will tell you many times that the $100.00 is not enough. But if you give it to them they will take it. Because as long as you show that you did not deliberately write the bad check and you are making payment arrangements with them they cannot take you to court for this. Many of them understand your temporary hardship and will work with you to get your future business. After 90 days of course. But what do you care? You are never going to get into this rut again.

    So in my case most of the payday loan places didn’t even charge me that return fee that they put into the contract. And none of them charged me interest. My loan was $575.00. I paid $575.00 and with the initial $50.00 on the 1st installment I was already down to owing them just $525.00 and in 2 weeks I’m back with another $50.00 payment. Now my balance it $475.00 and so on. It didn’t take long to pay off all my cash advances. Some I owed less and when I paid off one, I applied that payment money to one of the other ones and when most of them were down to $200.00 or less I would just stop payments to the rest of them and focus all payments to entirely pay off 2-3 at a time and with in about 3-4 months I eliminated my $5,000.00 rotating nightmare. In a retrospect I could have paid my car off with cash from all the money I gave the cash advance in just 1 year.

    Once you pay them off many will tempt you to come back. Keep your self from doing it.

    (Diagram of how I ended the cycle- not displayed)

  • Bill says:

    I need a payday loan now and then but I do hate the fees. Frankly, there is no where else for us to go.

  • Karen Harneck says:

    I agree with Martin: put more people out of work! I’m a single mom with 2 teenage boys. I receive no child support. If I loose my job, how do I pay for my vehicle(bought it used-it’s a 2004), our house, our food, our clothes, our water, our electricity, our soap, our laundry detergent and, well, you get the picture. Unemployment does not pay as well as a job, no matter what! We have 8 employees in this company which have had to get payday loans before. It’s cheaper than having a bank charge you overdraft fees. Of course, this is the case if it’s paid back in a short period. That’s what payday loans are for: those who can not afford extra charges, can only pay the bare minimum or that have screwed up some where down the road with their credit. I understand some payday loan companies are raking their customers, however, there are some of us who are actually out here trying to help their customers. We do make payment arrangements, we do cut the fees in half, we do let them just pay their principle back. We’re not here to put people further in debt, we’re here to help them live day to day! It’s up to the customer to determine if they are responsible enough and can afford to get the loan and pay it back. Banks give out loans and don’t get paid back but yet, banks are still loaning money to irresponsible people! And those are the people with the good credit! What makes us different? We don’t discriminate against those that have made bad choices. We have customers that have good credit and get a loan from us to maintain that good credit score! They have miscalculated and can’t make that payment to the bank and guess who they come to for extra cash? Yes, us, the payday loan company!

    Sincerely,
    Karen/Mom

  • Kristy says:

    I completley agree with Martin, this will only hurt the economy much more. Payday loans have produced alot of job opportunities. It is the customers responsibility to determine if they can pay loan back or not, just like at a bank. You wont see banks cease loans because the customer cant pay back. We give our customers a drop in interest as well as pay extra to their principle if they just cant make it. Payday loans are to be temporary and customers are well informed of the payback process before accepting loan. We are not all bad loan companies, we are here to help the customers whom have bad credit (as almost everyone has made mistakes on their credit) or those who do not want to use their credit. Where will they all go for help as well as those whose jobs are on line. There is not enough government programs to supply all needs of everyone who will be affected. Please consider the good in Payday loans.

    Sincerely Woman with 2 daughters who NEEDS her job!!
    Kristy

  • Michael Riggins says:

    Pay Day Loans are criminal and need to be put out of business!!!!! They take advantage of people that do not know what they are truly doing….. 400% and 500% for a loan is criminal. All pay day loan companies need to be put out of business by the government. Why did we ever allow such a business to exist in the first place. Pay day loan companies prey on the people with misfortunes and capitalize majorly with no conscience what so ever.

  • Martin says:

    Yeah that’s right. Kill Texas jobs, eliminate consumer choice and drive more payday loan operators to the “offshore” and “Sovereign Nation” models.

    I can’t wait to view all the empty strip malls abandoned by payday loan stores and the payday loan employees getting unemployment.

    How will the knuckle-headed consumer protectionists, who think they know what’s best for the rest of us, deal with some payday loan company on an Indian reservation or based in Costa Rica.

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