In July, Texas-based payday lenders regrouped as businesses operating under Texas' Credit Service Organization Act. As a Credit Service Organization (CSO), a payday lending company dodges both federal guidelines restricting payday loans and the interest rate limits established by the Texas Finance Commission (TFC). Prior to the July business model changes, virtually all Texas-based payday lenders operated under the "rent-a-bank" model, partnering with banks headquartered in other states with lax or no usury laws. Under this model, payday lenders, claiming to work as brokers, were able to evade Texas usury laws and other state lending regulations. The below chart demonstrates the usurious rates that payday lenders could charge.



While this previous model has been incredibly lucrative for payday lenders, who were free to charge exorbitant interest rates and do business with virtually no regulation, recent federal FDIC regulations and recent actions by state regulators around the country have begun to chip away at the free-reign of the payday lenders.

So, to fight back, payday lenders are now organizing under a new business model that restores their free-reign. Under state law, CSOs are not licensed by the state regulator, the Office of the Consumer Credit Commissioner, and their fees are completely unregulated. In essence, by organizing under the CSO business model, payday lenders are exploiting Texas' permissive CSO statute and exempting themselves from state and federal consumer protection measures.

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The Center for Public Policy Priorities (CPPP) is calling on people to contact The Finance Commission and voice concern over the changes, asking that the State be given some regulatory authority over CSOs. CPPP has put out the attached white paper detailing the issue.