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Credit Services Organization as it Relates to Payday Loans & a 100% Check Guarantee Program

Beginning in July of 2005, the major Texas payday loan operators began registering as "Credit Services Organizations" commonly referred to as a "CSO". This includes Advance America, Cash America, First Cash, EZ Pawn, and EZ Cash in addition to many, many small payday loan operators.

Since then, payday loan operators in several other states in addition to Texas are beginning to realize the benefits to using the Credit Services Organization Model. These include South Carolina, California, Wisconsin, Colorado, Oregon, Oklahoma, New Mexico and more.

Prior to the switch over to the CSO model, virtually all these cash advance operators utilized the bank-charter model; partnering with banks incorporated in states lacking usury laws (referred to as the "payday loan bank model". By partnering with these banks and acting as brokers, the payday loan operators were able to export the usury rate applicable to their partner bank into Texas; or whatever state the payday loan operator/broker located. Those payday loan companies that were not using the bank model and having found themselves in state/provinces not having favorable payday loan legislation have begun to investigate the benefits of the CSO Model.

Payday loan operators in Texas were the first to begin employing the Credit Services Organization Model so our discussion here will make several references to the Texas methodology. However, you should be aware, as discussed earlier, the CSO Model is being used or certainly considered even in states having favorable safe-harbor payday loan legislation.

What is a CSO Credit Services Organization
In essence, a CSO or Credit Services Organization is defined by the Texas Credit Services Organization Act (Section 393 of the Texas Finance Code) as an entity or person that provides one of the following services:

• Improving a consumer's credit history or rating
• Obtaining an extension of consumer credit for the consumer
• Providing advice or assistance to a consumer regarding the previous two services

An important aspect of the CSO or Credit Services Organization model is that CSO's are required to "REGISTER" with the Secretary of State AND THEIR FEES ARE NOT REGULATED.

How does the CSO Credit Services Organization work with payday loans?
The CSO Credit Services Organization operates as a broker, much as they did when partnering with the banks (payday loan bank model). The Texas Credit Services Organization Act (CSOA) allows the payday loan lender to register as a CSO and act as a loan broker. Thus, the CSO, previously a payday loan company, can make loans via consumer lending companies that are UNLICENSED - the Lender provides the funds to the consumer. The CSO Credit Services Organization acts as a broker for the consumer in need of funds by issuing a "letter-of-credit" on behalf of the consumer to a lender. This third-party lender funds the "loan" brokered by the CSO "broker/marketer/servicer."

Typically the CSO Credit Services Organization collects 3 fees:
• A referral fee for referring the consumer to the lender that actually funds the "loan." This is not stipulated by any law but is currently $20 to $30 per $100
• An application fee for filling out the CSO documents; typically $10 per $100
• The interest on the "loan"; Texas state law caps this at $10 per $100 for the actual Lender.

The CSO Credit Services Organization model arises from a U.S. Fifth Circuit Court of Appeals opinion, in Lovick vs. Rite Money, which held that payments to a registered CSO loan broker could not be treated as interest.

The applicability of the CSO Credit Services Organization to use in other states is being explored now. Thirty-one states plus Canada have provisions for the CSO Credit Services Organization entity. Since it is typical of the CSO not to be regulated, and the fact that the CSO fees are not considered interest as per the 5th Circuit Court of Appeals, there is little doubt we will see this approach utilized on a grand scale in the future!

For a thorough discussion of the CSO Credit Services Organization Model including the applicable Texas Statutes and the CSO Registration Form for Texas, we invite you to purchase our Payday Loan Bible. Purchasers with a Texas address receive our 90 page CSO/CAB Report at no additional cost.

100% Guarantee Check Program for the CSO Model-Payday Loans in Texas
Would you like to offer Cash Advance / PayDay Loans to your customers in Texas? Become a Credit Service Organization (CSO). You can charge $20.00 per hundred for loans you arrange from a third party lender. The average loan is $300.00 and the average fee is $ 20.00 per hundred or $60.00 on $300.00 and we will 100% guarantee all your loans. Once we have approved a loan and if it goes bad just send the check to us and we will put the principal and interest back in your bank. You have your money from us within 5 or 6 business days and ready to put back on the street. If you are utilizing a collection company now it takes 90 to 120 days for them to collect and they only collect less that 50% of the checks you submit to them. That's 90 to 120 days you do not have use of that money and 50% of the money you will never see again. How many times can you turn that money in 90 to 120 days if you had access to it?

Contact us for the details on this program. CheckGuarantee@PaydaAndPaycheckLoans.com