The Credit Access Business (CAB) is the new model in Texas for payday loans. In 2011, the Texas State legislature was embroiled in a battle to pass legislation to regulate the payday loan industry. Legislative sessions occur every two years in Texas and for at least the last three sessions, lawmakers and payday loan industry advocates have engaged in heated debates that did not produce any laws or regulations. The 2011 session finally produced two bills that were passed into law, House Bills 2592 and 2594.
With the passage of these laws, the official Credit Access Business license stepped in front of the once all encompassing and vague Credit Services Organization (CSO) model. The CSO model, registration, and need for a Third Party lender still remains, but, in 2012, the Texas government will close a once wide loophole with CAB regulations.
House bill 2594 requires that CSO’s who want to operate in the payday loan space now be licensed as a Credit Access Businesses (CAB) effective January 1, 2012. The new licensing process will consist of a thorough review of the former CSO by the new governing body of the payday loan industry, the Office of Consumer Credit Commissioner, or the OCCC. Applicants will undergo reviews not just of their business operation, but also of the principals involved in the CAB whose personal and business background will be requested. In addition, H.B. 2594 added more fees that licensees will be required to pay versus the past CSO registration. Lastly, quarterly transaction report filing is required by the OCCC, the first of which will be due in April 2012.
House Bill 2592 outlines new requirements related to notices and disclosures to maintain compliance as a CAB. Integration of new notices and disclosures are outlined for both retail and online marketplaces. Changes to customer documentation and procedures related customer communication are part of this bill’s intent, which is to clarify facts, monetary figures, and educate all consumers about the business arrangement. For example, CABs will need to cite other financial resources for customers beyond the payday loan option, discuss these options with customers, and post alternative lending choices in stores or online.
There are many details to discuss to fully understand the broad intent of the bills before January 1, 2012. The OCCC hosted several collaborative stakeholder meetings in the summer of 2011. Business owners, consumer advocates and those who will govern the industry all participated in collaborative conversations about the bill’s intent and real world implementation of new rules. The final version of rules related to the new laws is due to be released in October 2011.