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Update on Texas Credit Services Organization Model

J. Scott Sheehan

Payday Loan Bar Association

Sonoma, California

November 1-2, 2012

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Texas Legislature -- 2011

http://www.legis.state.tx.us/)

Recap of the 2011 Legislative Session

HB 2592 and HB 2594 eff. 1-1-12. HB 2593 did not pass. Amended Chapter 393.

Licensing with the Office of the Consumer Credit Commissioner as “Credit Access Businesses”

Additional disclosures

Quarterly reporting to the agency

Few substantive restrictions were added. No prepayment penalties.

No amendments regarding the 180-day issue

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What’s happened the past 12 months

1) Licensing, rulemaking (7 TAC 83), examination by the Office of the Consumer Credit Commissioner, and quarterly reports

2) Adverse local ordinances in Dallas, Austin, and San Antonio

3) Market conditions

4) Senate and House Interim Study Reports due out in November

5) Preparation for the 2013 Legislative Session

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Recap of the Office of the Consumer Credit Commissioner

OCCC just presented its Fiscal Year End Report to the Texas Finance Commission (8-31-11 thru 8-31-12)

3,022 CAB licenses; 290 CAB examinations

97.02% level of acceptable compliance

Complaints 113 for FY ‘11; 282 for FY ’12

Q2 data: 900,038 transactions; 600,971 consumers; $467 avg. payday; $22.83 per hundred avg. payday; $707 avg. single-pay title; $21.30 per hundred avg. single-pay title

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The Home Rule City Ordinances

Powers of Home Rule City and State Preemption Concepts

Dallas Ordinance, Austin Ordinance, and San Antonio Ordinance

Finance Commission Resolution (4-20-12)

Lawsuits challenging the ordinances

Possible ways to avoid the ordinances

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Market conditions the past 12 months

Market continues to grow

New companies setting up programs (store-front and Internet). Currently 3,022 licenses.

CAB Lenders raising additional financing capacity

Companies have to deal with the adverse ordinances, especially Dallas, Austin, and San Antonio

Cautious optimism about 2013 Legislative Session and resolving the local ordinances

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Texas Legislature -- 2013

http://www.legis.state.tx.us/)

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Key Participants

CSAT (industry best practices and preemption)

Office of the Consumer Credit Commissioner (clarifying amendments and preemption)

Other Title 4 entities (might weigh in on preemption)

Texas Municipal League (might weigh in on preemption) and certain cities

Consumer Advocate Groups (e.g., Texas; Appleseed; Center for Public Policy Priorities; certain religious groups)(adverse; cycle of debt; might re-urge rate caps)

Revised CSAT Industry Best Practices

Transaction limits: 35% of gross monthly income on single-pay deferred presentment; 25% limit on scheduled payment on multiple-pay deferred presentment; 70% limit of retail value on title transactions.

Declining principal balances: Fully amortizing, equal pay installments on multiple payment transactions.

Extended repayment: once ever 12 months; if transaction has been refinanced 4 times.

Principal reduction: 5% on single pay title transaction or adjusted accrual.

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Closing Remarks

The next major battleground is the Texas Legislature