One option available to lenders in Texas is to operate under the Credit Access Business (CAB) / Credit Services Organization (CSO) model with a 3rd-party lender.

This blog post aims to provide an overview of the CAB/CSO model, how it works, and the benefits it offers lenders and consumers in Texas.

Texas’s Credit Access Business (CAB, often referred to as a CSO) model, presents a highly attractive and lucrative venture for businesses seeking to enter or expand in the consumer lending industry.

With a streamlined pathway to regulatory compliance and a specialized role that mitigates various risks, the model offers strong foundational advantages.

The model is particularly lucrative due to the ability to charge high Annual Percentage Rates (APRs), often reaching the 400%+ range, significantly boosting profitability.

Additionally, the model provides CABs a competitive edge through niche specialization and agility in responding to market demands.

As intermediaries, CABs are uniquely positioned to offer services from customer acquisition to loan origination to servicing, creating an ecosystem that benefits the business and caters to diverse consumer needs.

In summary, the Texas CAB Model delivers a compelling business case featuring simplified regulatory processes, significant revenue generation through high APRs, and unique market advantages, setting up Credit Access Businesses for considerable business success.

WHAT IS THE TEXAS CREDIT ACCESS BUSINESS (CAB) MODEL?

The CAB Model is a framework for businesses to offer short-term, subprime personal loans.

In this model, a licensed Credit Access Business [CAB] is an intermediary between borrowers and a 3rd-Party Lender. 

The CAB takes care of loan originations, underwriting, customer service, and the collection of payments, but it does not directly fund the loan. Instead, a third-party lender funds the loan. 

The third-party Lender is not required to secure a license. 

TEXAS CAB: HOW DOES IT WORK?

1. Customer Application: A borrower applies for a loan via the CAB’s website/storefront.

2. Third-Party Approval: The application is reviewed, and if approved, the loan is funded by the third-party Lender.

3. Loan Servicing: The CAB takes responsibility for the loan servicing, including communication, collection, and compliance.

4. Profit Sharing: The CAB and the third-party Lender share the profits based on an agreed-upon structure. [Discuss details with me.]

LICENSING AND COMPLIANCE

Before operating as a CAB, a business must obtain a license from the Office of Consumer Credit Commissioner (OCCC) in Texas. It’s essential to adhere to the guidelines and laws specified by the Texas State OCCC.

FOR 3RD-PARTY LENDERS

ADVANTAGES FOR 3RD-PARTY LENDERS IN THE TEXAS CAB MODEL: A DEEPER DIVE

The Texas Credit Access Business (CAB) model, which has seen increased adoption in the State of Texas, has a unique structure that involves a third-party lender providing the actual loan capital. 

This lending model has several advantages for the 3rd-party Lender, and it’s worth diving deeper into what makes this framework particularly enticing for lenders providing capital to a Texas CAB.

1. SUPERIOR RETURN ON INVESTMENT [ROI]:

By operating under the Texas CAB model, 3rd-Party Lenders can achieve superior returns on their capital. 3rd-Party lender fees are collected by the CAB from consumers on behalf of the 3rd-Party Lender, thereby achieving 10% – 15%+ on their capital [Typically collateralized 1:1 by the Texas CAB! I have details.] 

2. MARKET EXPANSION: GEOGRAPHIC AND MARKET EXPANSION

By collaborating with a CAB, a 3rd-party lender can quickly expand its market reach within Texas without establishing a physical presence in the state. This quick-to-market approach allows for agile responses to market trends and consumer needs, creating more opportunities for revenue generation.

3. LOWER OPERATIONAL OVERHEAD

In the Texas CAB model, the Credit Access Business oversees the operational aspects such as customer acquisition, loan application processing, underwriting, disbursement, and collections.

This means that the 3rd-party Lender can invest less in these areas, thus saving on operational costs.

They also avoid the need to maintain a customer-facing operation in Texas, which can be significant in terms of financial outlay and operational complexity.

4. NO NEED FOR A SEPARATE LICENSE

One of the most immediate benefits for the 3rd-Party Lender is the regulatory relief that comes with not requiring a separate loan license from the Texas Office of Consumer Credit Commissioner (OCCC).

This is a significant advantage because obtaining and maintaining a license can be time-consuming and costly and subject lenders to audits.

The CAB takes on the responsibility of licensing and compliance, allowing the 3rd-party Lender to focus more on their core business operations.

5. COMPETITIVE DIVERSIFICATION

Being a 3rd-party lender to a Texas CAB allows a lender to diversify its product offerings.

This can be particularly valuable for lenders specializing in other types of loans and looking to diversify their portfolios without incurring high setup costs and compliance burdens.

Takeaways for 3rd-Party Lenders: The Texas CAB model with 3rd-party lending offers several compelling advantages for lenders who provide capital to Credit Access Businesses.

From reduced regulatory burdens to lower operational costs, risk mitigation, and favorable profit-sharing structures, the model can be an excellent avenue for 3rd-party lenders seeking to enter or expand in the Texas personal loan market.

AMPLIFYING THE UPSIDE: BENEFITS FOR CREDIT ACCESS BUSINESSES (CABS) IN TEXAS

FOR CABS

Operating as a Credit Access Business (CAB) in Texas, in partnership with a third-party lender, has several unique advantages. The CAB model offers numerous benefits for CABs’s from a specialized role in the lending ecosystem to specific profit opportunities.

Let’s delve deeper into why becoming a CAB in Texas can be a lucrative and strategic business decision.

Streamlined Regulatory Compliance & Facilitated Licensing

CABs are required to obtain a license from the Texas Office of Consumer Credit Commissioner (OCCC).

Once they get this license, they can act as an intermediary between borrowers and third-party lenders.

The licensing process for CABs is generally more streamlined than the stringent criteria that traditional lenders often have to meet.

REGULATORY EXPERTISE

As a specialized business, CABs often build up a wealth of expertise in navigating local and state regulations.

This makes compliance less cumbersome and allows the company to focus on growth and profitability. 

RISK MITIGATION

Diverse Portfolio

By collaborating with multiple third-party lenders, CABs can diversify their loan types, spreading their risk.

The impact of defaults on any single type of loan is thus reduced. 

[NOTE: CABs who fail to collaborate with multiple 3rd-Party lenders for redundancy place their businesses at risk! Think of this strategy as you should for banking and payment processing!!]

REVENUE GENERATION

ROBUST REVENUE POTENTIAL VIA HIGH APRS

Contrary to the misconception that the CAB model operates on thin margins, CABs in Texas often charge Annual Percentage Rates (APRs), reaching as high as 400%+.

This provides a significant revenue stream for CABs and, thus, a robust financial incentive to originate more loans.

SCALABILITY AND PROFIT

With such high APRs, the CAB model becomes exponentially profitable as the volume of originated loans increases.

Unlike traditional low-margin models, the CAB system in Texas allows for a more lucrative scaling strategy, where every additional loan originated adds significantly to the bottom line.

IMPACT ON REVENUE

Given the high APRs, even a modest volume of loans can generate substantial revenue >profits.

This aspect makes the business model extremely attractive for...

Proceed to LEARN More about profits, 3rd Party Lenders, marketing, consumer benefits, the regulatory issues AND our Very Special Offer!