PDL CSO/CAB Transition and ROI Scenarios
Published: Fri, 01/06/12
If you have any interest in the Texas payday loan industry as an
operator or as a Lender (15%-20% ROI) read on. If not, delete
this email now. We all have limited time :o)
Over the last 6 months, the Payday Loan Industry in Texas has
undergone a transformation. Recent legislation was passed requiring
CSO's to also license as a "Credit Access Business." This
legislation also incorporates new changes to procedures and
disclosures that provide additional warnings to consumers about the
nature of their service.
The process that the State of Texas went through to design rules
that will guide Credit Access Businesses into 2012 included
meetings with Payday business owners designed to get real world
feedback on how to put the laws into action. What resulted is an
innovative and comprehensive disclosure document that is now being
used across Texas. One unique aspect of the disclosure
document is that its design was also contributed to by consumer
advocate groups. It has been said that only one other state in the
US has anything similar and regulators are very pleased with the
outcome.
The quality of the recent legislation and resulting rules has
elevated the legitimacy of the Texas market and stabilized the
regulatory environment. That is one significant advantage versus
many other states and does ease perceived risk. As many CSO's in
Texas have transitioned into the new model and license, they have
taken time to review their businesses, seek opportunities, and
build for the long term.
A good friend and business partner of mine, Michael Brown with CAB Consulting and
Brokerage, has been consulting new Credit Access Businesses in
Texas regarding how to transition into the new CAB license. What he has
observed is that a wide-open market exists for an investment group
or savvy individual to step in and fund loans through new and
existing CSO-CAB's in Texas. Many of his CSO-CAB clients are
tasking him with finding a new and more ideal Third Party Lender
arrangement. In fact, there are more CSO-CAB's seeking a new Third
Party Lender than he currently has to plug them into.
Third Party Lender funds are an essential requirement if you want
to participate in the Texas Payday Loan market, they are the ones
who actually fund loans to consumers, and the CSO-CAB acts as the
broker and servicer of the Payday Loan. Typically, they will earn
10% APR on the monies lent through CSO-CAB's plus NSF and late fees
that ultimately get the annual ROI into the 15%-20% range.
CSO-CAB's pay the Third Party Lender out when a loan defaults, and
provide collateral on the loan portfolio.
A commonly cited statistic is that 70% of licensed CSO-CAB's in
Texas are larger chains or publicly held companies. If you assumed
that all of the large and public companies were not open to funding
then 30% or roughly 1,000 CSO-CAB locations could be targets for an
improvement on their existing Third Party Lender outlet.
Smart people and money are entering the market, and when the right
group establishes a Third Party Lending outlet that targets that
niche they will tap into an under-served segment full of
opportunity. Once you make your entry into the market and "hone"
your Third Party Lender platform centered on those 1,000 locations,
who is to say that you wouldn't be able to go after a share of the
70% market as well.
If you're in the Payday Loan industry, consider Texas and an
improvement in your Third Party Lender. If you are a private
investor who has grown weary of the stock market volatility,
perhaps you should consider placing your money into a Third Party
Lending arrangement.
If you would like to learn more about the opportunity, call
Michael direct at 214-293-8676. Signup for his free Monthly
CSO/CAB Newsletter at his web site: http://www.CreditAccessBusiness.com
Full Disclosure: I have invested with Michael and will profit
if you choose to enter a relationship with him.
Jer - Trihouse
http://www.PaydayLoanIndustryBlog.com
702-208-6736 Jer@PaydayLoanIndustryBlog.com