Texas Payday Lenders Strike Back

Historical archive, first published 2005 — payday-lending laws and rates have changed since. Preserved for the record.

Back in early March, the Federal Deposit Insurance Corp. issued new guidelines for payday lenders that offered loans via a relationship with a third-party bank. These laws squashed payday lending in many states, the most important being Texas.

With so much money on the line, these payday lenders found a way around the new FDIC guidelines. The lenders would form wholly owned subsidiaries called credit services organizations (CSOs).

Now when a borrower goes to a payday loan company, they fill out the paperwork with the CSO, but actually borrow the money from an unregistered lender under Texas law. This unregistered lender is set up as an LLC (limited liability corporation) and is completely seperate from the CSO.

At the time of signing three fees are collected. A referral fee, an application fee, and an interest charged below the state's legal requirements. That can lead to steep cost for fast cash advance seekers. Be careful if you are considering this!