Friday, December 14, 2012

Texas' Office of Consumer Credit Commissioner Issues Advisories to Payday Lenders

I've written earlier about payday lenders lack of compliance with city ordinances and state legislation (you can find those posts here, here and here).

Apparently Texas' Office of Consumer Credit Commissioner has taken notice and has issued two advisories to the industry.

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One advisory addresses the issue of circumventing local payday lending ordinances...


Credit Services Organization Bulletin

December 11, 2012

The Office of Consumer Credit Commissioner (OCCC) is concerned about a business practice that some credit services organizations (CSOs) are using. The business practice appears to be designed to avoid compliance with Chapter 393 of the Texas Finance Code. Continued use of the practice could result in the Texas Legislature taking adverse action in the upcoming legislative session and could also lead to civil liability on the part of the CSO.

The business practice at issue is as follows. As contemplated by Chapter 393, the CSO assists the consumer in obtaining credit and charges a fee for this service. But the CSO does not take a post-dated check from the consumer or, in the case of a loan secured by the consumer’s motor vehicle, the motor vehicle’s title. By not requiring the consumer to provide a post-dated check or the motor vehicle’s title, the CSO contends that the activity falls outside the definition of “credit access business” (CAB) and therefore escapes the regulatory requirements imposed on CABs in Chapter 393 of the Texas Finance Code. The Texas Finance Code does not specifically prohibit this practice; nevertheless, this transaction could be seen as an attempt to evade the regulatory requirements of Chapter 393 and an attempt to circumvent the law.

The OCCC believes that this business practice conflicts with the legislative intent manifested in house bills 2592 and 2594 passed in 2011. The purpose of these bills was to provide a licensing and regulatory framework to govern credit service organizations who obtain credit for Texas consumers. The OCCC believes that the legislature intended that the bills cover transactions where the CSO obtains an extension of credit for a consumer, even where the CSO does not require the consumer to provide a post-dated check, debit authorization, or motor vehicle title. If the legislature finds that this business practice conflicts with its intent, it could consider passing additional legislation that would put further regulatory restrictions on CSOs that obtain extensions of credit for consumers.

This practice could also subject a CSO to civil liability under the Texas Deceptive Trade Practices Act or under Chapter 393. If a consumer brought suit against a CSO who was engaged in the business practice described above, it is possible that a court could find for the consumer and enter a judgment against the CSO.

The OCCC is concerned about the potential legislative reaction to this practice and the possibility that the legislature will see this practice as a subterfuge intended to circumvent the regulatory requirements of Chapter 393. The OCCC is also concerned about the civil liability a CSO engaged in this practice could face. The agency strongly urges any CSO currently engaged in this practice to consider the legislative and legal consequences.

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The other addresses the issue of transferring auto-title loans to stores outside of cities with regulatory ordinances in order to evade compliance with those ordinances...

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December 11, 2012

The Office of Consumer Credit Commissioner (OCCC) is concerned about a business model used by some credit access businesses (CABs) in the cities of Dallas, Austin, and San Antonio. These three cities have enacted ordinances restricting certain renewal activities by CABs and limiting the number of installments a transaction may have. The practice discussed in this bulletin appears to be intended to avoid compliance with the city ordinances. While the OCCC does not have authority to enforce the city ordinances, it is concerned about a practice whose intent appears to be circumvention of the law.

It appears that a number of CABs are engaged in the following practice. A CAB branch located within the city limits offers the consumer a no-interest, 30-day loan funded by the CAB and secured by the consumer’s vehicle. If, at the end of the month, the consumer cannot pay off the loan, the CAB informs the consumer that the consumer’s vehicle will be repossessed if the consumer does not pay the loan off. The CAB then proposes that the consumer go to another branch location outside the city limits and obtain a CAB loan to pay off the original loan and keep the vehicle from being repossessed.

The OCCC is concerned about the lack of transparency involved in this practice, which effectively draws into a CAB transaction a consumer who might not otherwise engage in one. This business model could also be perceived as a deceptive practice because it appears calculated to bring the consumer into the store with the promise of one product, but later effectively requires the consumer to go to another location to purchase another product.
The OCCC also believes that this business model may conflict with the legislative intent manifested in house bills 2592 and 2594 passed in 2011. These bills establish the three-party model upon which the CAB transaction is based and require separation between the lender and the CAB. When, as here, the CAB acts as a lender, the CAB is stepping out of the role of credit access business and into the role of the lender, contrary to legislature’s intent. Significantly, it is likely that if the legislature finds this practice conflicts with its intent, it could consider passing additional legislation that would put further regulatory restrictions on CABs.

The OCCC is concerned about the possible legislative reaction to this practice and this business model’s lack of transparency. The agency strongly urges any credit access business currently engaged in this practice to consider the legislative and legal consequences.

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If you or someone you know have complaints about the practices payday or auto-title lenders, contact the Office of the  Consumer Credit  Commissioner:


2601 N. Lamar Blvd Austin TX 78705
512- 936-7600
Fax: 512-936-7610
Consumer Helpline: 800-538-1579
Email: info@occc.state.tx.us

To find out more about these and other OCCC findings check here.


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