What Is a Credit Access Business in Texas?
In Texas, a Credit Access Business (CAB) assists customers in obtaining credit from a third party lender. Typically, a CAB does not provide funds. Rather, a CAB acts as an intermediary between the customer and the lender.
This business model is prevalent in Texas for both payday and auto title loans. This distinction matters to the customer because the CAB fee is in addition to the lender’s charge.
How a Credit Access Business Works
In the typical CAB business model, the borrower’s information is processed by the CAB. The CAB may then facilitate a credit transaction with a third party lender. Should the lender make a credit offer that is subsequently accepted by the borrower, the borrower becomes obligated to repay the loan on the terms of the offer.
The CAB may also charge a fee for the credit transaction, which can increase the loan’s cost. This is an additional reason for the borrower to read and fully understand the agreement before accepting the offer.
A CAB is not the lender. The lender is the entity that provides the funds, while the CAB facilitates access to the credit. Both can impact the cost of the credit to the borrower.
Why CAB Fees Matter
In Texas, payday loans through a CAB can be more costly than the stated interest might indicate. In addition to the interest the borrower is obligated to pay, fees charged by the CAB can affect the total amount due.
Before taking out any loan, customers need to know about the total amount due, APR, finance charge, CAB fee, due date, renewal terms, and the payment schedule. Knowing this information will help customers better determine whether a loan will fit within their budget.
Loans that appear small may actually have a large repayment amount that incorporates additional fees. This makes the total repayment amount more important than the loan amount itself.
How Texas Regulates Credit Access Businesses
In Texas, the Office of Consumer Credit Commissioner (OCCC) regulates Credit Access Businesses. Information on CAB licensing is provided by the OCCC.
Under the CAB model, the CAB is the licensed party in Texas. The credit provider may not be licensed. This is one of the reasons that Texas payday lending is unique compared to other states.
To learn about CAB licensing, complaints, and regulations, consumers can visit the OCCC website. Consumers can visit the site to review lending regulations before taking out any short term loans.
Repayment Terms in a CAB Loan
A payday loan arranged by a CAB may have a repayment structure of either a lump sum payment or installment payments. A loan that has a lump sum payment is due on a predetermined date. An installment loan is paid over several payments.
The repayment structure defines the borrower’s monthly budget. It is important to know whether the loan will require one large payment or several smaller payments.
Borrowers should learn the penalties for late payment. These include late payment fees, loan renewal or refinancing or even an increase in the loan cost due to collection efforts.
How City Rules May Affect CAB Loans
Payday loans through Credit Access Business may be subject to specific local regulations in some Texas cities that could affect the maximum loan amount, repayment terms and the impact of each installment payment on the remaining balance.
Local regulations vary by city, so borrowers should check their local regulations before taking a loan, regardless of what is provided in the state regulations.
What to Review Before Accepting an Offer
The written loan agreement is the best source of information on the loan terms, including the loan amount, the lender’s and CAB’s fees, the Annual Percentage Rate (APR), the payment due date, the repayment terms and the total amount due.
It is also a good idea to ask about the company’s policy on reporting payment activity to the credit bureaus. A credit score can be affected by sending an account to collections, which is an option for a loan company if the loan goes unpaid.
Conclusion
Using a Credit Access Business (CAB) allows Texas residents to obtain a third party cash loan for a fee. CABs affect the total cost of a payday loan. The total repayable amount should be the borrower’s primary focus. Comparing the loan terms to the written agreement before accepting an offer is the best way to determine them including the repayment date and fees.