PULLING BACK THE CURT CURTAIN AIN SHINI NG A LIG HT ON PAYDA PAYDAY Y AND AUTOTITLE LOAN BUSINESSES BUSINES SES IN TEX AS
White Paper Ann Baddour Baddour, Director, Fair Financial Services Project Deborah Fowler, Executive Director Marett Hanes, Data Anaylyst Intern Texas Appleseed
October 16, 2015
Texas Appleseed’s Appl eseed’s Mission Texas Appleseed promotes social and economic justice for all Texans by leveraging the skills and resources of volunteer lawyers and other professionals to identify practical solutions to t o difficult, systemic problems.
1609 Shoal Creek, Suite 201 Austin, Texas Texas 78701 512.473.2800 TexasAppleseed.org Facebook.com/TexasAppleseed @TexasAppleseed
Acknowledgements
We are very very grateul to our team o staff and interns i nterns or their significant contributions contributi ons to this report, including in cluding ormer Texas Appleseed Staff Attorney, Brett Merfish, Pro Bono and New Projects Director, Gabriella McDonald, Deputy Director,, Brennan Griffin, and Research Intern, Nabil Abbyad. Director We are also particularly grateul to our board member Jim George, who served as lead pro bono counsel or Texas Appleseed Appleseed in the open records litigation. Texas Appleseed’s Fair Financial Services Project is generously supported by the Consumer Federation o America, Dallas Women’s Women’s Foundation, Harold Simmons Foundation, and the Meadows Foundation. The opinions expressed in this report are solely those o Texas Appleseed. Appleseed.
The Current Third-Party Lender Market Undermines True Competition
09
Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-party Lenders
16
Conclusion and Policy Recommendations
26
Part 3
Part 4
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Executive Summary ayday and auto title loan businesses have been a source of significant policy debate in Texas over the past two decades. These businesses have been the target of scrutiny because of their very high rate charges, often well above rates permitted under state consumer lending laws, and a loan structure that holds many borrowers in debt far beyond the typical two-week or one-month loan term.1
P
In 2005, payday and auto title loan businesses turned in their consumer lending licenses to become Credit Services Organizations (CSOs), operating essentially as loan brokers, required only to register with the Texas Secretary o State. They moved to this model o operation,
1. The current third-party lender market undermines true competition.
partnering with unlicensed third-party lenders to make the loans, as a means to evade state ee and interest rate caps or licensed consumer lenders.2 A 2012 change in state law made available, or the first time in nearly a decade, inormation about the ownership o these businesses and the third-party lenders that capitalize the high-cost loans. The 2012 law created a licensing requirement under the CSO Act, with a new designation or payday and auto title loan businesses, called credit access businesses (CABs).
third-party lender. In some cases, loyalty to a specific third-party lender is due to a shared interest or relationship between the third-party lender and the CAB.
In December o 2014, afer two years o open records litigation, Texas Appleseed obtained license applications or payday and auto title loan businesses operating under the CAB license that include third-party lender inormation. This report is a presentation o the open records CAB licensee inormation supplemented by public ownership inormation obtained, through the Texas Comptroller’s Office. The data presented in this study point to two major conclusions:
1
2
Key Findings:
• Eighty-six percent of CABs work with only one
• The top five third-party lenders in Texas (by number of licensed locations served) served 77% of all licensed CAB locations, despite making up only 4% o all lenders. The top third-party lender, NCP Finance LP, served 38% o all Texas licensed locations. • Twenty-five of 135 third-party lenders, or 19% percent, have overlapping ownership with another third-party lender, indicating that, while there is an appearance o competition, there is significant consolidation in ownership among third-party lenders
Bills both to enable and reorm high-cost payday and auto title lending have been introduced in the Texas Legislature since the 1990’s. In recent sessions, particularly 2011 and 2013, there was significant debate over the need or reorm. Some basic licensing, disclosure and data collection measures passed in 2011. No measures have passed to date that address the high-cost or structural problems with the loans offered under the CSO Act. In Texas, consumer lending has long been governed by Texas Finance Code, Chapter 342, which includes rate and ee caps or consumer loans as well as standards or payday loans, called “deerred presentment transactions.”
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Executive Summary
2. The complex web o ownership o credit access businesses and third-party lenders hinders transparency and competition, and calls to question compliance with the law. Key Findings:
• Thirty-one percent of CABs appear to have some shared interest with one or more other CABs , which generally involves ownership by the same individual or multiple individuals, but may also involve a complex web o ownership involving multiple CABs and individuals.
available in the public sphere. Nonetheless, exposing available availab le inormation about the ownership and the source o capital or these high-cost loan businesses oers new inormation to assess competition in the market, compliance with the letter and spirit o the law, and whether the. current legal structure is good public policy or Texas Texas. The findings o this study point to three important policy recommendations:
• Of the 135 third-party lenders listed in 2012 CAB license applications, 22% have some form of overlapping overlap ping ownership with a CAB.
1. The Texas Legislature should level the playing field or business and consumer alike by requiring that all consumer loan businesses comply with the same rate and ee structures currently established by statute and administrative rules under Title 4 o the Texas Finance Code;
• In 67% of the instances of overlapping ownership
2. A deeper study should be conducted on the source
between CABs and third-party lenders, either the same individual owns both a CAB and a third-party lender, or an individual owns a CAB and his or her amily members are listed as owners or officers o a third-party lender.
In 2006, the Texas Attorney General issued a letter assessing the legality o the use o the CSO Act by payday and auto title loan businesses to arrange high-cost loans. The letter states in its conclusion: … theoretically, if the CSO and the lender are truly independent actors, there would be nothing patently illegal about the model. Determining the true relationship between a CSO and a lender would be a fact-intensive endeavor. Any discussion of whether the use of this model is the best public policy choice for the State of Texas is one that must be addressed by the legislature and has not been explored by this office. 3
This study is a “act-intensive endeavor” and sheds important light on the relationships that exist between CABs (licensed under the CSO statute) and their thirdparty lenders. This study is limited by inormation
3
05
o capital that drives the third-party lender model, as the results o the current study point to a concerning concentration o capital that undermines market competition and transparency or consumers; and 3. Texas needs clear and enorceable standards to ensure that CSOs do not evade the requirement that they arrange credit “by others.” Standards should prohibit prohibit any overlap, in ownership, oicers or employees, between CABs and the third-party lenders that service them. Such prohibited overlap must include amily relationships among the dierent owners, as well as business partnerships, where the same group o individuals own CABs and third-party lenders, all o which evades the spirit o the law. Texas amilies need access to air and responsible consumer loans. Fair consumer lending markets are key to successul amilies and local economies. I the CSO/ CAB lending market is allowed to persist unchecked, it will continue to undermine competition and transparency in the Texas market and hinder a air playing field or consumer lending—or borrowers and lenders alike.
Letter to Texas Consumer Credit Commissioner Leslie Pettijohn rom Barry McBee, First Assistant Attorney General (January 12, 2006) (emphasis added).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Introduction PART 1
A. Background
Payday and auto title lending is a $5.8 billion industry Payday i ndustry in Texas,, with over 70% o the volume generated by high ees Texas and refinances.4 On average, annual percentage rates or payday loans range between 457% and 522% or a 19-152 day loan and auto title loans range rom 243%-289% APR or a 30-191 day loan.5 The Texas Texas Constitution caps rates 6 at 10% interest and Title 4 o the Texas Finance Code allows significantly higher rates or consumer loans, but these rates are still ar below the typical rates or o r payday 7 and auto title loans in the Texas market.
In order to avoid complying with established rate and ee caps or consumer loans, payday payday and auto title loan businesses operate outside o Texas Texas’’ consumer lending laws by serving as “loan arrangers” under the Texas Credit Services Organization Act, arranging loans through thirdparty lenders who lend at rates r ates o 10% interest or less, in compliance with the state constitutional usury cap.
Lending Business Model for Credit Services Organizations/Credit Organizations/ Credit Access Businesses8
CSO/CAB
CONSUMER
Charges fees to arrange, service, collect and guarantee the loan.
LENDER
No cap on fee charges.
Interacts only with CSO/CAB to obtain and repay the loan. Never interacts directly with lender.
No contact with borrower. Lends money at 10% interest or lower, with virtually no risk of loss. Receives late fees and nonsucient funds fees.
Tex. Fin. Code § 342. The highest rate structure under § 342 allows a 10% administrative ee charge up to $100 plus a $4 per $100 per month charge or the period that a loan is outstanding.
8
A credit access business (CAB) is a designation created as part o the 2011 law to license payda payday y and auto title loan businesses operating under the Credit Service Organization Act.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 1: Introduction
The CSO Act was first adopted in 1987 as a consumer protection against “fly by night” credit repair businesses.9 However, starting in 2005, it became the primary means o operation or payday and auto auto title loan businesses in Texas, bolstered bolstered by a 5th Circuit Court decision ( Lovick v. Ritemoney ) that ound that usury limits in state law do not apply to CSO ees unless the ees are shared with the lender.10 The CSO lending model is a three party model, where the consumer obtains a loan rom a third-party lender through the CSO as an intermediary. The CSO guarantees the loan, leaving the lender with essentially no risk. In the event o a deault, the CSO takes ownership o the loan and engages in collections. The CSO also collects payments and services the loan. While lender interest is capped at 10%, avoiding licensing under state law, CSO ees are uncapped, which is why these loans ofen have annual percentage rates at 500% 50 0% and higher. From 2005They to 2012, was aknown these businesses in Texas. hadlittle to post smallabout bond— $10,000—and register with the Texas Secretary o State. Little to no inormation was known about ownership or relationships between CSOs and the third-party lenders offering loans to
07
CSO customers, even though the inormation is essential to determine i the loans violate state usury law, per the Lovick decision and the plain language o the CSO Act. 11 Without access to ownership and third-party lender inormation, it was also diicult to assess market competition and transparency in this high-cost credit market space. The third-party lender sets the underwriting criteria or the loans.12 I multiple CABs and third-party lenders have the same or overlapping ownership, or i the market is dominated by only a ew third-party lenders, it calls to question whether meaningul competition and transparency exist in this market space. Starting in January o 2012, afer the passage o HB 2594 in 2011 (82nd Regular Session), CSOs arranging payda payday y and auto title loans were required to be licensed by the Texas Consumer Credit Commissioner as a credit access business (CAB), a subgrouping created within the CSO Act. Part o the licensing requirement includes disclosure o the ownership o the business and the third-party lenders with which it works to arrange extensions o consumer credit.13
B. CAB and Third-Party Lender Data—A Two-Y Two-Year ear Ordeal to Get a Glimpse Behind the Corporate Curtain
Texas Appleseed filed two separate open records requests with the Texas Office o Consumer Credit Commissioner, Co mmissioner, on October 25, 2012 and November 7, 2012, to obtain CAB ownership and third-party lender inormation. The CAB ownership data rom the license applications was provided, but the third-party lender data request was reerred by the agency to the Office o the Texas Attorney General
to obtain an open records ruling regarding disclosure o the third-party lender data. On January 18, 2013, the open records ruling was issued approving release o the data, with a ew exceptions that were deemed personal or proprietary inormation.14 On February 13, 2013, the Consumer Services Alliance o
9
According to a memorandum produced by the Texas Office o Consumer Credit Commissioner in February o 2011, “The legislature intended [the CSO Act] to reduce certain abuses by credit repair clinics. In particular, the bill’s author hoped that with a bond requirement, “fly by night” clinics would be less able to make misleading promises o credit repair, repair, and less able to charge exorbitant exorbitant ees or services that are available or ree or at low cost . . . . We did not find any indication that the legislature intended to preempt usury laws or overrule case law concerning loan broker ees.” Memorandum, From: Matt Nance, To: To: Leslie Pettijohn & Sealy Hutchings, Re: Legislative History o Credit Services Organization Act (February 9, 2011).
10
See Lovick v. v. Ritemoney , Ltd., 378 F.3d F.3d 433 (5th Cir. 2004). With regard to CSO ees, the decision states, “The Texas Legislature has not restricted the amount o a CSO service ee in proportion to the services provided; we cannot substitute our judgment.” Id. at 443. With regard to to attributing the CSO ees to interest or usury purposes, the decision states, “Under [the Credit Services Organizations Act], read in conjunction with the usury statutes, brokerage ees shared with the lender are interest or purposes o determining determining usury.” Id. at 444.
11
Tex. Fin. Code § 393.001 states that a CSO can only provide specified services, “with respect to the extension o consumer credit by others.” (Emphasis added.)
12
Sealy Hutchings & Matthew J. Nance, Credit Access Businesses: The Regulation of Payday and Title Loans in Texas, 66 Consumer Fin. L .Q. Rep. 76, 80 (2012).
13
Tex. Fin. Code § 393.604 (3) & (4).
14
The Attorney General o Texas, Opinion No. OR2013-01094 ( Jan. 18, 2013), available at https://www.texasattorneygeneral.gov/opinions/openrecords/50abbott/ orl/2013/pd/or201301094.pd .. orl/2013/pd/or201301094.pd
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 1: Introduction
Texas, a trade association representing CABs, and Cash Zone, dba Cash Biz and Cash Kingdom, filed separate lawsuits against the Texas Attorney General, challenging the open records ruling, in an attempt to prevent release o the inormation.15 Texas Appleseed intervened in both lawsuits in March o 2013. More than two years afer the
08
original date o the open records request, there was a joint notice o nonsuit—all parties agreed to drop the suit—and the requested data was released by the Office o Consumer Credit Commissioner on December 17, 2014. This data offers an important snapshot o the operations o payday and auto title businesses in Texas.
C. Data Overview and Methodology
This study is based on data obtained through open records requests or inormation on licensed Credit Access Businesses (CABs) and their third-party lenders, submitted to the Texas Office o Consumer Credit Commissioner (OCCC) in 2012. A spreadsheet was created rom this data, including ownership and officer inormation obtained rom the Texas Comptroller o Public Accounts. Afer this inormation was compiled or the 217 licensed CABs included in the 2012 data, the process o looking up owner
officer inormation is unavailable or incomplete. There are 13 individuals or couples, or 6% o CABs listed as CAB companies and 17 individuals, or 13% o third-party lenders, listed as third-party lenders in the OCCC data. These listings do not return any results on the Texas Comptroller o Public Accounts website.18 Forty-three, or 20% o CABs, and 22, or 16% o third-party lenders, had incomplete filings that did not contain ull owner or officer inormation on file on the comptroller website,
and officer inormation was repeated or the third-part third-party y lenders included in the data rom the OCCC.16
and the ownership o these companies is unclear as a result.19 Furthermor Furthermore, e, there are six third-party third-party lenders, or 4% o reported lenders, where results were returned returned or a company with a slightly different name, and it is unclear whether or not this inormation pertains to the third-party lender reported in the data. 20 While some inormation may not be complete or CABs or third-party lenders, all o the inormation on the Texas Comptroller o Public Accounts website is up to date, so the ollowing data analysis is not affected by the two-year delay in receiving the open records request rom the OCCC.
Due to the two-year delay between obtaining the data rom the OCCC and looking up ownership and officer inormation on the Texa Texass Comptroller o Public Accounts website, some CABs and/or third-party lenders that were included in the original data are no longer registered as a taxable entity with the Texas Comptroller Comptroller o Public Accounts. This was the case or 9 CABs, or 4% o licensed 2012 CABs, and 30 third-party lenders, or 22% o thirdparty lenders included in the data.17 Additionally,, there are other instances where owner Additionally o wner and
15
See Cash Zone v. Abbott, No. D-1-GN-13-000385 D-1-GN-13-000385 (201st Dist. Ct., Travis Cnty. Cnty. filed Feb. 13, 2013); Consumer Servs. Alliance of Tex. v. Abbott , No. D-1-GN-13-000382 (201st Dist. Ct., Travis Cnty. Cnty. filed Feb. 13, 2013).
16
Open Records Request rom the Texas Oice o Consumer Credit Commissioner. (2012). Received November, 2012 rom the Texas Oice o Consumer Credit Commissioner.
17
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
18
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
19
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
20
Id.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
The Current Third-Party Lender Market Undermines Under mines True True Competition PART 2
A. CABs Do Not Help Borrowers Find the Best Deal—Majority Work with Just One Lender
CABs are licensed under Title 5 o the Texas Finance Code, entitled “The Protection o Consumers Financial Services.” Yet, Yet, the business model appears to work counter to consumers’ best interests, unneling borrowers into high-cost credit transactions, rather than allowing them to benefit rom market competition to find the best deal. CABs play the role o loan broker in payday and auto title loan transactions in Texas, but most work with just one lender. Based on the 2012 license application data, 86% o CABs reported working with just one third-party lender. lender.21 Percent of CABs Served by One Third-Party Lender, 2012
14% CABS with Multiple Lenders
Among CABs with multiple lenders, most listed having two third-party lenders. Only our CABs were listed as having more than two third-party lenders. In some cases, this loyalty to a specific third-party lender is due to a shared interest or relationship between that third-party lender and the CAB.22 The majority o third-party lenders only serve one CAB, which indicates that relationships between CABs and their respective third-party lenders may be more about loyalty than ostering competition to benefit consumers. Percent of Third-Party Lenders by Number of CAB Companies Served, 2012
2% 3 Companies
6% 4 or More Companies
12% 2 Companies
86%
80% 1 Company
CABS with One Lender
Source: Texas Appleseed Analysis of Open Records Request from the Texas Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014, from the Texas Oce of Consumer Credit Commissioner.
21
Source: Texas Appleseed Analysis of Open Records Request from the Texas Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014, from the Texas Oce of Consumer Credit Commissioner.
Open Records Request rom the Texas Office o Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December December 17, 2014, rom the Texas Office o Consumer Credit Commissioner.
22
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Third-Party y Lender Market Undermines True Competition Part 2: The Current Third-Part
Just as CABs tend to be served by only one third-party lender, most third-party lenders only serve one CAB company, rather than multiple companies. O the 135 third-party third-part y lending companies, 80% served only one CAB, although the lender may serve multiple licensed
10
total number o third-party lenders. 24 This inding indicates that most third-party lenders are likely to be smaller companies that have an exclusive partnership with the CAB they serve. In some cases, the exclusive partnership is attributed to shared interests between
23
locations affiliated wi th that company. with Lenders our or more CAB companies only made up 6%serving o the
the companies. Part 3 o this study examines shared interests in greater detail.
B. Market Dominated by Handful of Third-Party Lenders
According to the data provided by the Texas Office o Consumer Credit Commissioner, in 2012 there were 217 licensed CABs, with 3,272 licensed locations throughout Texas, and 135 third-party lenders serving these CABs.25 Examining the number o licensed locations served by each third-party lender sheds light on the total market
share o the different third-party lenders. Most third-party lenders serve a small number o licensed CAB locations, with 45% serving one location or less (in the case o online lenders), and 26% serving two to five licensed locations.26 Just 4% o lenders serve over 200 licensed locations each, but these lenders dominate do minate the market.27
Percent of Third-Party Lenders Serving Licensed CAB Locations Grouped By Number of Locations Served, 2012
2% 51 to 100
45% 1 or less
4% Over 200
26 %
9% 11 to 50
2 to 5
14% 6 t0 10
Source: Texas Appleseed Analysis of Open Records Request from the Texas Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. D ata received December 17, 17, 2014, from the Texas Oce of Consumer Credit Commissioner.
23
24 25
Open Records Request rom the Texas Office o Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014 rom the Texas Office o Consumer Credit Commissioner. Id.
Open Records Request or CAB licensees and provisional licensees rom the Texas Office o Consumer Credit Commissioner (Apr. 2012).
26
Id.
27
Id. (Red Point Financial Group and JBC Funding are excluded rom this calculation because inormation regarding the locations each lender serves was missing
rom the documents. Both o these lenders s erve Cash America Financial Services locations. I either o these companies serve all o Cash America’s 258 licensed locations, these third-party lenders would surpass Bluffview and TreeMac, which are currently listed among the top five lenders in this report.).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Third-Party y Lender Market Undermines True Competition Part 2: The Current Third-Part
The top ive lenders in Texas (by number o licensed locations served) served 77% o all licensed CAB locations in Texas, despite making up only 4% o all third-party lenders.28 The number o licensed locations served by the top five lenders range rom 252 to 1,237 licensed locations:29 • NCP Finance LP (“NCP”): (“NCP”): 1,237 licensed locations, locations, 38% o total licensed locations in Texas;30 • Companies based at 201 E. Abram Street, Arlington, Texas,, with the same ownership: 434 licensed locations, Texas 13% o total licensed locations in Texas;31
11
• Integrity Texas Funding LP (“Integrity Texas”): 343 licensed locations, 10% o total licensed locations in Texas; • Millennium Loan Fund: Fund: 265 licensed locations, locations, 8% o total licensed locations in Texas Texas;; and • Bluview Funding Group, LLC (“Bluview”) and TreeMac Funding Group, LLC (“TreeMac”): 252 licensed locations, 8% o total licensed locations in Texas Texas..32
Percentage of Licensed Locations Served by Top Five Third-Party Lenders, 2012
38%
8%
Bluview and TreeMac
NCP Finance
23%
8% Millenium Loan Fund
All Other Lenders
10% Integrity Texas Funding, LP
13% Companies Based at 201 Abram St.
Source: Texas Appleseed Analysis of Open Records Request from the Texas Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. D ata received December 17, 17, 2014, from the Texas Oce of Consumer Credit Commissioner.
28
Id.
29
Id.
30
NCP and Integrity Texas both list Steven Camp as a registered agent and may be connected. However, no ownership inormation is available, and these companies are listed at different addresses. NCP is listed as being in Dayton, Ohio, while Integrity Texas is listed as being in Greenville, South Carolina. Steven Camp is an attorney located in Dallas, Texas. It is also o note that there are other ACE Credit Access locations in cities served by NCP that were not listed in the third-party lender organization reporting reporting data rom the OCCC. It is possible that NCP may serve these locations, up to a potential total o 441 locations.
31
DSI Lending Resources, ISF Texas LLC, L&G Finance Inc., LGM Finance, S&G Finance Inc., SGS Credit Services, SGS Finance Inc., Sundance Finance LLC, and Texas Loan Corporation are owned by Eugene McKenzie and David King.
32
Dona and Lesley McArron own Bluffview and Scott McArron owns TreeMac. Scott McArron is also listed as an officer o Bluffview. Both companies list their addresses as 8340 Meadow Rd., Suite 244, Dallas, TX 75231. Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Third-Party y Lender Market Undermines True Competition Part 2: The Current Third-Part
12
Five o the 17 CAB companies served by NCP are particularly large, such as ACE Credit Access, LLC (516 total locations, 320 served by NCP), ACSO o Texas, LP (238 licensed locations),33 Cash America Financial Services, Inc. (258 licensed locations),34 Southwestern & Pacific Specialty Specialty
major third-party lender, Integrity Texas (which serves 343 licensed locations), have the same registered agent.35 However,, the companies do not have matching addresses, However and no ownership inormation is on file or either, so they are listed separately in this chart.36 I these two
Finance, Inc. (231 licensedlocations). locations),NCP andand TitleMax o Texas, Inc. (133 licensed another
companies are act affiliated, theyinwould collectivel y 37 serve 48% o allinlicensed locations Texas.collectively
C. Overlapping Ownership Among Third-party Lenders
Some third-party lenders appear to have overlapping ownership with other third-party lenders, meaning that these lenders may be owned by the same individuals, by relatives, or by business partners who share an interest in
another company together. Twenty-five o 135 third-party lenders, or 19% percent have overlapping ownership with another third-party lender.38
Percent of Third-party Lenders with Overlapping Ownership, 2012
19%
Shared Interests
81% No Shared Interests
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index https://mycpa.cpa.state.tx.us/coa/Index.html .html (last visited May 19, 2015).
33
Cash America Financial Services is also served by two other third-party lenders, JBC Funding LLC and Red Point Financial Group. However, the data received rom the OCCC did not include an attached list detailing which locations are served by these third-party lenders. I either o these companies serve all o Cash America’s 258
34
Open Records Request rom the Texas Office o Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014, rom the Texas Office o Consumer Credit Commissioner.
35
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015) (Steven Camp with Gardere Gardere Wynne Sewell Sewell LLP, LLP, is listed as the registered registered agent or or both entities.).
36
Id. (NCP lists its address as 100 E. Third Street, 5th Floor in Dayton, Ohio, while Integrity Texas lists its address as 84 Villa Road, Greenville, South Carolina. No owner or officer inormation is available or either o these companies. Consequently Consequently,, it is unclear whether or not they share the same ownership.).
37
Open Records Request rom the Texas Office o Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received received December 17, 2014, rom the Texas Office o Consumer Credit Commissioner.
38
Thirteen o these twenty-five companies have owner and officer data showing that they have direct overlapping ownership. The remaining twelve have the same registered agent as anotherownership third-party lender,these whilethird-party no owner or officer Ten inormation is available. It ismatching possible that having matching agent not constitute overlapping between lenders. o these companies have addresses ata110 Cypressregistered Station Dr., Suitedoes 111, Houston, Texas 77090. The remaining two companies are NCP and Integrity Texas, both o which list Steven Camp as their registered agent. Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Third-Party y Lender Market Undermines True Competition Part 2: The Current Third-Part
Companies Based at 201 Abram Street, Arlington, Tex Texas as Nine third-party lenders share the same Arlington address and are owned by the same two individuals, according to public records:
13
Eugene McKenzie and David King are listed as jointly owning eight third-party lending companies, with McKenzie listed as the registered agent and director o each, and King listed as director and controller.39 All o these companies have addresses listed as 201 E. 40
• DSI Lending Resources;
Abram St., S&G SuiteFinance, 120, in Arlington, Texas. An additional company, company Inc., is listed at this address, but no ownership inormation is available or this company. 41 However, due to the matching address, this lender is included with the eight others and is assumed to belong to McKenzie and King as well.
LKA Enterprise, LLC and JOZA 2008, LLC: All in the Family? LKA Enterprises, LLC (“LKA”) and JOZA 2008, LLC (“JOZA”) are connected through what appears to be a amily relationship.42 Based on publicly available available documents, there is no common ownership between these two
companies. LKA is owned by Karen and Andrew Lasater, while JOZA is owned by Edward, Roger, and Debra Lasater.
• Texas Loan Corporation.
LKA Enterprise, LLC and JOZA 2008, LLC: Ownership Connections
Karen Laster
Andrew La Laster
LKA Enterprises, LLC
Edward Laster
Debra Laster
Roger Laster
JOZA 2008, LLC
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
39
Id.
40
Id.
41
Open Records Request rom the Texas Office o Consumer Credit Commissioner (2012). Request submitted on October October 25, 2012. Data received December December 17, 2014 rom the Texas Office o Consumer Credit Commissioner.
42
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 2: The Current Third-Part Third-Party y Lender Market Undermines True Competition
14
Bluffview and TreeMac: Ownership Connections
Dona Mc McArron
Lesley McArron
Scott McArron
Bluview Funding Group, LLC
TreeMac Funding Group LLC
Source: Texas Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
The ownership o these companies is likely structured in this way to enable these third-party lenders to serve
KRC Management Company The third-party lenders associated with KRC Management
CABs that are owned by other amily members, but not the same individuals. This structure will be discussed in urther detail in a later section. 43
Company, LLC, are as ollows: • Cactus Lending Group, Group, LP;
Bluffview Funding Group, LLC and TreeMac Funding Group, LLC Bluffview and TreeMac are both owned by members o the McArron Family.44 Bluffview is owned by Dona and Lesley McArron, and Scott McArron is listed as an officer o this company. Scott McArron also owns TreeMac. These lenders are also linked by a shared address, 8340 Meadow Rd. Suite 244, Dallas, TX 75231. 45 Bluffview is one o five lenders serving ACE Credit Access, LLC, and
TreeMacc is the sole lender to Cottonwood Financial. TreeMa
• Texas Gul Coast Capital, LP; • Texas Investors Choice, LP; and • United Texas Investors, LP. LP.
43
The structure o LKA and JOZA is likely set up in this way to allow these Lasater-owned third-party lenders to lend to Lasater-owned CABs without lending directly to a CAB with overlapping ownership. This structure is explained urther on page 19 o this report.
44
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
45
Id.
46
Cottonwood Financial is owned by Trevor Ahlberg, who was a high school classmate o Scott McArron at St. Mark’s School o Texas. They both graduated in 1986. TreeMac does not serve any CAB companies other than Cottonwood Financial. St. Mark’s School o Texas, 2013-2014 2013-2014 Annual Report: Alumni Giving by Class (2014), available at http:/ http://annualreport.smtexas.o /annualreport.smtexas.org/Page/Gi rg/Page/Gif-Report/Alumni f-Report/Alumni-Giving-by -Giving-by-Class/19801 -Class/19801989 989 (last visited June 1, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 2: The Current Third-Part Third-Party y Lender Market Undermines True Competition
15
These third-party lenders are connected to one another by way o the entity, KRC Management Company, LLC. Most o their company names include “c/o KRC Management” when listed as part o a CAB’s third-party lender inormation, with the exception o Cactus Lending Group, LP. LP.47 These companies associated with multiple addresses, however, allare except Cactus Lending Group have at least one address listed as 2040 N. Loop 336 W, Suite 101 in Madisonville, Texas. Other addresses that are listed multiple times include P.O. Box 1657 and 100 W. Main St., both in Madisonville.48 All o these companies list KRC Management Company, LLC as their registered agent, but only Cactus Lending Group has ownership and officer inormation on file. 49 Although the connection between these third-party lenders is strong, it is not possible to know the ull complexity o the connection between these lenders without ownership or membership inormation or the remaining nine lenders. Although the CSO model is structured in a way that is intended to promote competition among a variety o third-party lenders, in practice, this does not seem to be the case. While, on the outside, it appears that the third-party lender market is robust with competition, behind the corporate veil, there seems to be significant concentration in the capital sources for payday and auto title lending businesses in Texas—through overlapping overla pping ownership among third-party lenders and the market domination of a few large players.
47
48
Open Records Request rom the Texas Office o Consumer Credit Commissioner. (2012). Request submitted on October 25, 2012. Data received December 17, 2014 rom the Texas Office o Consumer Credit Commissioner. Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
49
Id. (While owner and officer inormation is generally not available or the third-party lenders associated with KRC Management, both Clinton Carroll and Krystal
Carroll are listed as Members or Cactus Lending Group.).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Transparency and Competition Hindered by Complex Web PART 3
of Ownership of CABs and Third-party Lenders A. While There Appear to be Many CAB Licensees, Multiple Licensees Share Ownership
Just as shared interests in ownership exist between third-party lenders, the same situation is the case or many CABs. However, these shared interests are even more prevalent among CABs than third-party lenders. Sixty-eight, or 31%, o CABs appear to have some sort o shared interest with one or more other CABs. This shared interest generally involves ownership by the same individual or multiple individuals, but may also
involve a complex web o ownership involving multiple CABs and individuals. Thirty-nine o these 68 CABs have shared interests that are direct in nature, meaning that the same individuals are involved with the ownership and membership o all o the related CABs. Most o these direct connections exist between two CABs.
Percent of CABs with Overlapping Interests, 2012
31% Overlapping Interests with One or More CAB(s)
69% No Overlapping Interests with Other CABs
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
50
Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
51 52
Id. Id.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
17
The Credit Access Businesses with direct overlapping ownership are as ollows:
Direct Overlapping Ownership Among CABs 53 Company Names
Individual(s) Involved in Each CAB
AEL Net o Texas, LLC CNU o Texas, LLC
Timothy Ho, President
All FastBucks Companies (7 total)54 Payday Everyday CSO, LLC
James Whatley, President Thomas H. Welch, Director
TitleMax o Texas, Inc. TMX Credit, Inc.
Tracy Young, President
Id.
The seven FastBucks CAB companies include FastBucks CSO LLC, FastBuck FastBuckss CSO III LLC, FastBucks o Anthony CSO VI Texas LLC, FastBucks o McKinney CSO IV Texas LLC, FastBucks o North Richland Hills CSO IX Texas LLC, FastBuck FastBuckss o Sherman CSO V Texas LLC, and FastBucks o Terrell CSO XII Texas LLC.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
Twenty-ive o the 68 companies with overlapping ownership have more complex relationships.55 For example, in some instances, a group o individuals are involved in the companies, but not all are involved in each one. These connections generally involve a larger number o CAB companies. These relationships will be presented in the ollowing webs to illustrate the complex connections between these companies.
18
“Doing Business As” (DBA) Power Finance 56 Twelvee different CABs operate under the DBA o Power Twelv Finance. The ownership o the various CABs include a web o six individuals, seven trusts, and three corporations.
Many o the trusts appear to be connected to one or more o the individual owners or their amily members.
DBA Power Finance: Ownership Connections
DBA Power Finance Gary Elkins
Crystal Boyd
Big City Finance Wharton Investment Trust
GE & CE. LLC
University Investment Trust
Cash Station
Champion Finance
CPCWA GWE 90 Trust JAE 90 Trust
Freeway Finance
CBE 90 Trust JRE 90 Trust EGE 90 Trust
Personal Credit Corp.
CBA Leasing
Money Factor Corp. Lorri Davis
CLGP, Inc
Dollar Advance Carlos Lopez
Imperial Leasing
Rapido Dinero
Je Crook
Ana P. P. Martinez
55
56
Fidelity Finance
First Capital Money Center
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2 015, available at https://mycpa. https://mycpa.cpa.state.tx.us/coa/Index.htm cpa.state.tx.us/coa/Index.htmll (last visited May 19, 2015).
The our remaining CABs o these 68 may not be connected at all, but are owned by individuals with the same, or similar names. David Hendrick is listed as the president o Quick Cash Check Cashing, and another CAB has the entity name, “Hendricks, David.” While these CABs may not actually be related, there is a possibility that the last name is misspelled in one o these instances, and they may reer to the same person. Two other CABs, Jonah Investment Group LLP, and Trezor LLC list Joe Hernandez as President and Director, however, the addresses listed or these companies do not match up, and it is possible that these companies may not have overlapping ownership. Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015) Id.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
vv
A Web of “Zones,” “Kingdoms,” and “Cash” 57 Six CABs share a web o connections. Each CAB appears to be owned by two or three individuals, with each individual having an ownership interest between one
and three o the group o CABs. With the exception o Cash Kingdom and Cash Zone, each o the CABs shares a different combination o owners.
“Zones,” “Kingdoms,” and “Cash”: Ownership Connections
Cash Kingdom
Michael Cooley
David Flanagan
Cash Zone
Terry Morgan
Zip Cash
Swift Cash
Bob Morgan
Cash Stop
Gary Randall
Corey Randall
Money 4 You
Source: Texas Comptroller of Public Accounts, Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
Three Separate CABs; One Famil Family y 58 The three CABs, ABOUTC, LLC, CZ2008, LLC, and Leason, LLC are connected with individuals with the Lasater name. However, only certain individuals are involved in each CAB, in a similar ashion to the ownership structure o the related third-party lending companies. By only having certain individuals involved involved with each CAB, rather than having all owners involved in all three,
the Lasater-affiliated companies are able to avoid having a direct lending connection between CABs and the third-party lenders that share overlapping overlapping ownership. These lender-CAB relationships will be discussed in greater detail under the heading “Family Connections: CAB and Third-Party Lenders.”
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015. available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
57
Id.
58
Id.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
A Mix of Joint and Separate Ownerships 59 Four CABs, Seminole Advances, U.R. Resources, Andrews Advances, and Arlington Rent to Own, are connected through a mix o overlapping and separate ownership.
Richard Simco and Dan Yates jointly own Seminole Advance and Andrews Advance, but own Arlington Rent to Own and U.R. Resources, separately. separately. This ownership structure seems to be designed to enable these business affiliates to lend to one another’s companies without having a direct relationship between the CAB and the third-party third-pa rty lender, which will be evidenced in the section
20
o the report titled, “Third-party Lenders Serving CABs Owned by a Business Partner.” While most relationships between third-party lenders are characterized by the same individual(s) being involved in multiple companies, many others rely on a more complex web o ownership. The complex web o ownership could be a means to avoid obvious overlapping ownership and to give the appearance o complying with the legal standard o separation between the CAB and the thirdparty lender.
Overlapping Ownership Connections
Dan Yates
U.R. Resources
Richard Simco
Seminole Advance
Andrews Advance
Arlington Rent to Own
Source: Texas Comptroller Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
B. CABs and Third-party Lenders Share Ownership, Operating on the Edge of the Law
Just as shared interests have been shown to exist between multiple third-party lenders and multiple CABs in previous
must be beore it violates the law.60 While some thirdparty lenders are owned by the same individual owning
sections, overlapping interests also exist between CABs and a third-part third-party y lenders. In many cases, third-party lenders with overlapping interests with CABs are the sole lenders to those CABs.
the CAB they serve, other lenders are owned by amily members or business partners who are involv involved ed with the CAB owner in other companies, and it remains unclear i these CABs and lenders operating on the edge o the law or are violating the law.
Currently, Texas law permits CABs to utilize third-party lenders, or Credit Service Organizations, to obtain “an extension o consumer credit or a consume.” While the model relies on independence between CABs and thirdparty lenders, it is unclear how close the relationship
59 60 61
Of the 135 third-party lenders listed in 2012 CAB license applications, 30, or 22% have some sort of 61 While some overlapping ownership with a CAB. 61 instances o overlapping ownership involv involvee a third-party
Id.
See Tex. Fin. Code § 393.001. Definitions. 1 January 2012. Texas Comptroller o Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 19, 2015).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
lender serving a CAB with the exact same ownership, many involve lending to a CAB owned by amily members or business partners. The remainder o these instances simply involve overlapping ownership between CABs and third-party lenders and do not involve any direct
21
lending relationship. Because these third-party lenders do not lend to a CAB with the same or related ownership, they do not appear to violate any laws or regulations regarding third-party lenders.
Percent of Third-Party Lenders Sharing Ownership with One or More CABs, 2012
22% Shared Interest between 3rd Party Lender and CAB
78% No Shared Interest between 3rd Party Lender and CAB
Source: Texas Comptroller Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
Of the 30 third-party lenders that are connected to one or more CABs, five lend directly to a CAB with the same ownership as that lender.62 Thirteen lenders lend to amily members who are not listed in direct
ownership o that particular third-party lending company. company. The remaining 10 lenders do not have a direct lending relationship to the CABs owned by the same individuals as the third-party lender.
Percent of Third-Party Lenders with Shared Interests with CABs by Type, 2012
48%
7%
Family Connection, Direct Lending
Business Partner Connection, Direct Lending
37% Same Ownership, No Direct Lending
19%
Same Ownership, Direct Lending
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.state.tx.us/coa/Index.html (last visited May 19, 2015).
62
Id.
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
22
Third-party Lenders Serving CABs with Same Owners and/or Officers The five lending connections between third-party third-party lenders and CABs with the same owners are as ollows: Third-party Lenders Serving CABs with Matching Ownership or Officers 63
CAB
Third-party Lender
Individual(s) Involved in Both Companies
Role(s) in CAB
Role(s) in Third-party
Mas Cash, LLC
Mex Grocer, LLC
Daniel Aceves
President, Member
Registered Agent (officers not on file)
Money Depot o Texarkana, Inc.
Paige Loan, LLC
Eric Botsch
Registered Agent
Registered Agent (officers not on file)
FABSO, Inc.
El Paso Loan Funding Associates, LLC
Marsha Choate
President, Director
Vice President, Director
Eugene McKenzie
Registered Agent
Registered Agent, Director
David King
Controller, Director
Controller, Director
Dan Pearce
President, Manager
Registered Agent, Manager
Presto Loans, LLC
Hill Country Lending Services, LLC
63
Id.
Sundance Finance, LLC
Ridgeback Lending, LLC
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
23
Third-party Lenders Serving CABs Owned by Individuals Sharing a Family Name These CABs are owned by individuals with the same last name as the owners/officers o their third-party lenders, and thus could be related to their respective third-party lenders. Some o the CABs and lenders included in this table are individuals rather than entities, and are listed at the end o the table.
Third-party Lenders Serving CABs with Possible Family Connections CAB
Individual(s) Involved
Role(s) in CAB
Third-party Lender
Individual(s) Involved
Role(s) in Third-party
Shaw's R&R Jewelry and Loan, LP
Rodney Corolla
President, Registered Agent
FRAMCO, Inc
Frank Corolla
Registered Agent, President, Director
Advantage Finance, Inc
Asi Dharani
President, Manager
AAA Funding, Inc.
Amirali Dharani
Director
Andrew Lasater
President, Registered Agent, Manager, Director
Edward La Lasater
Registered Ag Agent
Debra Lasater
Member
Roger Lasater
Managing M
ABOUTC, LLC
JOZA 2008, LLC Karen La Lasater
Edward Lasater
Manager, Di Director
Registered Agent
Andrew Lasater
Registered Agent, Manager
CZ2008, LLC
Maxi ximu mum m Tit itle le Lo ans ans,, LL LLC
Debra Lasater
Member
Roger Lasater
Managing M
B arr arry y M ark arkss
Registered Agent, President
Elizabeth Ramirez
President, Registered Agent
Scott St. Title Loans, LLC Zach Ramirez
Member, Director
Joseph Pearah
President, Registered Agent
Texas Loan Brokers I, LLC
LKA Enterprises, LLC Karen Lasater
Manager
JGM Capital
James Marks
Registered Agent, Director, Secretary Director,
RMR Lending, LLC
Roy Ramirez
Registered Agent, Member
Tri-State Fu Funding, LL LLC
Norman Pe Pearah
Registered Ag Agent
Todd Pe Pearah
Member/Director
Rio Title Loans, LLC
Rogelio Saenz
Registered Agent, Director Director,, Member
D'H 'Hei eigh ghts ts Le Lend ndin ing, g, LL LLC C
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
24
Family Connections: CAB and Third-Party Lenders Family As discussed in previous sections, multiple CABs, including ABOUTC LLC, Leason LLC, and CZ2008 LLC, along with third-party lending companies, LKA, and JOZA, are owned by a variety o individuals with the Lasater
Third-party Lenders Serving CABs Owned by a Business Partner As mentioned in previous sections, Richard Simco and Dan Yates own two CABs together, Andrews Advance and Seminole Advance, which suggests that they are business
name. The ownership o these companies is organized in such a way that allows these t hird-party lenders to lend to CABs owned by Lasaters without lending directly to a CAB owned by the same individual. For example, ABOUTC, LLC lists JOZA as its third-party lender. Karen and Andrew Lasater are owners and officers o ABOUTC, LLC, while Frank, Roger, Debra, and Edward Lasater are officers o JOZA.64 This structure is inverted or the lending relationship between CZ2008, LLC and LKA.65 Although Althoug h Leason, LLC is also listed as a CAB owned by the Lasaters, no third-party lender inormation is provided or this CAB in the data rom the OCCC.66
partners. Although Although they each own a CAB separately rom the other, they also each independently own a third-party lending company, which is listed as the lender to the CAB owned by the other. For example, Dan Yates owns U.R. Resources separately rom Richard Simco, and Main Stream Resources serves as the lender to this CAB. Richard Simco owns Main Stream Resources, and this lending relationship, along with their joint ownership o Seminole Advance and Andrews Advance, suggests suggests that these two individuals have a shared interest in lending to one another.68
CAB and Third-Party Lender Connections
LKA Enterprises, LLC
Karen Laster
CABs
Andrew Laster
ABOUTC, LLC LLC
Frank Laster
LEASON, LLC LLC
CZ2008, LLC LLC
Third-Party Lender Roger Laster Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cpa.s https://mycpa.cpa.state.tx.us/coa/ tate.tx.us/coa/Index.html Index.html (last visited May 19, 2015).
64
Id.
65
Id.
66
Id. 67
Id.
68
Id.
Debra Laster
JOZA 2008, LLC LLC
Edward Laster
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
Part 3 Transparency and Competition Hindered by Complex Web of Ownership of CABs and Third-par Third-party ty Lenders
25
Overlapping Connections Between Owners of CABs and Third-Party Lenders
Andrews Andrew s Advance Advance
South Plains Resources
Arlington Arlingto n Rent to to Own
Dan Yates
Richard Simco
U.R. Resources
Main Stream Resources
Seminole Advance
CABs
Third-Party Lender
Source: Texas Comptroller of Public Accounts, Taxable Entity Search, February 1, 2015 to April 12, 2015, available at https://mycpa.cp https://mycpa.cpa.state.tx.us/co a.state.tx.us/coa/Index.html a/Index.html (last visited May 19, 2015).
The law regarding relationships between CABs and third-party lenders clearly establishes that a CAB and third-party lender should be separate entities.69 The
the third-party lender. The existence of overlapping ownership and shared interests between CABs and third-party lenders seems to indicate that the CAB
models o operation that are illustrated in this section exist, at best, on the edge o the law, using technicality technicality to evade the intent o the law. The data show that multiple CABs have been operating under arrangements that call to question the true independence o the CAB rom
lending model is largely a scheme to evade usury laws and consumer lending protections in Texas, rather than a tool to benefit consumers or enhance market competition.
69
Tex. Fin. Code §393.001 (3).
PULLING BACK THE CURTAIN SHINING A LIGHT ON PAYDAY AND AUTO TITLE LOAN BUSINESSES IN TEXAS
PART 4
Conclusion and Policy Recommendations he findings of this inside look at the structure and ownership of payday and auto title loan businesses and the third-party lenders that capitalize the loans supports the assertion that this model of lending is structured to get around the rate and fee caps that currently apply to consumer lending in state law.
T
More than documenting this structure, the inormation in this study points to concerning act patterns in the industry—a pattern o limited competition, with a handul o third-party lenders dominating the market, compromised transparency, and a maze o overlapping ownership among CABs and third-party lenders. Perhaps one o
the greatest ironies o the Texas Finance Code is that the Credit Services Organization Act is under Title 5: Consumer Protection. As it has played out in the Texas market, it has, in sum, served to hinder rather than enhance consumer protection.
Policy Recommendation 1
CSOs and CABs should not be using the Credit Services Organization Organization Act as an end-run around Texas rate and ee caps or consumer loans. The Texas Legislature should level the playing field or business and consumers alike by requiring that all consumer loan businesses comply with the same rate and ee structures currently established by statute and administrative rules under Title 4 o the Texas Finance Code. Policy Recommendation 2
A deeper study must be conducted on the source o capital that drives the third-party lender model. The results o this study point to a concerning concentration o capital that undermines market competition and transparency or consumers. Policy Recommendation 3
Establish clear and enorceable standards to ensure that CSOs do not evade the requirement that they arrange credit “by others.” Standards should prohibit any any overlap in ownership, officers, or employees employees between CABs and third-party lenders that service them, including amily relationships among the different owners, as well as business partnerships where the same group o individuals own CABs and third-party lenders, evading the spirit o the law.
Texas amilies need access to air and responsible consumer loans. Fair consumer lending markets are key to successul amilies and local economies. I the CSO/ CAB lending market is allowed to persist unchecked, it
will continue to undermine competition and transparency in the Texas market and hinder a air playing field or consumer lending—or borrowers and lenders alike.