PULLING BACK THE CURTAIN

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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 grateul 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 grateul 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.

First Edition © 2015, Texas Appleseed. All rights reserved, except as ollows: Free copies o this report may be made or personal use. Reproductions o more than ive (5) copies or personal use and reproduction or commercial use are prohibited without the written permission o the copyright owner. The work may be accessed or reproduction pursuant to these restrictions at www.texasappleseed.org www.texasappleseed.org..

 

Table of Conten Contents ts Executive Summary

04

Part 1 

Introduction

06

Part 2 

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, inormation 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 inormation. This report is a presentation o the open records CAB licensee inormation supplemented by public ownership inormation 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 reorm 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 reorm. 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 “deerred 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 inormation about the ownership and the source o capital or these high-cost loan businesses oers new inormation 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 inormation

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 enorceable standards to ensure that CSOs do not evade the requirement that they arrange credit “by others.” Standards should prohibit prohibit any overlap, in ownership, oicers or employees, between CABs and the third-party lenders that service them. Such prohibited overlap must include amily relationships among the dierent 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 successul 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 nonsucient funds fees.

4

Texas Appleseed analysis analysis o the Texas Office o Consumer Credit Commissioner Credit Access Business Annual Data, CY 2 014 (June 23, 2015).

5

Texas Appleseed analysis o the Texas Office o Consumer Credit Commissioner Credit Access Business Quarterly Reports, Q1-Q4 2014 (April 16, 2015).

6

Tex. Const., Art. XVI, § 11.

7

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 deault, 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 inormation was known about ownership or relationships between CSOs and the third-party lenders offering loans to

07

CSO customers, even though the inormation 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 inormation, it was also diicult 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 meaningul 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 inormation. The CAB ownership data rom the license applications was provided, but the third-party lender data request was reerred 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 inormation.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 inormation.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 inormation 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 inormation obtained rom the Texas Comptroller o Public Accounts. Afer this inormation was compiled or the 217 licensed CABs included in the 2012 data, the process o looking up owner

officer inormation 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 inormation on file on the comptroller website,

and officer inormation 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 inormation pertains to the third-party lender reported in the data. 20  While some inormation may not be complete or CABs or third-party lenders, all o the inormation 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 inormation 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 Oice o Consumer Credit Commissioner. (2012). Received November, 2012 rom the Texas Oice 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 Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014, from the Texas Oce of Consumer Credit Commissioner.

21

Source: Texas Appleseed Analysis of Open Records Request from the Texas Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. Data received December 17, 2014, from the Texas Oce 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 Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. D ata received December 17, 17, 2014, from the Texas Oce 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 inormation 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

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• 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 • Bluview Funding Group, LLC (“Bluview”) 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%

Bluview 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 Oce of Consumer Credit Commissioner (2012). Request submitted on October 25, 2012. D ata received December 17, 17, 2014, from the Texas Oce 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 inormation 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 inormation 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 inormation 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 inormation 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 inormation 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.

• ISF Texas, LLC; • L&G Finance, Inc.; • LGM Finance;

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

• S&G Finance, Inc.; • SGS Credit Services; • SGS Finance, Inc.; • Sundance Finance, Finance, LLC; and

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).

 

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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

Bluview 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

• DDB Investment Company, LP; • Imperial Lending Group, Group, LP; • Preerred Lending Lending Group, LP; • Progressive Lending Group, LP; LP; • Qualified Lending Group, Group, LP; • Source Lending Group, LP;

46

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).

 

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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 inormation, 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 inormation 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 inormation 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 inormation 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.

 

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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

Charles Horton, Director/President

Allied Cash Advance Texas, LLC Southwestern & Pacific Specialty Finance, Inc.

A. David Davis, President

Approved Money Center Online MyCashTime

Robert Gross, President Evan Katz, Director Brian Hawkins, CEO/CFO Frank Cerda, COO

BB & DC Enterprises DC & BB Enterprises

Brian Baker, President David Carr, Vice President

Check into Cash o Texas, LLC Loan by Phone o Texas, LLC

Stephen Scoggins, President

Cybernet Funding, Inc Webnet Funding, Inc.

Jimmy Whitaker, President

Express Title Loans, Inc. Southwest Texas Title Loans, Inc.

Earl Linder

Financial Service Centers o Texas, Inc. My Cash Center, LLC

Douglas Pruett Mary Pruett William Pruett

Graham Cash Express, LLC Joshua Cash to Go, LLC

Tim Eminger Dan Eminger Ben Eminger David Eminger

DBA Cash Loan Texas (entity name N/A) 77496 LLC

54

Shawn Jones, Vice President Ruth Jones, Treasurer

ETRC, Inc. Federal Cash Advance o Oklahoma, LLC

Meadowwood Financial Services, LLC Wellshire Financial Services, LLC

53

Lawren Jones, President

Roderick Aycox, Director Leslie Aycox, Member Kenneth Wayco, President Salima Dharani, Officer

SCIL Texas, LLC The Money Store, LP

Douglas Rippel Chadwick Faulkner, President Matt Miller

Texas EZMONEY, LP Texas EZPAWN, LP EZMONEY Loan Services

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.

 

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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 reer 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.

 

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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.”

ABOUTC, LLC; LLC; Leason, LLC; and CZ2008, LLC: LLC: Ownership Connections

Karen Laster 

 Andrew Laster  Laster 

 ABOUTC, LLC

Frank Laster 

LEASON, LLC

Roger Laster 

CZ2008, LLC

Debra Laster 

Edward Laster 

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.

 

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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 beore 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).

 

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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.

 

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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

 

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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

Vir irgi gili lio o Sae Saenz nz

Registered Agent, Director,, Member Director

Pancho's Title Loan, LLC

Molly Sayklay

Member

Say Fam Investments, LLC

Joseph Sa Sayklay

Registered Ag Agent

ETRC, Inc.

Jimmy Whitaker

Registered Agent, President, Vice President

L.B.C L.B .C.. Inv Inves estm tmen ents ts,, LLC LLC

Lynn Ly nna a Whi Whita take kerr

Registered Agent, Managing M

Hendricks, David

James and Bobbie Hendricks

Nelly Kinuthia Cayle Womack

Bill Womac

 

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 inormation 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 inormation in this study points to concerning act patterns in the industry—a pattern o limited competition, with a handul 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 enorceable 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 successul 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.

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