Payday Loan Alternatives & The CSO Model

Payday Loan Alternative Approaches

Assuming you plan to operate in a state lacking current enabling legislation, our opinion is that it is wise to research and study the payday loan industry as thoroughly as possible; then enter anyway you can! Of course, your team must be composed of good legal and accounting expertise. Next, do whatever it takes to be aware of ANY legislation introduced in your locale. It is certain that the continued pressure on your regulators from the internet payday loan model, the Internet Service Provider approach, the call center approach and the legal payday loan businesses on your geographic borders will result in favorable legislation in your geographic area! This is inevitable. Consumers EVERYWHERE demand our payday loan product. It serves a gigantic need in the marketplace.

It is generally thought that instead of implementing the bank model, consider working to get your legislators to wake up to the inevitable and embrace the payday loan product. In the interim, prepare yourself to enter the business the day your legislature gives you the green light!

State regulators are focusing on the payday loan alternatives. The ISP model; the phone card; the sale-leaseback... THEY DO NOT LIKE THEM! Disguised loans! Alternatives! They would rather we worked to change the state law. Of course, MSN, Earthlink, and AOL all offer cash rebate programs with dramatic success. Why can’t we utilize these tactics? If you can afford to litigate them or you plan to remain "under-the-radar", go for it.

ISP Approach With Cash Rebates
Again, HAVE A GOOD LEGAL TEAM! You will be attacked. This does not mean the cash rebate approach is not legal. It does mean you should research this model very carefully and keep your eyes on what the "big-boys are doing. And always consult competent legal counsel.

In late 2005, several of the larger payday loan companies began offering a "CSO" model More CSO Information  in states like Texas, PA, AR, NJ, etc. The CSO model is a "Credit Services Organization. It is not regulated in most states.

In the "CSO Model" More CSO Information , two separate independent organizations are created. The 1st is a credit services organization. The CSO offers credit counseling, credit score improvement, provides an extension of a consumer's credit, and acts as a loan broker. Ultimately, the CSO will underwrite and originate a loan and then place the loan with an unaffiliated lender who will fund the loan to the consumer. The CSO may charge whatever they wish for these services!

The CSO Model is very new. It has been embraced by some of the largest players in the cash advance industry. These include Advance America, EZCORP, Cash America, QC Holdings, and First Cash Financial. The CSO model originated in Texas and is certain to become more popular in other states not having safe-harbor legislation presently.

Note that we offer a complete analysis of the CSO Model in our Payday Loan Startup & Training Manual If you are in a state in which this approach should be considered, it will ship free with the Manual.