CSO Model Basics

The information in this post is taken from a power point by attorney Scott Sheehan of Greenberg Traurig.  J. Scott Sheehan is a business lawyer with a national practice in banking and financial institutions, and consumer and commercial financial services.

The CSO registers as a CSO under Chapter 393 of the Texas Finance Code. It advertises for customers for credit services, including the arranging of loans by an independent third-party lender and the issuance of a letter of credit or similar engagement that secures payment by the customer of the loan from the third-party lender.

The third-party lender, in turn, operates as a lender under Chapter 302 of the Texas Finance Code by limiting its compensation to an effective rate of interest not to exceed 10% per annum. In Texas, a lender is not required to be licensed if the interest rate is below 10% per annum.


  • The CSO and the third-party lender must be unaffiliated, with no common ownership, no common directors, officers or employees, and with no financial relationship;
  • The CSO must maintain all necessary registrations, bonds, disclosure statements, contract terms and procedures required for a CSO under Chapter 393;
  • All all loans by the lender must be approved based upon criteria established by the lender;
  • The lender’s loan documents must conform to the limitations of Chapter 302;
  • The lender’s funds must be the sole source of funds for all of the consumer loans;
  • The lender may not share directly or indirectly in the CSO fees or other permitted charges;
  • The CSO may not share directly or indirectly in the lender’s 10% per annum interest or other permitted charges;
  • The CSO is not authorized to act as the lender’s general agent; and
  • The CSO may act solely as special limited agent of the lender as to specific matters expressly approved in writing by the lender.

Legal Precedent:

  • Lovick v. Ritemoney, 378 F.3d 433 (5th Cir. 2004)
  • Commissioner Leslie Pettijohn Letter dated May 27, 2005, which was introduced into the House Journal regarding House Bill 955
  • J. Scott Sheehan letter to Texas Attorney General (November 15, 2005)
  • Texas Attorney General Letter by Barry R. McBee, First Assistant Attorney General, to Commissioner Leslie Pettijohn (January 12, 2006)
  • Texas Constitution Article 16, §11
  • Texas Finance Code Chapter 302 (10% general usury statute)
  • Texas Finance Code Chapter 393 (Texas Credit Service Organization Act)
  • Texas Finance Code Chapter 342 (regulated loan chapter for loans at rates over 10%)
  • Texas Business and Commerce Code §3.506 (dishonored check fee)
  • Texas Business and Commerce Code §5.102 (non-bank letter of credit)

CSO Documents:

  • CSO and Lender Agreement
  • Lender Guidelines
  • Related documents (e.g., parent guaranty, CSO legal opinion in favor of lender)
  • Exchange system between the CSO and the Lender
  • CSO Advertising and Signage
  • CSO filings and bond with the Texas Secretary of State
  • CSO Disclosure Statement
  • Application for Credit Services and Third-party Loan
  • CSO Privacy Policy
  • CSO Agreement
  • CSO Right to Cancel Notices
  • CSO Adverse Action Notices
  • Combined Letter of Credit
  • Lender Privacy Policy
  • Lender Conditions
  • Lender Condition Loan Approval
  • Lender Adverse Action Notices
  • Lender Disclosure Statement and Promissory Note
  • Lender Payment Device to disburse loan proceeds
  • Arbitration Clauses
  • Combined Sight Draft and Drawing Certificate
  • Collection Letters

Here is an invaluable FAQ from the Texas Secretary of State website regarding CSOs.

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