A CAB installment loan is a high-cost consumer loan arranged in Texas by a Credit Access Business, a licensed intermediary that connects you with a third-party lender and charges its own service fees for doing so.1State of Texas. Texas Finance Code Section 393.601 – Definitions The lender’s interest rate is usually modest, around 10%, but the CAB’s fees stack on top of that and push the combined annual percentage rate into the hundreds.2Texas Legislature. The Basics: Credit Access Businesses in Texas You sign two contracts, you owe two parties, and most of your payment goes to the broker rather than to paying down what you actually borrowed.
What a Credit Access Business Is
A Credit Access Business, or CAB, is a type of credit services organization licensed under Texas Finance Code Chapter 393. A CAB doesn’t lend its own money. It brokers a loan for you from an independent lender, handles the paperwork, and guarantees your debt to that lender if you stop paying.1State of Texas. Texas Finance Code Section 393.601 – Definitions That guarantee is the whole point of the structure. Lenders willing to fund borrowers who could not qualify at a bank are protected because the CAB has promised to cover the loss.
By statute, CABs can only arrange two kinds of credit: deferred presentment transactions (payday loans) and motor vehicle title loans. A CAB installment loan is a deferred presentment transaction restructured so you pay it back in scheduled installments rather than one lump sum on your next payday.3State of Texas. Texas Finance Code Chapter 393 – Credit Services Organizations Splitting the balance across multiple payments makes each one smaller, but it also means the CAB charges its service fee on every payment cycle instead of once.
How the Three-Party Deal Is Structured
Every CAB installment loan involves three parties. You sign a promissory note with the third-party lender for the principal and interest, and a separate service contract with the CAB for its brokerage and guarantee fees. The lender funds the loan, the CAB arranges it and backstops the default risk, and you owe money to both.
The CAB typically issues a letter of credit or guarantee to the lender. If you default, the CAB pays the lender the outstanding balance. That is why the lender is willing to underwrite a borrower it would otherwise reject: the risk of nonpayment sits with the CAB, not with it.
Each installment you pay gets split between the two parties. Part of your payment covers the lender’s principal and interest. The rest goes to the CAB’s service fee. Because the fee is usually much larger than the interest, most of what you pay each cycle is going to the broker rather than reducing what you borrowed.
What These Loans Actually Cost
Cost has two layers, and the visible one is the smaller one. The third-party lender’s rate on the principal is typically about 10% annualized.2Texas Legislature. The Basics: Credit Access Businesses in Texas On its own, that looks unremarkable.
The CAB’s service fee is where the real cost lives. It averages roughly $23 per $100 borrowed, and it is charged every payment period, which is typically every two weeks or every month.2Texas Legislature. The Basics: Credit Access Businesses in Texas Because these charges are labeled brokerage and guarantee fees rather than interest, they are not subject to the lender interest rate caps in Texas Finance Code Chapter 342. Combine the lender’s interest and the CAB’s fees into a single APR and the total commonly lands somewhere between 200% and 500%, sometimes higher, depending on the loan size and term.
That gap is the trap. Borrowers who look only at the 10% lender rate see a reasonable loan. The service fee, which does not feel like interest because it is called something else, is doing almost all of the financial damage. On a $500 loan repaid over six months at typical CAB pricing, the total finance charge can exceed the amount you borrowed.
What the Disclosures Show
Federal law requires the full cost to be spelled out before you commit. Under Regulation Z, which implements the Truth in Lending Act, the lender must disclose the finance charge as a dollar amount and the APR as a yearly percentage.4eCFR. 12 CFR Part 226 – Truth in Lending, Regulation Z The finance charge has to include the CAB’s fees, not just the lender’s interest, and the APR has to reflect the combined cost.
Before signing either agreement, look at two numbers on the disclosure: the total finance charge and the APR. Compare the finance charge against the principal you are actually receiving. That comparison, more than the monthly payment amount, tells you what the loan really costs.
One thing you will not get is a cooling-off period. The federal right of rescission under Regulation Z applies only to loans secured by your home. A CAB installment loan is not secured by real estate, so once you sign, both contracts take effect immediately.
The Refinancing Trap
Refinancing is where borrowers lose the most, and it is the mechanism that turns an expensive loan into a genuinely dangerous one. When you refinance, the CAB treats the new loan as a new transaction and charges a full set of fresh service fees on the remaining balance. The fees you already paid are not credited toward the new loan. You end up paying the $23-per-$100 charge twice on money you never fully repaid the first time.
This pattern, sometimes called loan flipping, compounds fast. Refinancing a $500 loan even once or twice can more than double the effective APR compared to a single longer-term loan for the same money. The fee structure gives the CAB a strong incentive to offer a refinance rather than simply extend your original term.
Some Texas cities have passed local ordinances to blunt this. Certain municipal rules prohibit refinancing CAB installment loans outright and require each installment to reduce the principal by at least 25%. Single-payment CAB loans may be limited to three renewals, with each renewal also requiring a 25% principal paydown. These rules vary by city, so whether they protect you depends on where the CAB is located.
Automatic Withdrawals and Failed Payments
Most CAB installment loans require you to authorize ACH debits from your bank account, timed to your pay schedule. Payments are pulled automatically. If your balance is short on a payment date, the withdrawal bounces and fees can pile up from both the CAB and your bank.
Federal rules under 12 CFR Part 1041 address what happens after failed attempts. Once two consecutive withdrawal attempts fail for insufficient funds, the lender is barred from trying again unless you give new, specific written authorization.5eCFR. 12 CFR Part 1041 – Payday, Vehicle Title, and Certain High-Cost Installment Loans Any blanket authorization in your original contract does not override this. The lender also has to send you a notice explaining the rule.
There is a caveat worth knowing. In March 2025, the Consumer Financial Protection Bureau announced that it would not prioritize enforcement of these payment provisions.6Consumer Financial Protection Bureau. CFPB Offers Regulatory Relief for Small Loan Providers The rule remains in effect, but federal enforcement is uncertain. If a lender keeps debiting your account after two failed tries without new authorization, you may need to dispute the transactions through your bank directly instead of relying on a regulator.
What Happens If You Default
Default triggers the guarantee that made the loan possible. The CAB pays the lender under its letter of credit, which ends your obligation to the lender. It does not end the debt. The CAB now stands in the lender’s place and comes after you for what it paid, plus any service fees still owed under your contract with it.
Whether federal debt collection rules apply depends on who is collecting. Under Regulation F, which implements the Fair Debt Collection Practices Act, a creditor collecting its own debts in its own name is generally not treated the same as a third-party debt collector.7eCFR. 12 CFR Part 1006 – Debt Collection Practices, Regulation F If the CAB collects the guaranteed amount itself, it may argue it is collecting its own debt. If the CAB sells or assigns the debt to an outside collector, that collector is subject to the FDCPA in full, including the required validation notice within five days of first contact and the ban on harassment.
Collection can also escalate to a lawsuit for the unpaid balance. A court judgment against you could lead to wage garnishment or bank account levies, depending on your circumstances. Defaulting changes who you owe and how they can pursue you; it does not make the debt go away.
If You Are Active-Duty Military
The Military Lending Act caps the total cost of most consumer credit to active-duty service members and their dependents at a 36% military annual percentage rate. That cap includes the lender’s interest, the CAB’s service fees, credit insurance premiums, and any other required charges.8Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents Because a normal CAB installment loan’s combined APR runs several hundred percent, the cap effectively makes these loans unavailable to covered borrowers at their standard pricing.
The MLA has real teeth. Any credit agreement that violates the 36% cap is void from the start, so neither the lender nor the CAB can enforce it.9Consumer Financial Protection Bureau. Military Lending Act Interagency Examination Procedures Creditors must check a Department of Defense database to identify covered borrowers. If a CAB issued you a loan that exceeds the cap and you are covered, the whole agreement is unenforceable and you may have grounds to recover payments you already made.
How to Check That a CAB Is Licensed
Every CAB has to be licensed by the Texas Office of Consumer Credit Commissioner before it can broker loans or collect fees. Licenses that go unrenewed cancel, and a CAB whose license has lapsed cannot legally operate until it applies again.10Office of Consumer Credit Commissioner. Credit Access Businesses Each licensed location also has to post a surety bond, and consumers harmed by a CAB’s violation of state rules can file claims against that bond to recover losses.
Before you sign anything, verify the CAB’s license status through the OCCC. An unlicensed CAB has no authority to charge you service fees, and confirming the license takes a few minutes.