Update on CSO Model Payday Loan Bar Association November 13, 2006 Scott Sheehan – Greenberg Traurig Connie Kondik – EZ Corp. Bob Manning – True Financial

Basic CSO Concept 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.

Key Characteristics 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.

Key Legal Authority 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)

Basic 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

Practical Experiences The CSO point of view The Lender point of view Customer reaction

Key developments Texas Finance Commission decision October 21, 2005 Texas Attorney General review and letter dated January 21, 2006 Next legislative session (January through May 2006)

Michigan Letter One potentially adverse development regarding the CSO with respect to its use in other states with laws similar to Texas is the issuance by an agency in Michigan of a bulletin that disallows the CSO model in that state on the basis that the agency considers it a sham. Office of Financial and Insurance Services, Department of Labor and Economic Growth, State of Michigan, Bulletin CF (June 21, 2006).

Closing Remarks