EXHIBIT 4.2

                THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
                             AND WAIVER OF DEFAULTS

              This  Amendment,  dated as of June 14, 2001,  is made by and among
The Leather Factory, Inc., a Delaware corporation;  The Leather Factory, Inc., a
Texas corporation;  The Leather Factory, Inc., an Arizona corporation;  Roberts,
Cushman & Company, Inc., a New York corporation; Hi-Line Leather & Manufacturing
Company,  a California  corporation;  and Tandy Leather  Company,  Inc., a Texas
corporation f/k/a Leather Tan Acquisition, Inc. (collectively, the "Borrowers"),
and Wells Fargo Business Credit, Inc., a Minnesota corporation (the "Lender").

                                    Recitals
                                    --------

       The  Borrowers  and the Lender have  entered  into a Credit and  Security
Agreement  dated as of  November  22,  1999,  a First  Amendment  to Credit  and
Security  Agreement  dated as of November  30, 2000,  and a Second  Amendment to
Credit and Security  Agreement  dated as of February 7, 2001 (as so supplemented
and amended, the "Credit Agreement").

       The  Borrowers  have  requested  that certain  amendments  be made to the
Credit Agreement and certain Events of Default be waived.  The Lender is willing
to grant the Borrowers'  requests pursuant to the terms and conditions set forth
herein.

       ACCORDINGLY, the parties hereto hereby agree as follows:

1. Defined Terms.  Capitalized terms used in this Amendment which are defined in
the Credit  Agreement  shall have the same meanings as defined  therein,  unless
otherwise  defined herein.  In addition,  Section 1.1 of the Credit Agreement is
amended by adding or amending, as the case may be, the following definitions:

              "`Revolving Floating Rate' means an annual rate equal to the Prime
       Rate, which annual rate shall change when and as the Prime Rate changes."

2. Audit Fees.  Section  2.10 (f) of the Credit  Agreement is amended to read as
follows:


       "(f) Audit Fees. The Borrowers shall pay to the Lender, on demand,  audit
       fees in  connection  with any  audits  or  inspections  conducted  by the
       Lender,  or any third party on behalf of the Lender, of any Collateral or
       the Borrowers'  operations or business at the rates established from time
       to time by the Lender as its audit fees  (which fees are  currently  $600
       per day per auditor),  together with all reasonable  out-of-pocket  costs
       and  expenses  incurred  in  conducting  any such  audit  or  inspection;
       provided, however, that except during Default Periods, the Borrower shall
       not have to  reimburse  the  Lender  for such  fees,  costs and  expenses
       incurred in  connection  with more than (i) two audits  conducted  by the
       Lender per fiscal year and (ii) two audits  conducted by a third party on
       behalf of the Lender per fiscal year."

3. New  Covenants.  Section 6.15 of the Credit  Agreement is amended by deleting
the date  "December 31, 2000" and inserting  the phrase  "December  31st of each
year".


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4. Financial Covenant. Section 7.11 of the Credit Agreement is hereby amended in
its entirety to read as follows:

              "Section 7.11 Capital  Expenditures.  The Borrowers will not incur
       or contract to incur  Capital  Expenditures  of more than $650,000 in the
       aggregate  during the fiscal year ending  December 31, 2001, and not more
       than $500,000 in the aggregate during any fiscal year thereafter."

5. Waiver of Defaults.  The Borrower is in default of the following provision of
the Credit Agreement (the "Existing Default"):


       ---------------------- ------------------- --------------- -------------
               Covenant               Date           Required         Actual
       ---------------------- ------------------- --------------- -------------
        Section 7.11 Capital   December 31, 2001   not more than   $513,890.91
        Expenditures                               $500,000
       ---------------------- ------------------- --------------- -------------

Upon the terms and subject to the  conditions set forth in this  Amendment,  the
Lender hereby waives the Existing  Default.  This waiver shall be effective only
in this  specific  instance and for the specific  purpose for which it is given.
This waiver shall not entitle the Borrower to any other or further waiver in any
similar or other circumstances.

6. No Other Changes. Except as explicitly amended by this Amendment,  all of the
terms and  conditions  of the Credit  Agreement  shall  remain in full force and
effect and shall apply to any advance or letter of credit thereunder.

7. Conditions Precedent. This Amendment shall be effective when the Lender shall
have received an executed original hereof,  together with each of the following,
each in substance and form acceptable to the Lender in its sole discretion:

       (a) The  Acknowledgment  and Agreement of Guarantors set forth at the end
of this Amendment, duly executed by each Guarantor.

       (b) A Certificate of the Secretary of the Borrowers  certifying as to (i)
the  resolutions  of the boards of  directors  of the  Borrowers  approving  the
execution  and  delivery of this  Amendment,  (ii) the fact that the articles of
incorporation and bylaws of the Borrowers,  which were previously  certified and
delivered  to the  Lender  pursuant  to the  Certificates  of  Authority  of the
Borrowers'  secretary or assistant secretary each dated as of November 22, 1999,
continue  in full  force  and  effect  and have not been  amended  or  otherwise
modified  except  as set forth in the  Certificate  to be  delivered,  and (iii)
certifying that the officers and agents of the Borrowers who have been certified
to the Lender,  pursuant to the  Certificates  of  Authority  of the  Borrowers'
secretary or assistant  secretary  each dated as of November 22, 1999,  as being
authorized  to sign and to act on  behalf  of the  Borrowers  continue  to be so
authorized  or setting  forth the sample  signatures of each of the officers and
agents of the Borrowers authorized to execute and deliver this Amendment and all
other documents, agreements and certificates on behalf of the Borrowers.

       (c) Such other matters as the Lender may require.


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8. Representations and Warranties. The Borrowers hereby represent and warrant to
the Lender as follows:

       (a) The Borrowers have all requisite  power and authority to execute this
Amendment and to perform all of their  obligations  hereunder and under the Loan
Documents  and this  Amendment has been duly executed and delivered on behalf of
the  Borrowers and  constitutes  the legal,  valid and binding  agreement of the
Borrowers, enforceable against them in accordance with its terms.

       (b) The  execution,  delivery and  performance  by the  Borrowers of this
Amendment  has been duly  authorized  by all  necessary  action and does not (i)
require any authorization,  consent or approval by any governmental  department,
commission,  board, bureau, agency or instrumentality,  domestic or foreign (ii)
violate any  provision of any law,  rule or  regulation  or of any order,  writ,
injunction or decree presently in effect, having applicability to the Borrowers,
or the organizational agreements applicable to the Borrowers, or (iii) result in
a breach of or constitute a default  under any indenture or credit  agreement or
any other agreement,  lease or instrument to which any Borrower is a party or by
which any properties of any Borrower may be bound or affected.

       (c) All of the representations  and warranties  contained in Article V of
the Credit  Agreement are correct on and as of the date hereof as though made on
and as of  such  date,  except  to the  extent  that  such  representations  and
warranties relate solely to an earlier date.

9. No Waiver of Default.  Except as set forth in paragraph  5, the  execution of
this  Amendment  and  acceptance of any  documents  related  hereto shall not be
deemed to be a waiver  of any  Default  or Event of  Default  under  the  Credit
Agreement or breach,  default or event of default under any Security Document or
other  document  held by the  Lender,  whether  or not known to the  Lender  and
whether or not existing on the date of this Amendment.

10. References. All references in the Credit Agreement to "this Agreement" shall
be deemed to refer to the Credit  Agreement as amended  hereby;  and any and all
references in the Loan Documents  hereto to the Credit Agreement shall be deemed
to refer to the Credit Agreement as amended hereby.

11. Release. The Borrowers and each Guarantor, by signing the Acknowledgment and
Agreement of Guarantors set forth below,  hereby absolutely and  unconditionally
release and forever discharge the Lender,  and any and all participants,  parent
corporations,   subsidiary,  affiliated  corporations,   insurers,  indemnitors,
successors and assigns,  together with all of the present and former  directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description,  whether arising
in law or equity or upon  contract  or tort or under any state or federal law or
otherwise,  which any of the Borrowers or such Guarantor has had, or now has, or
has made  claim to have  against  any such  person  for or by reason of any act,
omission,  matter,  cause or thing whatsoever arising from the beginning of time
to and including  the date of this  Amendment,  whether such claims  demands and
causes of action are matured or unmatured or known or unknown.

12. Costs and Expenses.  The Borrowers hereby reaffirm their agreement under the
Credit  Agreement  to pay or  reimburse  the  Lender on demand for all costs and
expenses  incurred by the Lender in connection  with the Loan  Documents and all
other  documents   contemplated   thereby,   including  without  limitation  all
reasonable  fees  and  disbursements  of legal  counsel.  Without  limiting  the
generality of the foregoing,  the Borrowers  specifically  agree to pay all fees
and  disbursements  of counsel to the Lender for the services  performed by such
counsel in connection  with the  preparation of this Amendment and the documents
and instruments  incidental  hereto.  The Borrowers hereby agree that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrowers,  make a Revolving  Advance to the Borrowers,  or
apply the  proceeds  of any loan,  for the  purpose  of  paying  any such  fees,
disbursements, costs and expenses.

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13.  Counterparts.  This  Amendment  and the  Acknowledgment  and  Agreement  of
Guarantors may be executed in any number of counterparts,  each of which when so
executed  and   delivered   shall  be  deemed  an  original  and  all  of  which
counterparts, taken together, shall constitute one in the same instrument.

       IN WITNESS  WHEREOF,  the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.

WELLS FARGO BUSINESS CREDIT, INC.     THE LEATHER FACTORY, INC., a Delaware
                                      corporation, THE LEATHER FACTORY, INC., an
By  /s/ Thomas Krueger                Arizona corporation, THE LEATHER FACTORY,
    ------------------                INC., a Texas corporation, ROBERTS,
     Thomas Krueger                   CUSHMAN &  COMPANY, INC., HI-LINE LEATHER
     Its Vice President               & MANUFACTURING COMPANY, TANDY LEATHER
                                      COMPANY, INC. f/k/a Leather Tan
                                      Acquisition, Inc.

                                      By  /s/ Wray Thompson
                                         ------------------
                                         Wray Thompson
                                         Its President









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