Payday Loan Industry May See Rate Caps and Database Amid Legislative Proposals
In the coming weeks, lawmakers in Nevada will see thousands of bright yellow postcards drop into their mailboxes.
The postcards, sent by members of the interfaith group Nevadans for the Common Good, will include handwritten notes and calls on lawmakers to support more funding for K-12 education, affordable housing tax credits and additional restrictions on payday loans.
It’s part of a renewed effort by progressive groups and community activists to put new restrictions on Nevada’s payday lending industry, two years after similar efforts to curb the industry flared up. While the concepts and battle lines are similar to those seen in the 2017 legislature, a new wrinkle is present – whispers of a future voting question and a campaign to cap interest rates in the ‘State if sufficient progress is not made within the 120 legislative days. session.
Democratic lawmakers have introduced a pair of bills that would have major effects on the payday lending industry, including a proposed database on high interest and short-term loans as well as a proposal 36% interest rate cap on loans.
The Center for Responsible Lending estimates that the typical payday loan in Nevada has a 652% annual interest rate, one of the highest average rates of the 32 states that allow high interest loans. Although rates vary depending on the lender and the length of the loan, lawmakers, including Democrat MP Heidi Swank, said the high rates clearly show the need for a cap on the amount of interest that can be charged.
“I can’t imagine most people wanting a credit card that charges a 36% interest rate,” she said, referring to her bill to cap interest rates at 36% on loans. “Everyone panics once you go over 20%. “
Generally grouped under the umbrella of “payday loans,” Nevada law allows several types of short-term, high-interest loans, referring to any loan with an annual interest rate of 40 percent or more.
These range from everything from normal loans with interest rates of 40 percent or more, title loans (using the title of a car as loan collateral), deferred deposit loans (an agreement to transfer money or wages to a lender at a certain point in time in exchange for an upfront payment) and check cashing services which are typically for people without a bank account.
The industry began to flourish in the 1980s and 1990s after lawmakers removed an 18% cap on interest rates (originally approved in 1913) in a special 1984 session appealing Citicorp to open a credit card processing center in Las Vegas.
Citicorp is gone, but the payday loan industry remains; Nevada has about 95 companies licensed as high interest lenders with about 300 branches. In 2016, these companies made approximately 836,000 deferred deposit loans, nearly 516,000 securities loans and up to 439,000 high interest loans.
And the industry has gained a lot of weight in the legislature: Payday loan companies have paid more than $ 172,000 to state lawmakers in the past two years, with the main recipients being Assembly Speaker Jason. Frierson and Senate Majority Leader Kelvin Atkinson (both received $ 23,500). At least eight high-interest lenders are represented by 22 different lobbyists in Carson City, including former leading Democratic lawmakers John Oceguera, Marcus Conklin and William Horne.
State law contains many restrictions on lending and protecting consumers if a person defaults on a loan, but the state has never placed an interest rate cap or limit on the amount of money. money that can be loaned beyond a limit of 25% of an individual’s income.
Of the two bills affecting payday loans, Swank’s AB118 is simple – add a 36% cap on interest rates for any lender currently licensed under the state’s legal structure for short-term, high-interest loans. She proposed a similar bill in the 2017 session that included a similar interest rate cap, limits on the location of lenders and the number of loans that can be taken out each year, but the measure does not failed to gain much ground and failed to pull through. the assembly.
“I’ve done this twice already and haven’t gotten anything, so it seems simple and to the point,” she said. “I also hear that there is a possible voting initiative coming up, so maybe we can go ahead and negotiate a number. It could be better for all parties involved because we know that when payday lenders fight voting initiatives, they spend a lot of money and they constantly lose.
On the other side, Democratic Senator Yvanna Cancela’s bill SB201 takes a slightly less intense approach. The measure would codify parts of the Federal Military Loans Act – which prohibits loans above 36% interest and other restrictions on loans for active duty military personnel – into state law, which Cancela said he had raised concerns that the Federal Consumer Financial Protection Bureau would be no longer actively supervises lenders for violations of the law and only investigates complaints.
The bill also allows lenders to include information about social services provided by the state, such as food stamps in their offices and – perhaps most controversially – to create a tracking database. payday loans.
The concept of a database is not new – at least 14 other states have created similar databases, paid for by a nominal fee (between $ 0.49 and $ 1.24 per loan) and are tracking the information. relating to loan amounts, fees assessed on consumers, default rates and interest charged on loans. In 2017, Swank’s bill creating a database never got out of committee, and an emergency database creating measure introduced by Frierson was passed by the Assembly on a 30-11 votes but died in a Senate committee on the last day of the session.
Cancela said she was presenting the bill based on audit recommendations of the Financial Institutions Division which found that nearly a third of state payday lenders had violated state regulations or law in the past five years. The audit said that a centralized tracking system for high interest loans would be “of great value to the Division, its licensees and lawmakers.”
“This seems to be a way both to better enforce current laws, but also to strengthen consumer protection, so that people who go to a lender who may not have the same checks are ‘track record that maybe other lenders, that they don’t end up taking out a loan that they otherwise shouldn’t be able to take out, ”she said. “The goal is simply to better enforce current laws; it does not create new laws.
Members of the payday loan industry are already hinting that they are considering opposing the database concept. A glossy, multi-page informational book distributed to lawmakers by leading lender Dollar Loan Center (which includes customer counts by Assembly and Senate constituencies) indicates that a database “will do harm Nevada consumers and cripple the short-term lending industry, ”citing important recent data. violations and warns that customers will be “locked into higher rate loans” if a database is created.
Mike Weatherford with Nevadans for the Common Good, which held Community forums in Las Vegas and Reno to raise awareness of the problem last year, says it supports both concepts, but plans to focus primarily on the payday loan database concept, seen as more likely to pass.
Cancela said she was not necessarily opposed to creating an interest rate cap, but said all limitations should be separate depending on the type of high interest loan. She also mentioned hearing about a possible ballot initiative, which she said could be useful.
“If there was a movement to ask a question on the ballot, I would be more supportive than not,” she said.
States including Montana and South Dakota have approved caps on payday loan interest rates through voting initiatives, and most recently in Colorado, where voters in 2018 voted overwhelmingly in in favor of a measure capping the interest rates for payday loans at 36% with more than 77 percent of voters in favor. In total, 18 states have rates caps or outright ban short-term, high-interest loans.
In a text message, Executive Director of the Progressive Leadership Alliance of Nevada, Laura Martin, said the organization supported Swank’s bill to cap interest rates at 36%, but noted that questions of Interest rate caps had been successful in several other states.
“There is a real appetite in our state to curb predatory lending and protect Nevada consumers,” she said. “We are currently supporting the Legislature’s efforts to pass a 36% cap rate and are focusing our efforts there, but we have seen what is happening across the country and the incredible success of the voting initiatives to pass. the ceiling rate of 36%. “
A spokeswoman for Governor Steve Sisolak said the governor – who committed to supporting a database for high interest loans during the election campaign and said the state’s exorbitant interest rates for loans were “”unacceptable”- was eager to“ consider all proposals related to payday loans ”.