The Legislature in 2019 passed a law mandating the creation of a statewide database to track short-term lending practices as a way to ensure loan companies don’t lend to borrowers who lack the means to repay.
The payday loan industry fought the law. Now they’re fighting the rules for enforcing it.
At a Nevada Financial Institutions Division hearing Wednesday on implementing the law and discussing drafted rules to assure companies abide by it, payday loan industry representatives pushed back hard, and said the rules go beyond the scope of the law.
And consumer advocates are pushing back against the industry.
“When you get back to the impetus of SB 201 (the bill enacted in 2019), it was because there was an audit that found huge amounts of noncompliance with the law,” said Peter Aldous, an attorney with the consumer rights project at the Legal Aid Center of Southern Nevada, following Wednesday’s hearing. “A third of licensees weren’t complying with the law in these audits. That is why we need this database to ensure a higher level of compliance.”
Dollar Loan Center, MoneyTree, Title Max, USA Cash Services and Advance Cash were among payday loan companies whose representatives bemoaned the division’s proposed regulations for the database at Wednesday’s hearing, saying they far exceeded the intent of the law.
“As licensees, we can help make the division’s ultimate regulation work smoothly in a way that satisfies the purposes and limits of SB 201,” said Pat Riley, who was representing Dollar Loan Center. “You just have to trust us a little.”
Pleas from supporters of the database were intensified after the federal Consumer Financial Protection Bureau’s announced Tuesday that it would rescinded a plan limiting how many loans borrowers could take in a row. The proposed rule would have required lenders to verify potential customers had the means to repay their debt.
“The protections provided by this law are needed even more today than they were when the law was passed,” said Barbara Paulsen with Nevadans for the Common Good. “These regulations are particularly important because federal regulations are being weakened right as we speak.”
Local consumer rights advocates and attorneys have tried for years to rein in the payday loan industry, which currently doesn’t cap its rates and can charge interest at more than 600 percent.
The database was supposed to be operational July 1, but that has been pushed back following the health pandemic and budget shortfalls statewide. Officials gave no indication Wednesday of when the database will be up and running.
Part of the draft regulations ensure payday loan companies check to see customers don’t have multiple loans that exceed 25 percent of their income.
“That comes directly from the law that regulates payday loans already,” Aldous said. “What the database is doing is making sure lenders are following the law.”
Though the payday loan industry was overwhelmingly and fervently opposed to SB 201 when it was being debated in 2019 — nearly all of them submitted letters of opposition or spoke against the bill at multiple meetings — many companies reversed course Wednesday to say they could support a database.
They just objected to the regulations to enforce it.
“The database authorized by SB 201 served one main purpose — it allows licensees to see a consumer’s borrowing history when reviewing an application and making a decision as to how much to loan to that customer. If the proposed regulations stuck to that, I think you would have the support of all major licensees,” Riley said. “This proposed regulation goes far beyond that.”
Payday loan companies argued what the division is proposing would make it burdensome on lenders and increase privacy issues for customers.
“We can’t speak for the (Financial Institutions Division) on why these additional pieces of information were requested, but the general intent of the database is to make sure these licensees are complying with the law,” Aldous countered. “If the Financial Institutions Division believes it needs this additional information in order to ensure the licensee is complying with the law, we think that’s permissible and not overreaching or going beyond what the Legislature intended. The Legislature is intending people follow the law.”
But Riley said the regulations would only make it harder for those in need of money to obtain loans, and push them to “black market lenders” who operate outside regulations.
Black market lenders, Aldous noted, are bad because they don’t follow the rules but “easier to deal with because they can’t use the power of the courts to enforce their loans.” Those lenders, he added, can only rely on intimidation tactics to collect their money. It’s regulated lenders, he said, that “pushes the law to the limits.”
Many of the legislation’s supporters also see another crisis looming. Nevada’s unemployment has skyrocketed to nearly 30 percent following the Covid shutdown, leaving many without income and increasing the likelihood of them turning to payday loans to fill financial gaps.
Without any additional protections, Paulsen added, that could mean people fall into deeper debt after taking out a loan they are unable to repay.