A new audit report has found that nearly a third of Nevada payday lenders have received a less-than-satisfactory rating from state regulators over the last five years.
A performance audit of the Division of Financial Institutions, the state agency charged with overseeing and regulating high-interest, short-term lenders, released Wednesday found that a significant percentage of so-called “payday” lenders run afoul of state laws and regulations every year.
George Burns, who heads the financial institutions office, told lawmakers on Wednesday that the number of violations was “relatively” small compared to the total number of loans issued, but that any number of problematic loans was still an issue.
“It is a major problem for those people that are affected,” he said.
The division regulates more than 2,666 licensees, which includes banks, credit unions, trust companies and the broad umbrella of “Non-Depository Institutions.” That category, which is often referred to under the umbrella term of “payday lenders,” includes check-cashing or deferred-deposit businesses, and any title loan or high-interest lender.
In 2017, the audit report stated the division performed 1,447 examinations of businesses licensed as “non-depository institutions,” and found 2,156 violations of state law and regulations.
Burns said the numbers were slightly skewed because the regulatory agency marks all branches of a licensed lender as not satisfactory if examinations reveal that more than one or two branches are engaging in loan practices that violate the rules. He added that the majority of licensed lenders are cooperative with regulators, but a small majority fought “every inch of the way” and required the division to engage in prolonged legal battles.
“What happens is that year after and year, these same issues keep coming up, because they’re refusing to correct them,” he said. “We’re still tied up in litigation, and we can’t fine them, we can’t withdraw their license until that litigation is completed.”
Burns said that in his 10 years at the division, he had five disputes with lenders go all the way to the state Supreme Court for a verdict. The most recent was in December, where the court ruled in a case involving Dollar Loan Center that lenders cannot file civil lawsuits against borrowers who take out a second loan to pay off their initial, defaulted high-interest loan.
The most common violation over the last five years was for title loan companies — which extend a loan with the title of a legally owned car used as collateral — to extend a loan based on more than the fair market value of the vehicle. The division reported 137 violations of that type in 2017, and 843 over the last five years.
The audit also suggested that a centralized tracking system of high-interest, short term loans would be of “significant value to the Division, its licensees, and Legislators.” Fourteen other states use a similar payday loan database, which can in real time alert lenders if a borrower is exceeding limits or give them a real-time look at their borrowing history. The database is paid by a small fee tacked on to every loan, with other states charging between $0.49 to $1.24 per loan.
At least three bills that would have implemented a similar database in Nevada failed to advance during the 2017 legislative session, including one introduced by Assembly Speaker Jason Frierson during the last days of the 120-day legislative session. Although Frierson’s bill passed on a bipartisan 30-11 vote in the Assembly, it failed to advance out of a Senate committee chaired by Democratic Sen. Kelvin Atkinson.
Relative to the size of the industry, payday lenders command a powerful presence in the halls of the Legislature. The industry gave more than $134,000 to lawmakers ahead of the 2017 legislative sessions, and at least 22 lobbyists were hired during the session to represent various payday lenders.
Burns said creating a database was the prerogative of the Legislature, but that such a tool would be valuable to the division.
“I would much rather control issues on the front end than chase them on the back end, which is currently what our process is,” he said.
The report also suggested the division should better document examinations of payday lenders, and suggested including a record number of total licensee loans and their status, and to use a more standard method in determining which loans to examine.
“Requiring examiners to document their sample selection methodology also enables management to effectively review and ensure examiners are identifying appropriate loans and check cashing transactions, which may lead to potential violations,” the audit stated.