After nearly a year in development, Nevada financial regulators are finally moving forward with a set of regulations that will implement a statewide database for high-interest, short-term payday loans.
Members of Nevada’s Financial Institutions Division — the regulatory body that oversees activities and certification of payday and other high-interest lenders — on Wednesday approved draft regulations that fully flesh out details of the database and what kind of information it will collect.
Adoption of the regulations — which still need to be approved by the state’s interim Legislative Commission that gives final stamps of approval to agency regulations — was applauded by backers of SB201, the bill from the 2019 Legislature that required the database’s creation. Nevada Legal Aid Policy Director Bailey Bortolin said Tuesday that approval of the regulations was a welcome sign despite the fact that the law required the system be operating by this summer.
“Thank you for being so thorough in the undertaking of this,” she said. “We are six months delayed in the implementation, so I would encourage the state to move forward with this as quickly as possible.”
But a litany of representatives and lobbyists from “payday” and other short-term lending companies (generally defined in state law as any business offering loans with a 40 percent or greater interest rate) appeared during the meeting to complain that the proposed database regulations went beyond the scope of what was contained in the new state law, and would have a greatly adverse effect on their business models.
“The implementation and upkeep costs are just going to be insurmountable,” Dollar Loan Center lobbyist Neil Tomlinson said. “We've already seen the industry decline in big numbers throughout the pandemic, and this regulation is a part of that. I think that people are just not going to be able to comply, especially when we've had a workshop system that has not taken into account the industry's comments.”
Adoption of the regulations implementing SB201 have become the latest battleground in the fight between high-interest lenders (who say they provide a needed financial service to low-income individuals unable to access normal banking services) and opponents such as the Legal Aid Center of Southern Nevada who say the state’s current treatment of payday loans too easily allows leads to a “debt treadmill” — not having enough income to pay off outstanding loans.
Nevada has no cap on loan interest rates, but the state adopted a slew of structural changes in the mid 2000s that aimed to limit the amount of loan interest that could be charged to a borrower once they defaulted on a loan.
But in 2019, Democratic lawmakers led by state Sen. Yvanna Cancela passed SB201, which aimed to add more immediate oversight to the short-term lending industry. The Financial Institutions Division regulates the industry through regular audits of paper or electronic records, but advocates say that leaves potential bad or illegal practices in place for much longer, while a database of all loans would provide more forward-looking regulatory oversight that could catch problems at their source, as opposed to during annual audits.
A 2018 legislative audit found that nearly a third of high-interest lenders had violated state laws and regulations over the previous five years.
The bill, which was passed on party lines, requires the Financial Institutions Division to contract with an outside vendor to create a database, with requirements to collect information on loans (date extended, amount, fees, etc.) as well as giving the division the ability to collect additional information on if a person has more than one outstanding loan with multiple lenders, how often a person takes out such loans and if a person has three or more loans with one lender in a six-month period.
Lenders need to check the database before extending a loan to ensure the individual can legally receive the loan. The database itself is financed by a surcharge capped at $3 per individual loan extended.
Many of the details of how the database will function was left up to the regulatory process. The division published draft regulations in February, with plans to require lenders to not just record details of loans, but also any grace periods, extensions, renewals, refinances, repayment plans, collection notices and declined loans.
The regulations also require the database to retain documents or data used to ascertain a person’s ability to repay a loan, including methods to calculate net disposable income, as well as any electronic bank statement used to verify income.
But representatives of the industry (which staunchly opposed the bill during the 2019 Legislature) have raised concerns about the inclusion of the “ability to repay” function, saying that regulators have overreached and go “well beyond the intent” of the original bill.
“Unfortunately, these regulations make it a situation where there has not been a two-way dialogue, and we are ending up with an overly burdensome and unworkable regulation that is going to really not help consumers or the industry,” Tomlinson said during Tuesday’s meeting. “It's going to hurt everyone.”
Bortolin said many of the complaints by the industry were more of a “lamenting of the state regulatory process for those that may not be familiar with it,” and said she had confidence in the regulations given that they were reviewed by staff and attorneys with the Financial Institutions Division and state attorney general’s office.
As of Wednesday, no meeting of the Legislative Commission — where the regulation will be given final approval — has yet been scheduled.
As of 2019, Nevada had approximately 95 businesses licensed as high-interest lenders, with about 300 branches statewide. In 2016, those businesses made approximately 836,000 deferred deposit loans, nearly 516,000 title loans and up to 439,000 high-interest loans.