State lawmakers have given final approval allowing Nevada financial regulators to finally implement a statewide database for high-interest, short-term payday loans, something consumer advocates say will provide much-needed levels of oversight and accountability.
Members of the Legislative Commission — composed of state lawmakers who give final approval to state agency regulations — met Monday to approve the regulations submitted by the state’s Financial Institutions Division (FID), which will oversee and manage operations of the database. The majority-Democratic committee voted along party lines, 7-5, to approve the regulations.
Despite protests from industry representatives and Republicans that the regulations were overly broad and would prove difficult to implement, Democratic lawmakers on the committee said that quickly moving forward with the database regulations would improve regulatory oversight on the payday lending industry, especially with the state’s economy still recovering from the COVID-19 pandemic.
“There's nothing in here about trying to get rid of the industry,” Democratic Assemblywoman Maggie Carlton said during the meeting. “We know it's going to be out there for a while. We just want to know what's really going on, so if you can't measure it, you can't monitor it, and you can't regulate it.”
The regulations implement provisions of a bill approved by the 2019 Legislature (SB201) that required creation of a database tracking high-interest loans by mid 2020 — a six-month delay in part caused by disruptions to in-person meetings related to the COVID-19 pandemic. But their approval was staunchly opposed by the state’s payday lending industry, who said the regulations were overly broad and included requirements that were not present in the actual 2019 legislation.
“To put it simply, FID is attempting to create its own new law and wholly circumventing the Legislature,” Check City USA representative Ryan Marchesi told lawmakers, adding that the proposed regulations “stretch the language of SB201 beyond recognition” and recommended that lawmakers require the agency to restart work on the regulations.
But legislators nonetheless opted to move forward with the regulations — FID staff said they would work quickly but didn't have a timeline for the database’s implementation, and that lenders required to use the system wouldn’t be immediately penalized while the system is ramped up.
Over the past two legislative sessions, a handful of Democratic lawmakers have attempted to rein in alleged excesses and harmful business practices from the payday loan industry. State law categorizes any loans with an interest rate above 40 percent as a high-interest loan, governable and overseen by the state’s Financial Institutions Division.
Nevada repealed its cap on interest rates in 1984 (through a special legislative session aimed at attracting Citicorp to open a credit-card processing center in the state). Average annual interest rates for payday loans in the state can run as high as 652 percent, according to the Center for Responsible Lending.
Lawmakers in the mid 2000s approved a suite of laws aimed at limiting the length of high-interest loans and the actual dollar amount of interest charged once a borrower defaulted on a loan.
In 2019, the state’s Democratic-controlled Legislature passed SB201, an effort to improve oversight over the short-term lending industry. The Financial Institutions Division is charged with regulating the industry, but primarily uses annual audits of paper or electronic records — a practice that advocates say leaves potential bad or illegal practices in place for a longer period of time before being caught.
A 2018 legislative audit found that nearly a third of high-interest lenders had violated state laws and regulations over the previous five years. 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.
The 2019 bill passed on party lines and 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 whether a person has more than one outstanding loan with multiple lenders, how often a person takes out such loans and whether a person has three or more loans with one lender in a six-month period.
Lenders will need to check the database before extending a loan to ensure the individual can legally receive the loan. The database is financed through a surcharge on each loan extended, capped at no more than $3.
Many of the details on 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.
But members of the payday lending industry say that the regulations go well beyond what was outlined in the original bill. Neal Tomlinson, a lobbyist for Dollar Loan Center, said the original legislation only required nine data points to be entered into the database, whereas the regulations would now require entering up to 25 different data points — a potential barrier given the large number of transactions (500,000 plus) conducted by the lender annually.
“Because of the number of data points, and because of some of the information that's requested within those data points, it makes it virtually impossible for Dollar Loan Center to comply,” he said. “We have a concern because of the extensiveness of the data points, and the timing of the real time entry of data that it would just be physically impossible for us to comply, let alone be a reasonable expense to comply.”
Legislative Counsel Bureau Director Brenda Erdoes said that the division’s nonpartisan legal staff had reviewed the regulations and determined that they did not exceed legal authority granted under SB201.
Many representatives for payday loan companies said they were perturbed by what they characterized as a lack of communication with the Financial Institutions Division in developing the regulations, and that many of their suggestions or proposed changes were ignored. But Financial Institutions Division Commissioner Sandy O’Laughlin told lawmakers that the division avoided holding individual meetings to ensure that all participants had “equal input” in development of the regulations.
“We had multiple versions of this (regulation), we wrote it, rewrote it, and we took all comments into consideration,” she said. “But we didn't do a one on one, and we did that from the very beginning. We made sure that everything was open and public. We didn't meet with anyone separately.”
Advocates said the need for the bill had only increased in the year and a half since the original bill was passed, especially given the precarious financial situation for many Nevadans affected by the COVID-19 pandemic. Taylor Altman, a staff attorney with the Legal Aid Center of Southern Nevada, gave an example of a recent client who took out 11 payday loans over the course of 10 days to help pay bills, but “felt crushed under the weight of this enormous debt.”
“This is exactly the type of situation the database will prevent,” she said.