A statewide database tracking high-interest, short-term payday lending is beginning to get off the ground and possibly start documenting such loans by summer.
Nevada’s Financial Institutions Division — a state regulatory body charged with overseeing so-called payday and other high-interest lenders — published draft regulations last month that flesh out details of the database and what kind of information it will and can collect. In addition to the data, creation of a database will for the first time provide a full assessment on the scope of the industry in Nevada.
Nevada law subjects any loan with an interest rate above 40 percent into a specialized chapter of state law, with strict requirements on how long such a loan can be extended, rules on grace periods and defaulting on a loan and other limitations. The state has no cap on loan interest rates, and a 2018 legislative audit found that nearly a third of high-interest lenders had violated state laws and regulations over the last five years.
A spokeswoman for the Department of Business and Industry (which oversees the Financial Institutions Division) said the agency planned to hold a public workshop of the regulations sometime later in March, before the regulations are sent to the Legislative Commission for final approval.
The draft regulations are a result of a bill passed in the 2019 Legislature — SB201 — that was sponsored by Democratic Sen. Yvanna Cancela and passed on party-line votes before being approved by Gov. Steve Sisolak. The bill was staunchly opposed by the payday lending industry during the legislative session, which said it was being unfairly targeted and that the measure could lead to more “underground” and non-regulated short-term loans.
Nevada Coalition of Legal Service Providers lobbyist Bailey Bortolin, a supporter of the bill, said she was pleased with the initial results and called them a “strong starting point.”
“The hope is that in implementation, we see a lot of transparency for an industry that has often gone unregulated,” she said. “We’re hoping to get some more sunshine on what this industry actually looks like, what the scope of it actually is.”
Bortolin said she expected the regulatory process to stay on track and, if approved, would likely have a database up and running by the summer.
The bill itself required the Financial Institutions Division to contract with an outside vendor in order to create a payday loan 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.
But many of the specific details were left to the division to hash out through the regulatory process. In the draft regulations for the bill, which were released last month, the division laid out more details as to how the database will actually function.
Notably, it sets a maximum $3 fee payable by a customer for each loan product entered into the database, but prohibits lenders from collecting more than the actual fee set by the state or collecting any fee if a loan is not approved.
Although the regulations require the fee to be set through a “competitive procurement process,” a $3 fee would be more than the amount charged by any of the other 13 states with similar databases. Bortolin said she expected the actual fee charged to be similar to what other states charged, and that the maximum of a $3 fee was for “wiggle room.”
The database itself would be required to archive data from any customer transaction on a loan after two years (a process that would delete any “identifying” customer data) and then delete all data on transactions within three years of the loan being closed.
Lenders would not just be required to record details of loans, but also any grace periods, extensions, renewals, refinances, repayment plans, collection notices and declined loans. They would also be required 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.
The regulations also require any lender to first check the database before extending a loan to ensure the individual can legally take out the loan, and to “retain evidence” that they checked the database.
That aspect is likely to be welcomed by advocates for the bill, as a common complaint is that there’s no way for state regulators to track on the front-end how many loans an individual has taken out at any given time, in spite of a requirement that a person not take out a combined number of loans that exceed 25 percent of their overall monthly income.
Access to the database would be limited to certain employees of payday lenders that directly deal with the loans, state officials with the Financial Institutions Division and staff of the vendor operating the database. It also sets procedures for what to do if the database is unavailable or temporarily down.
Any customer who takes out a high-interest loan has the right to request a copy free of charge of “loan history, file, record, or any documentation relating to their loan or the repayment of a loan.” The regulations also require any customer who is denied a loan to be given a written notice detailing reasons for ineligibility and ways to contact the database provider with questions.
The information in the database is exempted from public record law, but gives the agency discretion to periodically run reports detailing information such as the “number of loans made per loan product, number of defaulted loans, number of paid loans including loans paid on the scheduled date and loans paid past the due date, total amount borrowed and collected” or any information deemed necessary.