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The exterior of a MoneyTree branch in Carson City, as seen on Feb. 22, 2017. (David Calvert/The Nevada Independent)

One of Nevada’s largest payday lenders is again facing off in court against a state regulatory agency in a case testing the limits of legal restrictions on refinancing high-interest, short-term loans.

The state’s Financial Institutions Division, represented by Attorney General Aaron Ford’s office, recently appealed a lower court’s ruling to the Nevada Supreme Court that found state laws prohibiting the refinancing of high-interest loans don’t necessarily apply to a certain kind of loan offered by TitleMax, a prominent title lender with more than 40 locations in the state. 

The case is similar but not exactly analogous to another pending case before the state Supreme Court between TitleMax and state regulators, which challenged the company’s expansive use of grace periods to extend the length of a loan beyond the 210-day limit required by state law.

Instead of grace periods, the most recent appeal surrounds TitleMax’s use of “refinancing” for individuals who aren’t able to immediately pay back a title loan (typically extended in exchange for a person’s car title as collateral) and another state law that restricted title loans to only be worth the “fair market value” of the automobile used in the loan process.

The court’s decision on both appeals could have major implications for the thousands of Nevadans who use TitleMax and other title lenders for short term loans, with possibly millions of dollars worth of aggregate fines and interest hanging in the balance.

“Protecting Nevada’s consumers has long been a priority of mine, and Nevada borrowers simply subject themselves to paying the high interest over longer periods of time when they ‘refinance’ 210 day title loans,” Attorney General Aaron Ford said in a statement.

The more recently appealed case stems from an annual audit examination of TitleMax in February 2018 in which state regulators discovered the alleged violations committed by the company related to its practice of allowing loans to be “refinanced.”

Under Nevada law, any loan with an annual percentage interest rate above 40 percent is subject to several limitations on the format of loans and the time they can be extended, and typically includes requirements for repayment periods with limited interest accrual if a loan goes into default. 

Typically, lending companies are required to adhere to a 30-day time limit in which a person has to pay back a loan, but are allowed to extend the loan up to six times (180 days, up to 210 days total.) If a loan is not paid off by then, it typically goes into default, where the law limits the typically sky-high interest rates and other charges that lending companies attach to their loan products.

Although state law specifically prohibits refinancing for “deferred deposit” (typically cash advances on paychecks) and general “high-interest” loans, it contains no such prohibition in the section for title loans — something that attorneys for TitleMax have said is proof that the practice is allowed for their type of loan product. 

In court filings, TitleMax claimed that its “refinancing” loans effectively functioned as entirely new loans, and that customers had to sign a new agreement operating under a new 210-day period, and pay off any interest from their initial loan before opening a “refinanced” loan. (TitleMax did not return an email seeking comment from The Nevada Independent.)

But that argument was staunchly opposed by the division, which had given the company a “Needs Improvement” rating after its audit examination and meeting with company leadership to discuss the shortfallings related to refinancing shortly before TitleMax filed the lawsuit challenging their interpretation of the “refinancing” law. The Financial Institutions Division declined to comment through a spokeswoman, citing the ongoing litigation.

In court filings, the regulatory agency has said that allowing title loans to be refinanced goes against the intent of the state’s laws on high-interest loans, and could contribute to more people becoming stuck in cycles of debt. 

“The real life result of TitleMax’s unlimited refinances is that the principal is never paid off and TitleMax collects interest, generally in excess of 200 (percent), until the borrower cannot pay any longer and loses their vehicle,” attorneys for the state wrote in a docketing statement filed with the Supreme Court. “Allowing TitleMax’s refinances essentially squelches the intent and purpose of Chapter 604A, which is to protect consumers from the debt treadmill. “

The agency began administrative proceedings against TitleMax after the lawsuit was filed, and an administrative law judge initially ruled in favor of the agency. But the title loan company appealed and won a reversal from District Court Judge Jerry Wiese, who concluded that regardless of the wording used by TitleMax, the “refinanced” loans fit all the requirements to be considered legal under state law.

“...TitleMax apparently has a policy of requiring consumers to pay off all accrued interest before entering into a refinance of a loan, it prepares and executes all new loan documentation, and when a loan is refinanced, the original loan obligation is completely satisfied and extinguished,” he wrote in the order. “While the Court understands FID’s concern, and its claim that TitleMax’s refinancing is really an ‘extension,’ TitleMax is not ‘extending’ the original loan, but is creating a ‘new loan,’ which it calls ‘refinancing.’ The Legislature could have precluded this practice, or limited it, if it so desired, but it did not.”

Wiese’s order also ruled against FID’s interpretation of a 2017 state law prohibiting title lenders from extending loans that exceed the “fair market value” of their vehicle. The state had interpreted that cap to include interest and fees tacked on to high-interest loans, but Wiese’s order said that the “fair market value” did not include charges such as “interest, bad check fees, costs, and attorney’s fees.”

Wiese also wrote that the Supreme Court had “bent over backward” to interpret state law in a way that would allow them to rule against a payday lender in the earlier case, saying he agreed more with the dissenting opinion from Justice Kristina Pickering that criticized the majority opinion as not being “squared” with the intent of the law.

But the state appealed the decision to the Supreme Court in July, with the court still deliberating over another case heard in March involving TitleMax’s use of “grace periods.” It’s unclear when, or if, the seven-member court will hear oral arguments or decide to even hear oral arguments; the case was deemed not appropriate for a settlement conference in August, meaning the state has 90 days to file is actual appeal and supporting documentation.

The two cases involving TitleMax aren’t the only recent litigation that have affected how payday loans are regulated in the state; the Supreme Court in late 2017 ruled against a payday lending company that attempted to file civil lawsuits against individual borrowers who take out a second loan to pay off a defaulted initial, high-interest loan.

Democratic lawmakers in the past two legislative sessions have introduced bills to cap payday loan rates, which have typically not advanced far in the Legislature. But in spite of fierce industry opposition, lawmakers were able to successfully pass a bill in the 2019 Legislature allowing the state to create a payday loan database.

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