Short-term loan businesses, colloquially known as payday lenders, are everywhere you look. They offer a quick fix if you're in a pinch between paydays.
However, the Nevada Financial Institutions Division within the Department of Business and Industry released an audit in May that found that almost a third of payday lenders have violated state rules over the last 5 years.
George Burns is the commissioner for the Financial Institutions Division. He said the biggest problems reported in the audit were lenders not following the 25 percent rule, which doesn't allow lenders to loan an individual an amount that requires a payment that is greater than 25 percent of his or her gross income.
The other problem is lenders who give out loans greater than the fair market value of a vehicle in a title loan.
Burns said if a lender shows to have a systemic problem with breaking rules his division can fine them up to $10,000 for each violation.
State officials would like to see a statewide database set up to track payday loans, title loans and other high-interest loans. The database would let lenders know if a client meets requirements immediately.
“So, if a person has gone to multiple payday lenders taking out loans at 25 percent of gross, obviously they’re not going to be able to pay all of them back," Burns said, "The lenders would know they’ve gotten other loans, how many loans they have outstanding and what amounts they would be”
Burns said a database would allow his division to be proactive and not reactive.
Assemblywoman Heidi Swank agrees that a database is needed. She tried to get a bill that included setting up a database passed during the last legislative session but it didn't get passed.
The database isn't the only change she wants to the short-term loan industry. She would also like to extend the Military Lending Act rules to veterans. Those rules cap interest rates on loans to active military to 36 percent. She would like the same rules for veterans.
Swank would also like a limit on the number of loans a person can take out, a waiting period between loans and a default mechanism for people who can't pay back the loan so they don't take out another loan to pay back the original loan, which is a practice known as debt treadmill.
Swank said payday lenders target low-income areas, where people can't get any other type of loan.
“They overwhelm these low incomes areas with a large number of storefronts. So [for] folks who live in these areas, that’s more of what you see than seeing a bank,” she said.
The combination of proximity, in-your-face advertising and desperation push many people into using payday loans regularly, despite the incredibly high interest rates.
Swank made it clear that there is a place for short-term loans, but she would like stronger protections for consumers who use them.
“We just need it to be a little more of a balanced playing field so we at least better represent the consumer in this area,” she said.
Swank plans to try again in next year's legislative session to get some consumer protections passed.
George Burns, Commissioner, Nevada Financial Institutions Division; Heidi Swank, Assemblywoman, Nevada District 16