Hours of passionate testimony dominated discussions during a hearing on a bill that would create a state-wide database to track payday loans, a seemingly innocuous concept that has met fierce resistance and fierce rhetoric from the industry and its supporters.
Lobbyists, pastors, a Little League coach and dozens of payday loan company workers filled courtrooms Wednesday for a hearing on SB201, which would create a database to track information on high interest short term loans (over 40%) that includes amounts, assessed charges on borrowers, default rates and all interest charged on loans .
The bill also codifies parts of the Federal Military Loans Act – which prohibits lenders from charging active-duty military more than 36% interest – and allows lenders to provide information on food stamps. and other social protection programs offered by the state.
But the bulk of testimony, questions and opposition throughout the nearly three-hour hearing revolved around the database concept of payday loans; something supporters have said would ensure that all lenders obey state laws and reduce predatory lending, but which opponents (including major legislative donors and lobbyists) say would add unnecessary burdens and could hurt the bank. industry.
The concept of a payday loan database is not new; at least 14 other states have passed laws to operate with a similar database with fees between $ 0.43 and $ 1.24 by loan to operate the system. Databases in other states are managed by a private contractor, Veritec Solutions.
Nevada has about 95 companies licensed as high interest lenders, with about 300 branches statewide. In 2016, these companies made approximately 836,000 deferred deposit loans, nearly 516,000 securities loans and up to 439,000 high interest loans.
The bill’s sponsor, Democratic Senator Yvanna Cancela, said the bill was born out of a 2018 audit of the state’s Financial Institutions Division – the agency that oversees and regulates payday lenders – which found that nearly a third of lenders had a less than satisfactory rating in the past five years. The audit suggested that a loan tracking database would be “of significant value to the Division, its licensees and lawmakers.”
Cancela called the audit “striking” and said the bill was an attempt to improve regulation of the sector by giving regulators the ability to verify loans in real time, as opposed to their current model of annual audits or responses to public complaints.
“This is going to be a tool allowing the state to more effectively enforce our existing consumer protections and will not be accessible to anyone other than state regulators who are currently entitled to this information,” he said. she declared.
The bill obliges the Financial Institutions Division to enter into a contract with a supplier to create the database, which includes:
- Information from individuals with outstanding loans from more than one lender
- Any current loan contracted in the 30 days preceding another loan
- Any case where a borrower has taken out three or more loans from the same lender during a six-month period
George Burns, who heads the division, told lawmakers that a database would be a useful regulatory tool.
“The ability to enforce (these laws) of course, is a question of how adequate the resources and tools are at the IDF’s disposal to enforce all of this,” he said. “What we’re looking at here on this particular bill is to improve those tools and increase the resources to do it.”
Governor Steve Sisolak declared during his campaign for the governor that he was in favor of a payday loan database.
Although states charge various fees to implement their databases, Burns said the division expected the fees to be less than a dollar and that the actual amount would have to be approved through the regulatory process.
Tennille Pereira, a lawyer at the Legal Aid Center of Southern Nevada, told lawmakers that creating a database would solve two problems :, and lenders who allow borrowers to pay off an existing loan by taking out another high-interest loan. , which is not permitted by state law.
Supporters included a variety of progressive and social service groups, as well as state treasurer Zach Conine. Pastor Sandy Johnson of the United Methodist Church in Boulder City, representing the interfaith group Nevadans for the Common Good, said she had a personal friend who had experienced great financial difficulties caused by payday loans.
“If the state’s existing laws were enforced, consumers like her would be protected from being trapped in a cycle of debt for more than two decades,” she said. “The long-term economic stability of families should not be compromised if they take out a short-term loan. “
But lending industry lobbyists have been fiercely opposed to the bill, saying even a small commission levied on loans to create a database could have a significant effect on interest rates. In a memorandum submitted by payday loan companies Moneytree, Check City, USA Cash and others, the industry has claimed that even adding a minimum fee of $ 1 to loans would raise interest rates up to 52% on some loans .
Alisa Nave-Worth, a lobbyist for this group of lenders, said the industry strongly contests the methodology of the audit, but the database would have prevented only about 5% of complaints or issues raised during of the audit. She brushed aside suggestions that the industry was not looking for the best interests of consumers, saying it was not good for borrowers to go into debt.
“It doesn’t make sense to give a loan to someone who can’t pay it back,” she said. “It’s not a good deal.”
Former Clark County Commissioner Susan Brager also testified in opposition, who said she initially opposed the Dollar Loan Center and other high-interest lenders, but that she had come closer to them after visiting their facilities and seeing the service they provided to consumers in need of short-term service. credit, and that passing the bill would wipe out the industry model.
“It will be underground, and it will be detrimental to those who need an interim solution,” she said.
But by far the biggest presence was that of Dollar Loan Center, the short-term lender with 42 branches in Nevada. About 50 to 60 employees attended the hearing in Las Vegas, along with a radio station manager and a Little League organizer, both of whom testified about the company’s business ethics.
Sean Higgins, a lobbyist for the company, said he performed his own analysis of loans made to borrowers in 2018 and found his average real interest rate to be less than 30%. He said the company also uses its own database with other lenders to make sure borrowers don’t take on more loans than they should.
“There is no quotation mark debt conveyor belt that these people are stuck in,” he said.
But Cancela told committee members that there was a lot of opposition testimony that led to excessive conclusions on the bill and that the creation of the database would not affect lenders who followed the law and granted no loans in violation of the law.
“What I think is most important in considering your support or opposition to this bill is how better enforcement of the current laws would in any way alter the ability of the industry to work, ”she said.
The industry has an established position in Carson City, contributing more than $ 172,000 to state lawmakers over the past two years, with major recipients including Assembly Speaker Jason Frierson ($ 23,500) and Senate Majority Leader Nicole Cannizzaro ($ 11,000). At least eight high-interest lenders are represented by 22 different lobbyists in Carson City, including former Democratic lawmakers John Oceguera, Marcus Conklin and William Horne.
Similar concepts were proposed by the 2017 legislature, but were unsuccessful. A measure proposed by Democratic MP Heidi Swank creation of a database failed to get out of the committee, and an emergency measure introduced by Assembly Speaker Jason Frierson in the closing days of the legislative session was passed by the Assembly on a 30-11 votes but died in a Senate committee.
It is unclear what will happen to other measures affecting high interest, short-term loans. Democratic MK Heidi Swank said on Tuesday that her bill AB118 the setting of a 36 percent rate cap on short-term, high-interest loans has not yet been scheduled for a hearing.