Editorial: Consumers need more protection

Monday, Dec. 7, 1998 | 11:42 a.m.

Lured by promises of up to 15 percent interest annually, hundreds of Las Vegans made private investments in real estate and construction loans through the Harley L. Harmon Mortgage Co. For some, including many senior citizens, this had disastrous consequences. State regulators eventually took away Harmon Mortgage's license last December, but not before investors lost millions of dollars.

An interim committee of the Legislature was created following the disclosures to see if better consumer protections could be put in place. The committee is expected to meet this week and finalize its recommendations to the 1999 Nevada Legislature. The committee should give serious consideration to proposals by Secretary of State Dean Heller, who is offering a plan that would provide needed consumer protections, bringing oversight of these companies to a division in his office that regulates securities.

One of the basic problems with existing Nevada law in this area is that regulatory authority rests with the state Financial Institutions Division. As Heller has noted, the Financial Institutions Division's mandate is geared to preserving the financial stability of the institution, helping to protect against its failures. Securities laws as enforced by the secretary of state's office, meanwhile, are designed to promote consumer protection.

The result of this, Heller believes, is that while securities laws require the disclosure of important facts about the investment, including risks and negative information, traditional financial institution oversight tends to keep bad news confidential so investors don't withdraw their money.

The secretary of state believes these companies should be licensed through his office and that thorough background checks must be required for those who apply for a mortgage company license. Heller also would require mortgage companies to prepare annual statements and disclose the risk of these investments. In addition, by placing oversight in his office those who violate registration requirements in these investments would be subject to criminal prosecution for securities fraud.

Heller's plan should be the starting point for legislation reforming the regulation of this industry. There may be additional protections the Legislature may wish to investigate, but the secretary of state is offering an excellent road map.