Panel calls for end to ‘debt treadmill’

Friday, April 9, 1999 | 11:10 a.m.

CARSON CITY -- Low-income workers who have to borrow money to get from payday to payday would receive added protection under a bill approved Wednesday by the Assembly Commerce and Labor Committee.

Assemblywoman Barbara Buckley, D-Las Vegas, who sponsored Assembly Bill 431, said consumers can wind up paying 1,000 to 2,000 percent interest on the short-term loans, and they "end up on a debt treadmill which will last forever, which will force them into bankruptcy."

Representatives of the fast growing industry, which can provide loans quicker than banks and other financial institutions, say they have served more than 37,000 customers with $600 million in loans over the last few years.

Buckley said the consumer may pay anywhere from $15 to $40 for each $100 an individual borrows for two weeks. But the real crunch comes when the individual cannot repay the original loan and asks that it be "rolled over" for another two weeks. Another fee is charged.

The person sinks deeper into debt with the fees adding up, Buckley said. She said that by the end of a year a person who borrowed $200 may owe thousands of dollars.

Buckley's original plan imposed a 36 percent annual interest rate limit on the loans, but industry officials complained it would put them out of business.

Jim Wadhams, lobbyist for the Nevada Check Cashers Association, said the first version would "have literally closed the industry down."

Wadhams said "significant improvements" have been made on the bill, including the elimination of the limit on interest rates, but some sections of the bill are still "too harsh."

The modified bill includes two major points:

* A business can't threaten to criminally prosecute an individual who doesn't pay up, but civil actions can be filed.

* A business is limited to extending the loans twice. If the loan isn't paid at the end of the two extensions, the company is limited to charging 10 percent over the prime interest rate "which is about 18 percent," on the outstanding balance, Buckley said.

Her bill still allows whatever fees a company wants to impose on the original loan and two "rollovers," but it then caps the continuing interest.

"Folks are borrowing money and in two weeks they don't have the money, so they roll it over," Buckley said.

Wadhams said the two rollovers is too short a period. The industry wants to allow the loan to be extended five times, or a total of three months. He said many borrowers can't pay up in the short time prescribed by Buckley.

The bill goes to the floor for a vote in the Assembly next week.