Editorial: Preying on borrowers

Tuesday, March 8, 2005 | 9:05 a.m.

In 1984 the Nevada Legislature got rid of the state law that limited finance charges for consumer loans. Gov. Richard Bryan pushed for the change so that Citicorp would come to Las Vegas and open a credit-card processing center, bringing with it several hundred good-paying jobs. There was, however, a downside -- and one that often doesn't get the attention it deserves. Not only did changing this law enable Citicorp to charge higher interest rates for consumers across the nation, but the change also paved the way for the later growth of payday loan companies. Today, there are more than 300 payday loan stores in Nevada, all of which are virtually unregulated by the state.

Payday loan companies, which readily provide cash to customers, have become controversial because of the stratospheric interest rates they charge. As the Las Vegas Sun's Steve Kanigher reported Sunday, customers of payday loan companies can get caught in a vicious circle, ending up paying much more in finance charges than the original amount borrowed. In one instance cited by the Sun, the finance charges assessed one Las Vegas woman were equivalent to an annualized interest rate of 390 percent -- about 20 times more than that offered by credit card companies.

The owners of payday loan companies dismiss the characterization of their operations as "legalized loan sharks," saying that they offer help to those who couldn't find it elsewhere. But Nevada's lack of regulation is pathetic and invites companies to take advantage of customers. Consider: Of the 36 states that permit payday loans, Nevada is one of just 10 that don't set a limit on the amount of finance charges these lenders can levy. We're glad to see that the Nevada Legislature, led by Assembly Majority Leader Barbara Buckley, D-Las Vegas, is considering regulation of payday loan companies. Buckley, as executive director of Clark County Legal Services, has fought to reduce the judgments of those who owe money to payday loan companies. She is proposing significant reforms, such as restricting loans to no more than 25 percent of an individual's gross monthl y income.

Other ideas that have worked on behalf of consumers outside of Nevada include setting a cap on finance charges, imposing a cooling-off period between loans, and creating a database to keep track of payday loans statewide. We hope the Legislature will consider the full range of measures needed to bring this problem under control. Predatory lending in Nevada must be stopped. If anything, it's a disgrace that it has taken Nevada more than 20 years to get this far.