Panel OKs regulation of payday lenders

Thursday, May 19, 2005 | 11:01 a.m.

CARSON CITY -- A bill that would crack down on the "bad actors" in the payday loan industry that abuse those in tough financial straits was unanimously approved by the Senate Commerce Committee.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said the industry is "rife with abuses when someone borrows $200 and ends up having to pay $2,000. It's got to stop."

Buckley said there "has been no crackdown on the bad actors and nobody is cleaning up their act."

Buckley has guided her Assembly bill 384 through the Legislature, and it will now go to the floor of the Senate for final passage, probably sometime next week.

Sen. Randolph Townsend, R-Reno, said there are many good laws on the books but they need enforcement. His remarks were directed to Carol Tidd, administrator of the state Division of Financial Institutions that oversees the industry.

Tidd said she is getting additional staff to help in regulation.

Jim Marchesi, owner of Check City in Las Vegas and president of the Nevada Financial Services Association, said his group supported the law. But he said there were others outside the organization that opposed the legislation.

The legislation, he said, was the result of 18 months of work with Buckley to draft the bill. He said there are no problems with many of the payday loan businesses, but there are some that take advantage of the customer. The average customer, Marchesi said, is a person with a $45,000 income and a homeowner. The national average, he said, shows 12 to 18 percent of the population uses the service and only 5 to 10 percent end up not repaying the loan.

The average fee on a $350, 14-day loan is $45, Marchesi said, adding that it's less expensive than bouncing a check or paying a late charge on a credit card or utility bill.

The bill would limit the penalties that can be charged on delinquent loans. Buckley has testified that people routinely take small loans but end up paying late fees and enormous interest rates and then end up in a court that imposes more penalties.

Buckley said payday loans sometimes pile on late fees, such as treble damages, a charge for bad checks and add a $1,000 garnishment fee, but she said her bill stops garnishment fees and treble damages.

Under the bill the interest rate would be the prime rate plus 10 percent on a delinquent loan. The bill does not impose a limit on interest or fees on the loan.

"When this bill is signed into law, hopefully the bad guys are going to change their behavior or they are going to have some serious, serious problems," Townsend said. "That's the way it should be."

The bill provides that a payday loan business that violates the sections can be hit with a variety of civil damages. That section of the bill is still being worked out between Buckley and the industry, but she said they were close to agreement.

Marchesi said the section on penalties needs to be tightened because it "now leaves us open to limited lawsuits."

Townsend said the bill calls for "a consistent way you have to do these loans, whether they are installment loans, payday loans or check cashing loans or auto loans. So the consumer understands that."

The other crucial aspect, he said, is what happens when a consumer defaults on a loan. "Now there is a consistent process that everybody understands -- the regulator, the provider, the consumer understand what the mechanism is after that."

The bill, which requires the loans to be translated into Spanish, will go into effect on July 1 if approved.