Industry on borrowed time

Thursday, March 2, 2006 | 7:18 a.m.

Fearing a proliferation of payday-loan stores, Henderson and North Las Vegas are pressing ahead with regulations to limit their number in their cities.

Drawing from Clark County and Las Vegas, both cities have unveiled similar ordinances to crack down on the growth of the payday-loan industry, which has been faulted by critics who argue that the companies prey on problem gamblers, drinkers and the poor.

Under the proposals, Henderson and North Las Vegas would require payday-loan stores to be at least 200 feet from residential neighborhoods and at least 1,000 feet from each other. Las Vegas and Clark County have identical requirements.

"I think it will help regulate the businesses," said Henderson Councilman Andy Hafen, whose City Council will consider the ordinance Tuesday. "I am concerned about proliferation with all the applications we are getting. We don't want to have one on every street corner."

Henderson has 32 payday-loan stores with clusters on Sunset Road and Boulder Highway. North Las Vegas, which has 25 such stores, has had a moratorium in place since July to give the city time to draft an ordinance curtailing the stores' growth.

Payday-loan executives maintain the industry is ripe for consolidation and that the rate of growth has already slowed.

"Distance restrictions aren't necessary, but the industry has learned to live with them," said Jim Marchesi, president of Check City, who is locked in a state Supreme Court battle with North Las Vegas over its denial of a payday-loan store.

"The single biggest impact it has is on the free market. It is no different if a Walgreens was right across the street from a Rite Aid. It puts an artificial barrier to entry into the business."

North Las Vegas will unveil its ordinance today during a meeting to receive input from the industry and residents. The proposal, much less restrictive than the industry initially feared, is scheduled to go before the City Council on April 19.

North Las Vegas had considered ideas that included limiting the number of annual licenses, restricting licenses by population and awarding licenses via lotteries. City officials also discussed asking the Legislature for more power to regulate the industry.

Mark Thomson, Money Tree's director of governmental affairs, said he opposes distance requirements but is willing to accept them. The restrictions will effectively restrict the number of establishments because of the limited number of high-traffic commercial centers that are coveted, he said.

"I think those kind of restrictions, to the extent there are bad players, lock them in," Thomson said. "It prevents competition and prevents the survival of the fittest that the marketplace brings. Competition is the best way to handle that."

Henderson's proposed ordinance also would require that payday-loan stores be at least 1,500 square feet, matching Las Vegas' regulation. That requirement, Thomson said, would be a burden for some stores that operate in much smaller quarters.

The industry came under fire in Nevada a year ago after residents who took out small loans wound up paying high interest rates and late fees. In some cases, loan recipients also had additional penalties imposed when companies took them to court.

With Nevada having no usury laws, the payday-loan industry on average has charged 19.2 percent interest for a two-week loan, which amounts to a charge of $86 for borrowing $500 for two weeks. Wells Fargo charges customers $50 for borrowing $500 until the next payday.

A state law that went into effect last year limits penalties to the prime rate plus 10 percent, as well as stops garnishment fees and triple damages being added to borrower's debt.

Hafen, who compared the regulations to those the city imposes on taverns, said he believes the restrictions will help the payday-loan industry. Too much competition, he said, can prompt some stores to employ "cutthroat" or illegal practices.

"I think it will help bring more legitimacy to the industry," Hafen said.

Similarly, North Las Vegas Councilwoman Stephanie Smith said, "I hope the state law will do yeoman's work in addressing ... the problems we have had in the past."

Since Clark County and Las Vegas adopted their restrictions in 2004, there have been fewer complaints about overconcentration. Although the county does not track industry numbers, it reported in late 2005 that it had nearly 120 licenses for all businesses offering check cashing and deferred deposit services.

"My perception is that it seems to be working," Clark County Planning Manager Chuck Pulsipher said. "There is enough of a separation that prevents a concentration, and that reduces the probability of a degrading effect in the neighborhood."

Thomson argues that the industry has less of a negative effect on neighborhoods than taverns or adult businesses.

Marchesi said the industry has unfairly received a bad rap, noting that the service is used by middle-income people to cover emergency expenses and is a lower-cost alternative to banking fees.

"I don't think they understand the industry," Marchesi said of critics. "Many studies show that people use them responsibly."

Brian Wargo can be reached at 259-4011 or at wargo@lasvegassun.com.