The Nevada Senate Commerce, Labor and Energy Committee was urged on Wednesday to tighten rules so people can’t get multiple loans from payday lenders that put them into a “debt spiral” they can’t escape.
Treasurer Dan Schwartz told the panel the people who get into this situation are single mothers, low income families, military members and their families and those without a bank account.
“The overriding statistics here are that, of the people who take out payday loans, 92 percent don’t pay them off,” said Schwartz.
Senate Bill 17 would create a database of all outstanding payday loans and prohibit customers from getting a new loan if they have an outstanding single payment or high interest loan or have had such a loan in the past 45 days.
“The intent is to prevent them from getting on a debt treadmill where they get loan after loan after loan they could not afford,” said Tennille Pereira, a lawyer with the Aid Society of Southern Nevada, to the committee. Pereira said existing law limits those loans to 25 percent of borrower income but, when they can’t pay it off, “they go to another lender and get an additional loan.”
She said too many of those storefront loan companies also ignore the law that says, when the loan is in default, it triggers a reduction of the interest rate to just 15 percent to allow the borrower to pay off the loan.
“Lenders are just rewriting new loans instead of allowing default provisions to kick in,” Pereira said. “Clients just keep getting further and further in debt.”
She urged support for the law that would limit borrowers to one loan at a time and its creation of a database would enforce that rule.
Barry Gold representing AARP said that group also supports the legislation because, “we need to put some safeguards on the industry and need to protect the borrower from himself some times.”
Schwartz introduced Justin Gardner of Las Vegas as an expert in the payday loan industry. Gardner said the law would prevent someone from needing a payday loan to pay off a payday loan. He pointed out 38 percent of veterans and their families had an active payday loan in 2014.
Gardner said the legislation would put some controls on the industry without wiping it out because 10 percent of Nevadans rely on the short term loan industry.
“They have nowhere else to go,” he said.
Opponents of the bill made that point as well. Lobbyist William Horne representing Advance America, which has loan operations in 29 states, said the short term loan industry “provides much needed access to funds to a segment of the population that doesn’t have access to credit.” He said those loans are vital when emergencies happen such as a vehicle breaks down.
But Sen. Yvanna Cancela, D-Las Vegas, said the data shows 69 percent of borrowers are paying recurrent expenses, not emergency costs.
“The business model encourages people to continue getting the loans and that’s what people testify is the problem,” Cancela said.
Horne was joined by several other short term loan representatives who argued the proposed legislation was unnecessary if the state would enforce existing laws. “We provide a need that otherwise would not be provided in the state of Nevada,” said Sean Higgins representing Dollar Loan Center.
The committee took no action.