Monday, February 5, 2007

Assembly Speaker Barbara Buckley says several companies are evading Nevada’s payday loan laws by using a loophole that enables them to charge sky-high interest rates - and she’ll push for a law to close it during the 2007 legislative session.

The payday loan law, passed in 2005, limited the amount of interest that companies can charge on the loans and restricted how they can collect from delinquent customers.
The law applied only to short-term loans, which are defined as cash advance loans with a payment period of one year or less. That definition was included to avoid applying the law to banks and other traditional lenders.

Buckley, D-Las Vegas, said most of the companies in the payday loan business complied with the law, but some companies changed their contracts to extend the term of repayment beyond one year.

“Six lenders chose to completely evade the law by rewriting their contracts,” said Buckley. “It has probably affected tens of thousands of people.”

Those new contracts allow borrowers to make weekly payments, while charging interest of up to 900 percent, Buckley said.

Buckley declined to name the companies involved, but plans to hold hearings on the issue. A few of the cash advance payday loan companies are modest in size, but two of them have more than a dozen locations around the state.

Alfredo Alonso, a lobbyist for Money Tree, a payday loan company that follows the 2005 regulations, said his client supports Buckley’s attempts to regulate the industry. The current law already has had some success stamping out “bad actors” in the industry, said Alonso, but the one-year exception should be closed.

“In an attempt to keep the larger banks out of it, they created a loophole,” said Alonso. “It’s unfortunate that people took advantage of that. We believe everybody should be playing by the same rules.”

The 2005 law allows payday loan companies to charge any interest rate for the term of the loan, typically two weeks or a month. But if the borrower fails to pay these no fax payday loans back, the interest rate must drop to the prime interest rate, plus 10 percent.

In today’s market, that would be 18.25 percent.

The law also limits the types of fees that loan companies can charge, and requires them to disclose the fees in the loan agreement.

This entry was posted on Monday, February 5th, 2007 at 5:59 am and is filed under Nevada.