Editorial: Payday loan sharks

Friday, Feb. 9, 2007 | 7:09 a.m.

Assembly Speaker Barbara Buckley, who led the overhaul of laws regulating payday lending companies two years ago, says several companies have found a way to exploit the law and charge exorbitant interest rates.

The companies - the Las Vegas Democrat will not say which ones - are taking advantage of a loophole that Buckley says she will try to close this year. The 2005 law came after a series of articles by the Las Vegas Sun detailed the problems of payday loan companies. The law limited the amount of interest a company could charge on a loan of one year or less. Six companies, she said, have rewritten their contracts to make them extend beyond one year and those contracts, which allow people to make weekly payments, can charge a whopping 900 percent interest.

Buckley said that "probably affected tens of thousands of people."

The loophole was left in the law for banks and other traditional lenders, but some payday lenders apparently found a way they could use it to their advantage.

The history of payday loan companies in Nevada is one marked by excess. Some companies had used Nevada's weak regulations to charge customers grossly high interest rates and, if they defaulted, sue them for three times the amount of the loan. As a result, people were being forced into an awful spiral of debt.

The 2005 law still allows payday lenders to reap a huge return. Companies can charge any interest rate for the length of a short-term loan, but if the borrower fails to repay the loan, the interest rate drops to 10 percent plus the prime rate. That is a little more than a healthy 18 percent today.

Given that the people who typically use payday loan companies are those who can least afford them, it is important that the state protect the borrowers. The 2005 law balanced regulation with the companies' ability to make a generous profit. Not all, apparently, are satisfied with that and they continue to exploit Nevadans. That must be stopped.