Sam Morris / Las Vegas Sun
Monday, Sept. 5, 2016 | 2 a.m.
Concerned that payday-loan borrowers perpetuate financial insecurity in a state that already posts some of the country’s highest bankruptcy rates, Nevada State Treasurer Dan Schwartz is asking the Legislature to consider regulating short-term borrowing next year when it meets for its biennial session.
Two of the proposals, filed as legislative drafts in late August, would create a statewide database for payday loans, prohibit borrowers from using a new payday loan to settle an existing one and create a corporation that could provide emergency capital for military families, veterans and educators.
This year, the treasurer’s office hosted a series of meetings on payday loans, taking testimony from borrowers, lenders and the public. These proposals emerged from the meetings and are meant to address an issue for Nevadans, who according to many nationwide reports, rank among the lowest in financial literacy. WalletHub, a personal-finance website, found that Las Vegans carry average credit scores in the bottom 9 percent of residents among the roughly 2,500 U.S. cities it examined this year.
Emergency cash offered by payday lenders can be enticing, at least in the short term. The issue is that borrowers who might already be living week to week often struggle to repay and can face mounting interest rates — compounded by the fact that there are no limits on the charges Nevada lenders can levy on customers.
“The hearings were actually important because they suggested payday loans are as much a symptom as they are a cause,” Schwartz said. “The real issue here was access to capital on reasonable terms.”
Payday lenders are expected to oppose the new legislation. Schwartz said they have argued that their industry fills a need for access to short-term cash to cover emergency expenses, and that states should wait on further regulation as the federal government moves on its own proposals.
The Community Financial Services Association of America, a trade group with lobbyists in Nevada, opposed federal regulations announced in June that would rein in the industry, including requiring lenders to assess whether customers are able to repay loans. The group’s CEO, Dennis Shaul, said that such a move “presents a staggering blow to consumers, as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense.”
Schwartz said he was sympathetic to the argument that there is a need for short-term cash.
“I think there are some very good people,” he said of the landscape of borrowers. “They deserve better than what they’re getting.”
The proposed statewide database would help regulators ensure that borrowers don’t take on too many payday loans. It also would impose a 45-day waiting period before a borrower could take out a new payday loan, if that borrower hadn’t paid a prior loan on time.
The second piece of legislation would have regulators working with the private sector to create a corporation for public benefit that could offer emergency loans under more favorable terms, though the resource would apply only to educators, veterans and military families.
Neither proposal addresses the high interest rates many payday borrowers face. Based on 2014 data, the Pew Charitable Trusts puts the average annual rate at 521 percent.
Rather than impose a ceiling, Schwartz said rates would fall naturally as the market reacted to the new rules. Creating a corporation and a waiting period for loans would decrease demand for the loans, he said, forcing the companies to potentially ease interest rates as a result.
“What we’re trying to do is basically to dry up demand,” Schwartz said, arguing a cap would be too intrusive on the free market. “If we can dry up demand, then interest rates will respond accordingly.”