Audit Finds Nearly One-Third Of Nevada Payday Lenders Broke Rules In Past Five Years

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A new audit report found that nearly a third of Nevada payday lenders have received a less than satisfactory rating from state regulators in the past five years.

A performance audit of the Financial Institutions Division, the state agency responsible for overseeing and regulating high-interest, short-term lenders, released on Wednesday, found that a significant percentage of so-called “lenders” on wages ”violated state laws and regulations every year.

George Burns, who heads the office of financial institutions, told lawmakers on Wednesday that the number of breaches was “relatively” small compared to the total number of loans issued, but any number of problematic loans remained a problem.

“This is a major problem for those affected,” he said.

The division regulates more than 2,666 licensees, which include banks, credit unions, trust companies and the vast array of “non-depository institutions”. This category, which is often referred to generically as “payday lenders,” includes check-cashing or deferred deposit businesses, as well as any title loan or high-interest lender.

In 2017, the audit report indicated that the division had performed 1,447 reviews of companies approved as “non-depository institutions” and found 2,156 violations of state laws and regulations.

Burns said the numbers were slightly skewed because the regulator considers all branches of an approved lender to be unsatisfactory if reviews reveal more than one or two branches are engaging in lending practices that violate the rules. . He added that the majority of approved lenders cooperate with regulators, but a small majority have fought “every inch of the way” and called on the division to engage in protracted legal battles.

“What is happening is that year after year these same problems keep coming back, because they refuse to fix them,” he said. “We’re still caught up in a dispute, and we can’t fine them, we can’t revoke their license until this dispute is over.”

Burns said during his 10 years in the division, he had five disputes with lenders all the way to the state’s Supreme Court for a verdict. most recent was in december, where the court ruled in a case involving Dollar Loan Center that lenders cannot sue borrowers who take out a second loan to pay off their original high-interest loan that is overdue.

The most common violation over the past five years was for securities lending companies – which provide a loan with the title of a legally held car as collateral – to grant a loan based on more than the fair market value of the vehicle. . The division reported 137 such violations in 2017 and 843 in the past five years.

The audit also suggested that a centralized monitoring system for short-term, high-interest loans would be “of significant value to the Division, its licensees and legislators.” Fourteen other states use a similar payday loan database, which can alert lenders in real time if a borrower exceeds limits or give them real-time insight into their borrowing history. The database is paid by a small fee added to each loan, with other states charging between $ 0.49 and $ 1.24 per loan.

At least three bills that would have set up a similar database in Nevada failed to move forward during the 2017 legislative session, including one presented by Assembly Speaker Jason Frierson during the last days of the 120-day legislative session. Although Bill Frierson took a bipartisan approach 30-11 votes in the Assembly, he failed to get out of a Senate committee chaired by Democratic Senator Kelvin Atkinson.

Relative to the size of the industry, payday lenders have a strong presence in the halls of the Legislature. Industry gave over $ 134,000 to legislators before the legislative sessions of 2017, and at least 22 lobbyists were hired during the session to represent various payday lenders.

Burns said creating a database was the prerogative of the Legislature, but such a tool would be valuable to the division.

“I would much prefer to control problems upstream rather than chasing them downstream, which is our process right now,” he said.

The report also suggested that the division should better document reviews of payday lenders, and suggested including a record number of total licensee loans and their status, and using a more standard method to determine loans. to consider.

“Requiring reviewers to document their sample selection methodology also allows management to review and ensure reviewers identify appropriate loan and check-cashing transactions, which can lead to violations. potential, ”said the audit.

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