Payday lenders try to ‘squeeze’ through light sandbox, warn legal aid lawyers

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A national trade group for payday lenders is calling on state officials to ignore state laws governing high interest loans as it works to implement regulations for a pilot program that allows a limited number of companies offer unique financial products outside of existing regulations.

Comments and suggestions submitted by the America Financial Service Centers – a trade group for high-interest, short-term lenders – has raised concern among lawyers at the Legal Aid Center of Southern Nevada, who warned state officials at a workshop hosted by the Department of Business and State Industry to draft regulations to implement a new law (SB161) that payday lenders should not be allowed to participate once it goes into effect next year.

Legal aid attorney Taylor Altman said the proposed pilot program, which draws on a similar “sandbox” program in Arizona, should exclude all businesses licensed under the state’s regulatory scheme for payday lenders – defined as any business that charges 40% or more interest on a loan – and that the business group’s suggestions were contrary to the intention of the legislature.

“The sandbox program aims to reduce barriers to entry for innovative companies that do not fully fit into established regulatory regimes. It is not intended for existing businesses such as payday lenders to avoid regulations specifically implemented to protect Nevadans, ”she said.

Mark Krueger, a chief deputy attorney general, responded by stating that the Department of Trade and Industry had “no intention” to use the bill or regulations “as a mechanism to thwart or avoid licensing in specific areas like check cashing, payday loans and title. ready.”

While no one from the trade group spoke during the meeting and their ideas were not adopted by state officials, the letter and its recommended changes are a prime example of how the regulatory process state – where state bureaucrats write and pass (with legislative approval) a more detailed set of regulations to implement bills approved by the Legislature – may face the same pressure lobbyists and special interests than lawmakers during the normal 120-day legislative session, but often with less fanfare and public attention.

SB161 was sponsored by Republican Senator Ben Kieckhefer and Democratic Senator Pat Spearman in the 2019 legislature and was approved on the last day of the legislative session with near unanimous support, following the passage of several amendments.

As approved, the measure creates a “regulatory experimentation program for product innovation”, which allows certain state-approved companies to offer financial and other services in a “technically innovative” way without have to comply with applicable national laws and regulations.

To apply for the program, applicants must provide detailed information and description of the difference between the offered product and other available products, as well as a $ 500 fee to the department. Applicants can only offer the new financial service to a maximum of 7,500 consumers, all of whom must be state residents. Transaction amounts are limited to a maximum of $ 2,500 for a single transaction and a cumulative $ 25,000, with the possibility of increasing these limits to $ 15,000 and $ 50,000 upon government approval.

The measure limits the number of applications that can be approved to a maximum of three for the two semesters in 2020, and to a maximum of five companies for each semester between 2021 and 2022.

Although the bill was included in Press Releases Announcing the passage of blockchain-friendly legislation, the letter from Financial Services Centers of America Executive Director Edward D’Alessio indicated that the much more established high-interest lending industry also has a interest in the bill.

In addition to suggestions to increase the size of the possible customer base and the duration of testing, D’Alessio wrote that the industry considered it “critical” to create a “true regulatory free zone” that exempted items such as as price caps or other licensing requirements. .

“In practice, where we have seen other states fail in this regard, is that the real intention of the sandbox is to keep license laws and price caps harmless during the period of time. test according to legal and practical interpretations to date, “he wrote. in the letter.

Altman, the legal aid lawyer, said during the workshop to gather public comment on the proposed regulations that while the original version of the bill would have enabled the subset of businesses licensed as payday lenders to participate in the “sandbox,” subsequent amendments to the bill removed these provisions and made it clear that lawmakers did not intend to involve high interest lenders in the program.

“The payday loan lobby is clearly trying to squeeze into a program for which it has been explicitly banned.”

Aside from the warning, Altman suggested several other changes to the draft regulations, including requiring applicants to indicate whether they are offering a similar product or service in another jurisdiction, a copy of any approved or denied application. for a similar product from other jurisdictions, a summary of all complaints received and a general statement as to whether the financial product tested was successful or unsuccessful. She also suggested that the ministry make pending applications for the program public and allow a public comment period.

Participants in the regulatory workshop also provided insight into companies that might seek to take advantage of the sandbox pilot program, including an appearance and several technical recommendations made by a representative of a management and management company. UK-based digital asset protection, called Digital group on duty.

The only other entity to submit comments on the proposed settlement was based in Nevada Blockchains, LLC, the nascent blockchain technology company with ambitious plans to build a “smart city” on 67,000 acres of owned land west of Reno.

Although Blockchains executive Matthew Digesti written in a letter to the working group that the company has “no current plans” to participate in the pilot program, the company suggested technical changes to the regulations, including an easier process for applicants to move their physical location as well as “enabling language Allowing the State to prevent the public dissemination of information about certain candidates.

“To encourage these companies to participate in the regulatory sandbox, we believe that the director and the applicant should be given the opportunity to enter into an agreement in which confidential information and / or trade secrets are effectively protected from public disclosure,” said he wrote.

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