Audit finds 33 percent of Nevada payday lenders violated regulations
Inside Subprime: May 9, 2018
By Lindsay Frankel
The Division of Financial Institutions, which is responsible for regulating lenders, has released an audit revealing that approximately 33 percent of payday lenders in Nevada have received less-than-satisfactory ratings by examiners over the last five years.
George Burns, head of the financial institutions office, explained the violations represent a small fraction of the loans issued, and that a lender is marked unsatisfactory if even one of their branches violates regulations. Still, he added, “It is a major problem for those people that are affected.”
The division oversees banks, credit unions, trust companies, and “non-depository institutions,” also referred to as payday lenders.
The audit found 2,156 violations from 1,447 examinations of payday loan issuers in 2017. But legal battles prevent the division from withdrawing licenses from payday lenders in Nevada that have violated state laws. “What happens is that year after and year, these same issues keep coming up, because they’re refusing to correct them,” said Burns, who has seen five disputes make it all the way to the Supreme Court in his 10 years at the division.
The most common payday lending violation found in the report was for title loans that exceeded the fair market value of the borrower’s vehicle. A total of 843 violations of this type occurred over the last five years. Additionally, 641 issued loans were found to exceed 25 percent of the borrower’s expected monthly income, which violates state law.
The report also recommends changes to improve the division’s processes, such as ensuring the accuracy of documentation and formalizing the process for follow-up examinations. Also noted were the benefits of a potential centralized tracking system for payday loans in Nevada. A payday loan database could give lenders insight into a borrower’s history, helping them to determine eligibility as well as manage loans. The report also noted that the database would help the division identify violations. Burns stated, “I would much rather control issues on the front end than chase them on the back end, which is currently what our process is.”
Fourteen other states have developed similar databases, which are paid for by a small fee collected on each loan. Three bills have already been introduced that would have implemented a centralized tracking system in Nevada, but each failed to advance. Payday lending industry lobbyists have been influential in the Legislature, and the industry is known for its generous campaign contributions to lawmakers.
Because the division is unable to penalize Nevada lenders before wrapping up litigation, borrowers with bad credit in Nevada need to exercise caution when using payday loan services. Wherever possible, borrowers should seek alternatives to payday loans in Nevada to avoid disreputable practices that violate state laws.
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