New Bill Would Limit Interest Rates on Nevada Payday Loans
Inside Subprime: Feb 15, 2019
By Lindsay Frankel
A proposal that would cap interest rates on predatory payday loans in Nevada moved closer to becoming law this week. Assembly Bill 118, sponsored by Assemblywoman Heidi Swank, D-Las Vegas, would prevent payday lenders from charging more than 36 percent interest annually on short-term loans.
Should the bill pass, Nevada would follow in the footsteps of other states with similar limits, including Colorado, which placed a 36 percent rate cap on payday loans via a November ballot initiative. The bill’s provisions are also similar to those of the Military Lending Act, which limits interest rates on small-dollar loans to 36 percent for service members.
Assemblywoman Swank said the goal of reining in interest rates on payday loans is to prevent borrowers from becoming stuck in a “cycle of poverty.” Nevada is currently one of the most permissive states in the nation when it comes to regulating payday loans, and payday lenders charge 521 percent APR on average, according to 2016 data from Pew Charitable Trusts. It costs an average of $60 to take out a $300 payday loan for two weeks in Nevada, but most borrowers can’t afford to pay back these high-cost loans while still covering their basic expenses, which leads to rollovers, mounting fees, and a cycle of debt than can be insurmountable for low-income borrowers.
“A 36 percent interest rate balances both that risk borne the business but also doesn’t overcharge and create that cycle of poverty that happens if people get stuck in these payday loans,” Swank said.
Nevada does have some protections in place for borrowers – loan amounts can’t exceed 25 percent of a borrower’s gross monthly income, for example, and there are limits on loan extensions – but many payday lenders still violate these rules. Last spring, an audit found that about 33 percent of payday lenders in Nevada were given less-than-satisfactory ratings from examiners over the course of five years. And many of these violations were recurring issues that payday loan providers failed to remedy. During the five-year period, payday lenders provided 641 loans that exceeded 25 percent of the borrower’s expected gross monthly income. Not only would Nevada benefit from stricter regulations of payday lenders, but advocates also suggest that a centralized tracking system for payday loans would help the Division of Financial Institutions discover and address violations by lenders.
Assembly Bill 118 was referred to the Commerce and Labor Committee and will be reviewed at a later date. While Swank brought similar reforms to previous sessions, those bills died in the Legislature. But after the recent success of payday loan reforms in Ohio and Colorado, Swank is “hopeful” that the new legislation will gain more traction.