State Supreme Court to Rule on Grace Periods for Nevada Payday Loans
Inside Subprime: April 24, 2019
By Grace Austin
High-interest, short-term lenders currently can extend grace periods, making the life of the loan longer than what’s legal under Nevada regulations.
The high court heard arguments in March 2019 of whether a national payday loan firm with dozens of storefronts in the state, should be allowed to issue loans that pass the allotted 210-day allowance.
The company stopped the practice in 2015.
But, despite ending the practice, the Nevada Financial Institutions Division estimated that the lender’s payday loans left more than 15,000 borrowers in the state paying about $8 million in extra interest on their loans.
Nevada’s payday lending laws are lax. The state doesn’t have any loan APR limits on the books, but it does have some regulations on very high-interest loans. Any lender that charges more than 40 percent interest must follow rules limiting the maximum length of a loan and the maximum loan amount based on the borrower’s income.
A specific guideline on grace periods allows lenders to offer customers the opportunity to defer payments. But it can’t be granted “on condition of taking out a new loan or if the customer is charged a rate in excess of the one described in the existing loan agreement,” according to the Nevada Independent.
This loan grace period is what the payday loan firm was offering to customers in Nevada, and what’s now being argued before the high court.
The particular case goes all the way back to 2014. That’s when a scheduled exam by the Nevada Financial Institutions Division found the company to be charging illegally high interest through the grace periods. But the company didn’t stop the practice, saying it was legal under state law.
That led to an administrative hearing, in which the payday loan firm was ordered to pay more than $300,000 in fines and had to stop offering the loans.
The payday lender appealed, winning a decision in district court in 2017. That decision was then appealed before the state Supreme Court.
During the latest arguments, the state argued that the payday loan firm’s intent in offering the grace period was not to give customers more flexibility, but was a way for the payday lender to make more money.
The payday loan firm asserted the opposite. “If we were really doing this just to make more money, we wouldn’t have done that,” said attorney Daniel Polsenberg, who was representing the company. “We would charge a higher interest rate across the board at the very beginning.”
The high court has not released its decision yet.