Some Payday Loan Companies Evade the Law

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Several Nevada loan companies are evading the state's payday loan law by charging interest rates up to 900 percent, and must be stopped, lawmakers were told Wednesday.

Assembly Speaker Barbara Buckley, D-Las Vegas, said her AB478
would stop the companies by closing a loophole in the 2005 law, adding that the companies have ruined the lives of some of the state's most vulnerable and desperate citizens.

"They say they exist and they're fulfilling a market niche," Buckley told the Assembly Commerce and Labor Committee. "I would submit to you the only niche they're filling is an endless cycle of debt."

The named companies, which include Lucky Credit, Handy Cash,
Budget Loans, and Keystone Financial, denied they were evading the
law. Representatives argued they're installment lenders, similar to
banks, and should be regulated differently.

"We urge you to not allow the long-held and valuable licenses of dozens of good Nevada companies to be wiped out in a single blow," said Mark Mowatt of Keystone Financial.

Buckley said none of the companies, which have 20 Nevada branches between them, used longer contracts until the 2005 law was passed. Evidence - including the companies' old and new contracts - doesn't bear out their claims, she added.

Some large companies, including Moneytree, which supported the 2005 law, endorsed the bill, saying the regulations level the playing field for all payday lenders. Buckley said that while some payday loan locations are evading the law, about 500 are obeying it.

The 2005 law banned abusive collection practices and limited the
interest rates and fees charged by payday loans companies. Lenders
can charge any rate for an initial period, but if a customer can't pay it back, the rate must drop.

That law only applied to lenders that issue short-term loans, defined as one year or less. But some companies simply stretched out the terms of their loans to last more than a year, Buckley said, adding that her bill would limit fees and terms on any loan that charges more than 40 percent interest.

Buckley said predatory lending practices result in more than $100 million in excessive fees every year nationally, adding that some companies refer customers to other payday lenders to borrow more money when they can't pay existing loans, trapping customers in debt.

Payday lenders also have clogged state courts, said retired Reno
Justice of the Peace Fidel Salcedo. Although judges throw out
egregious cases, the companies often engage in costly appeals, he
said. Buckley said almost 40 percent of civil cases in Reno's justice courts and 34 percent of such cases in Las Vegas' justice courts are brought by payday lenders.

Buckley displayed several longer loan contracts, including one that resulted in a customer being required to pay $1,800 on a $200 loan. Another charged over $5,119 on an $800 loan.

Bob Ostrovsky, a lobbyist representing several of the companies using longer contracts, said that the customers take those loans often can and do pay them back early, avoiding high payments.

Payday loans also hurt the military, said Capt. Scott Ryder, commanding officer of the Fallon Naval Air Station. Ryder said that a dozen payday loan store branches are clustered within a short drive of his base, and that unfair lending can ruin the lives of sailors and soldiers and hurt the country's military readiness.

In the Navy alone, the number of security clearances that have been revoked due to excessive debt has increased from 124 in 2000 to 1,999 in 2005, he said.

Buckley said military families are a "perfect target" for predatory lenders. They have steady incomes, but also are young, financially inexperienced and risk being demoted for not repaying their debts, she said.

The opposing companies didn't object to provisions of the bill that protect the military, including bans on collecting from deployed troops or garnishing military wages.

(Copyright 2007 by The Associated Press. All Rights Reserved.)