Wednesday, April 27, 2005
Copyright © Las Vegas Review-Journal

Assembly approves limits on payday loan companies

Darla Eldredge talks about getting a payday loan Tuesday outside the Money Tree store on Charleston Boulevard and Maryland Parkway. A restaurant hostess, the 28-year-old single mother of two said she borrowed $200 and must pay the loan plus $33 in interest by May 17. Photo by John Locher. Click image for enlargement Click image for enlargement

Outraged by high interest rates charged by some payday loan companies, the Assembly unanimously approved a bill Tuesday that brings those rates back down to earth.

"It is pretty evident the payday loan industry in the state of Nevada needs to be reined in," said Assembly Majority Leader Barbara Buckley, D-Las Vegas. "People go to a payday loan store for a $200 loan only to find their wages are garnished for $2,000."

She sponsored Assembly Bill 384, which would prohibit payday loan companies from granting loans of more than 25 percent of a customer's estimated monthly gross income.

The payday loan company still could charge whatever interest rate it wants for the agreed upon term of the loan, generally two weeks or a month.

But if the customer could not pay back the loan within that period, the subsequent interest rate on the defaulted loan could not be more than the prime interest rate, plus 10 percent. That would be about 15.75 percent in today's market. Fees could be assessed only to cover court costs.

What happens now, according to Buckley, is some payday loan companies take nonpaying customers to court to recover the principal and add on "imagined charges" and fees that make the bill impossible to pay.

"People cannot get out of the debt treadmill these loans cause," she said.

Alfred Alonso, a lobbyist for Money Tree, said the bill as written would hurt many payday loan companies and he will work on a compromise in the Senate. Hearings likely will be conducted by the Senate Commerce and Labor Committee.

"Obviously our industry needs to be regulated," he said. "There are some bad players that need to understand they must treat their customers better."

But Alonso emphasized that payday loan companies are important to people of modest means who have a crisis like a car breaking down or an medical emergency.

"If you want a small loan, it is difficult to get one from a bank," he said. "Payday loan companies are a convenient way to get a small, short-term loan that banks won't give you."

Restaurant hostess Darla Eldredge, a 28-year-old single mother with two sons, said she uses payday loans only when she has to.

"I do it because I have to, for my kids," she said, referring to her 3- and 6-year-old boys.

On Tuesday afternoon, she borrowed $200 from the Money Tree at Charleston Boulevard and Maryland Parkway. She must pay the loan amount plus $33 in interest by May 17, she said.

"I don't get behind because then you have to pay a lot of money," she said.

Mike Fish, another Money Tree customer, said fees that payday loan companies charge need to be limited.

Fish said he has a brand new car, several credit cards and personal loans, and the interest rates on those accounts come nowhere close to the $60 in interest he'll have to pay for a $400 loan.

"Of course that isn't right," he said.

An act of the Legislature in 1997 allowed the payday loan companies to open offices in Nevada. By 2004, the state had 381 payday loan companies.

A study by the Nevada Fair Housing Center found that most payday loan companies loan customers money for a two-week period. Loans usually are for $1,000 or less. People seeking the loans generally have annual incomes of $25,000 or less, according to the study. The center found the typical loan carried a finance charge of 443 percent.

Last week, Buckley released copies of the agreement for a $150 loan made for a Las Vegas woman at a Southern Nevada payday loan office.

The woman was to pay back the principal and $45 interest in nine days. The interest rate on her loan was 1,095 percent. Unable to pay back the loan, the woman five months later was required by a justice court to pay $942 to cover the loan, interest and penalties.

Assemblywoman Chris Giunchigliani, D-Las Vegas, said 40 percent of cases in justice courts now deal with people unable to repay their loans.

Review-Journal staff writer Richard Lake contributed to this report.