Official aims to limit payday loans online

Nevada payday lenders should be barred from making loans over the Internet to protect consumers in other states, a state official proposed Friday.

The Internet enables payday lenders, among others, to operate around the country without regard to state lines, said George Burns, commissioner of the Financial Institutions Division.

"It's definitely a new challenge," he said.

The proposed rule wouldn't prohibit payday lenders with licenses in other states from making loans where they have licenses, but it would eliminate the problem of payday lenders in Nevada violating laws in other states, Burns said.

Burns said he often gets complaints from his counterparts in other states but can only suggest officials from the other state take action against payday lenders who violate their laws.

"Doing business in cyberspace means no rules apply," Burns said.

The solution: Bar Nevada payday lenders from making any loans over the Internet.

At a workshop meeting Friday in the Sawyer Building, one payday lender complained that banning licensed lenders from the Internet would drive borrowers to unlicensed offshore lenders. Burns later suggested that wasn't likely given the impracticability of foreign lenders collecting loans in Nevada for as little as $100.

Mark Thompson of MoneyTree raised a legal objection.

"I think that creates a significant constitutional problem from extending Nevada beyond the borders of Nevada," he said.

Burns commented later: "We may have to get an attorney general's opinion on whether (the proposed rule) actually conforms with federal law as far as interstate commerce goes."

In addition to the proposed Internet ban, Burns received comments on a proposed rule that would more clearly define a statute requirement that payday lenders restrict loans to 25 percent of a borrower's income.

Burns said the 25 percent limit applies to both principal and interest.

Some payday lenders objected to another proposed rule that would prohibit them from making a second loan to a client within seven days of a first loan.

Burns said he wanted to make it harder for a borrower to get on a "debt treadmill" that never ends.

"Eventually, (borrowers of high-interest loans) end up owing thousands of dollars for a $100 loan," Burns said.

However, he acknowledged that borrowers often need only walk across the street to borrow money from another payday lender.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.