More details emerge as state’s first payday loan database takes shape
A statewide database that tracks short-term, high-interest payday loans is starting to start up and possibly start documenting these loans by the summer.
The Nevada Financial Institutions Division – a state regulator responsible for overseeing payday lenders and other high interest lenders – draft regulation published last month which fleshed out the details of the database and the type of information it goes and can collect. In addition to the data, the creation of a database will for the first time provide a comprehensive assessment of the extent of the industry in Nevada.
Nevada law subjects any loan with an interest rate greater than 40% to a specialized chapter of state law, with strict requirements on the length of the extension of such a loan, rules on the terms of grace and default on a loan and other limitations. The state has no cap on loan interest rates, and a Legislative audit 2018 found that nearly a third of high interest lenders had violated state laws and regulations in the past five years.
A spokeswoman for the Ministry of Business and Industry (which oversees the Financial Institutions Division) said the agency plans to hold a public workshop on the regulations later in March, before the regulations are sent out. to the Legislative Commission for final approval.
The draft regulation is the result of a bill passed by the 2019 legislature – SB201 – which was sponsored by Democratic Senator Yvanna Cancela and passed party line votes before being approved by Governor Steve Sisolak. The bill was fiercely opposed by the payday lending industry during the legislative session, which said it was unfairly targeted and that the measure could lead to more “underground” rather than short-term lending. regulated.
Nevada Coalition of Legal Service Providers lobbyist Bailey Bortolin, a supporter of the bill, said she was satisfied with the initial results and called them a “solid place to start.”
“The hope is that in the implementation we see a lot of transparency for an industry that often has not been regulated,” she said. “We hope to get a little more sun on what this industry really looks like, what the scope of it really is.”
Bortolin said she expects the regulatory process to stay on track and, if approved, would likely have a database up and running by the summer.
The bill itself required the Financial Institutions Division to contract with an external provider to create a payday loan database, with the obligation to collect loan information (date of extension, amount, fees, etc.) as well as giving the division the opportunity to collect additional information about whether a person has more than one outstanding loan from more than one lender, how often does a person take out such loans and whether a person has three or more loans from a lender in a six month period.
But many specific details have been left for the division to be resolved throughout the regulatory process. In the draft regulation of the bill, which was released last month, the division gave more details on how the database actually works.
Notably, it sets a maximum fee of $ 3 payable by a customer for each loan product entered into the database, but prohibits lenders from charging more than the actual fees set by the state or from charging fees if a loan is not approved.
Although regulations require that fees be set through a “competitive procurement process,” a $ 3 fee would be charged. more than the invoiced amount by one of the 13 other states with similar databases. Bortolin said she expected the actual fees billed to be similar to those billed by other states, and that the maximum fee of $ 3 was for “leeway.”
The database itself would be required to archive the data of any customer transaction on a loan after two years (a process that would remove all “identifying” customer data) and then delete all transaction data within three years. following the closing of the loan.
Lenders would not only be required to record loan details, but also grace periods, extensions, renewals, refinances, repayment plans, collection notices, and refused loans. They would also be required to keep documents or data used to determine a person’s ability to repay a loan, including methods of calculating net disposable income, as well as any electronic bank statements used to verify income.
The regulations also require that any lender first checks the database before granting a loan to ensure that the individual can legally take out the loan and that they “keep proof” that they have verified the database. of data.
This aspect will likely be welcomed by supporters of the bill, as a common complaint is that there is no way for state regulators to track upstream the number of loans an individual has taken out. at any given time despite a requirement that a person not take out a combined number of loans exceeding 25% of their aggregate monthly income.
Access to the database would be limited to certain employees of payday lenders who deal directly with loans, government officials in the Financial Institutions Division, and staff of the vendor operating the database. It also defines procedures for what to do if the database is unavailable or temporarily unavailable.
Any customer who takes out a loan at a high interest rate has the right to request a free copy of “the loan history, file, file or any documentation relating to his loan or the repayment of a loan”. The regulations also require any customer who is denied a loan to receive a written notice detailing the reasons for ineligibility and how to contact the database provider with any questions.
The information in the database is exempt from the Public Registration Act, but gives the agency the discretion to periodically run reports detailing information such as “number of loans granted per loan product, the number of loans in arrears, the number of loans paid, including loans paid on the due date. date and loans paid after the due date, total amount borrowed and cashed ”or any information deemed necessary.