“How does the Financial Institutions Division regulate payday lenders and protect consumers?”
Check cashing and deferred deposit service companies, colloquially known as “payday lenders,” are a necessity to certain borrowers who may be labeled sub-prime, though consumers from a broad spectrum of income and asset levels use payday loan services.
Payday loans are meant to assist consumers experiencing temporary cash flow problems or financial emergencies, but are not meant to be relied upon as regular income.
With the passage of Assembly Bill 384, new tougher regulations in Nevada Revised Statutes 604A curbed many of the former abuses and made it more difficult for unscrupulous lenders to take advantage of consumers. Some of the changes help protect consumers from the debt treadmill by capping borrowers’ loan amounts, the cumulative total of multiple loans and the number of extensions.
The Nevada Financial Institutions Division is responsible for the regulatory enforcement of the new law. Following are some highlights:
Limitations are set on loan amounts. Payday loans may not exceed 25 percent of the borrower’s expected gross monthly income. The cumulative loan amounts of multiple loans to a single borrower also may not exceed 25 percent of the borrower’s expected gross monthly income.
Limitations are set on loan extensions. If the borrower wishes to extend the initial term of the payday loan, the extension cannot exceed 60 days beyond the initial loan expiration.
The right to rescind the loan is available to the borrower. The lender must allow the borrower to rescind the loan on or before the close of business on the next day of business at the location where the loan was initiated. For instance, if a borrower took out a loan on Thursday morning, the borrower has until close of business on Friday to retract the loan. The borrower must return the sum of money equal to the face value of the loan and provide copies of certain documents to the borrower as proof of the voided transaction.
The borrower has the right to pay a loan in full or in part at any time without any additional charge or fee before the date the final payment or extension is due.
Terms must be presented in the language in which the transaction was conducted. Before making a loan, the lender must provide the customer with a written agreement of the loan’s terms. For example, if the transaction was conducted in Spanish, terms must also be in Spanish.
Before a lender attempts to commence legal action to collect on a defaulted loan, he or she must offer the borrower the opportunity to enter into a repayment plan by a written agreement no later than 15 days after the date of default.
The loan agreement or promissory note must also include the following terms as established through the federal Truth in Lending Act:
• Annual Percentage Rate (APR): The cost of credit as a yearly rate. These rates are typically high because “payday” loans are usually small and for very short terms. The State of Nevada has not established a cap on these rates.
• Finance Charge: The dollar amount the credit will cost, or the actual cost of the interest paid for receiving the loan.
• Amount Financed: This is typically the amount of cash the borrower receives from the lender.
• Total of payments: The total amount paid after making all scheduled payments.
Before doing business with any lender or other financial institution, log on to www.fid.state.nv.us, and click on the “Licensees as of …” link to ensure you are doing business with a licensed entity.