Why many Nevadans might benefit from proposed curbs on payday lenders

/ Las Vegas Sun

Photos show some of the payday loan businesses located on a stretch of Charleston Boulevard between Eastern Avenue and Rainbow Boulevard.

A federal agency has proposed new regulations for short-term, high-interest lenders in an effort to end borrowers’ “payday debt traps.”

The Consumer Financial Protection Bureau said its proposal would require payday lenders, auto-title lenders and others “to take steps” to ensure customers have the ability to pay back their loans.

The agency says it has “serious concerns” that “risky” lending practices are “pushing borrowers into debt traps” — chief among them, that borrowers “are being set up to fail with loan payments that they are unable to repay.”

Payday lenders and similar groups typically charge high interest rates — often in triple digits — and lend a few hundred dollars at a time to people who need cash quickly.

The proposal would affect people throughout Las Vegas: With the bulk of its population in the valley, Nevada has some of the worst personal finances in the country, making it ripe for short-term lending.

Among other things, the bureau's new rule would force lenders to determine whether a borrower can afford each loan payment and “still meet basic living expenses and major financial obligations,” the agency said. Lenders also would have to give borrowers written notice before trying to debit their account to collect payments for certain loans.

Repeated debit attempts “can rack up more fees and make it harder for consumers to get out of debt,” the agency says.

The bureau said public comments on the proposal are due Sept. 14 and “will be weighed carefully before final regulations are issued.”

Dennis Shaul, CEO of the Community Financial Services Association of America, a trade group for payday lenders, said in a statement that the proposal “presents a staggering blow to consumers, as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense.”

“From the beginning this rule has been driven — and in some instances written — by self-proclaimed ‘consumer advocacy’ groups who have sought to eliminate payday lending,” he said in the statement, posted to his group’s website. “The bureau took up the advocates’ agenda, relied on nonquality research and conducted a rule-making process while maintaining an already hardened and biased view of payday loans and how consumers use these products.”

Payday lenders in Nevada charge an average annual interest rate of 521 percent, one of the highest rates in the country, according to a 2014 report by the Pew Charitable Trusts.

Additionally, whenever a new report looks at Americans’ financial health, it seems Las Vegas and Nevada are always at or near the bottom.

• More than half of households statewide are locked in “perpetual financial insecurity,” as Nevada carries some of the highest rates of bankruptcies, delinquent mortgages, uninsured residents and student-loan defaults, according to a January report from the nonprofit Corporation for Enterprise Development. The group ranked Nevada 48th among the states and the District of Columbia for residents’ financial security.

• Personal-finance website WalletHub reported in January that Las Vegas residents’ average credit score, 632.83, was in the 9th percentile — or bottom 9 percent — of the 2,570 U.S. cities it analyzed. A credit score represents consumers’ financial habits and “tends to speak volumes, most important of which is how well you manage your debts,” the report said.

• Last year, WalletHub ranked Nevadans’ financial literacy second worst in the country, behind Mississippi. According to those findings, Nevada had some of the highest shares of residents who spend more money than they make, borrow from non-bank lenders and pay only the minimum balance on their credit-card bills.

• In 2014, the Federal Deposit Insurance Corp., a banking regulator, reported that more people in Las Vegas used check-cashing and payday loans than national averages, and that a rising number of locals did not have a bank account.