State and major payday lender clash in court again to “refinance” high-interest loans

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One of Nevada’s largest payday lenders is once again facing a state regulator in court in a case testing the limits of legal restrictions on refinancing high-interest short-term loans.

The state’s financial institutions division, represented by Attorney General Aaron Ford’s office, recently appealed a lower court decision to the Nevada Supreme Court which found that state laws prohibiting refinancing high interest loans did not necessarily apply to a certain type of loan offered by TitleMax, a leading securities lender with more than 40 locations in the state.

The case is similar but not exactly analogous to another pending case in the state Supreme Court between TitleMax and state regulators, who challenged the company’s extensive use of grace periods to extend the term of a loan beyond the required 210-day limit by state law.

Instead of grace periods, the most recent call is for TitleMax’s use of “refinancing” for people who are not able to immediately repay a title loan (usually extended in exchange for the car title). a person as collateral) and other state law that restricts title loans are only worth the “fair market value” of the automobile used in the lending process.

The court’s ruling on both appeals could have major implications for the thousands of Nevadans who use TitleMax and other title lenders for short-term loans, with possibly millions of dollars in fines and interest. accumulated in game.

“Nevada consumer protection has long been a priority for me, and Nevada borrowers are simply submitting to paying high interest over longer periods of time when they ‘refinance’ 210-day title loans,” said Attorney General Aaron Ford in a statement.

The most recently appealed case stems from an annual audit review of TitleMax in February 2018 in which state regulators uncovered the company’s alleged violations related to its practice of allowing ” refinancing ‘loans.

Under Nevada Law, any loan with an annual interest rate greater than 40% is subject to several limitations regarding the format of loans and the length of time they can be extended, and generally includes requirements for repayment periods with limited accrued interest in the event of non-payment.

Typically, loan companies are required to meet a 30-day period during which a person must repay a loan, but are allowed to extend the loan up to six times (180 days, up to 210 days in total) . the loan is not repaid at that point, it is usually in default, with the law limiting generally very high interest rates and other fees that loan companies associate with their loan products.

Although state law specifically prohibits the refinancing of “deferred deposits” (typically cash advances on paychecks) and “high interest” general loans, it does not contain any such prohibition in the section relating to securities lending – what the lawyers for TitleMax have said is proof that the practice is permitted for their type of lending product.

In court records, TitleMax claimed that its “refinance” loans were effectively operating as entirely new loans, and that clients were required to sign a new agreement operating under a new 210-day period and pay the interest on their original loan before paying the interest. ‘open a “refinanced loan”. (TitleMax did not return an email requesting a comment from The Nevada Independent.)

But that argument was fiercely opposed by the division, which had given the company a ‘need for improvement’ rating after its audit review and meeting with company management to discuss the refinancing shortcomings. shortly before TitleMax filed the lawsuit challenging their interpretation of the “law. The Financial Institutions Division declined to comment through a spokesperson, citing the ongoing litigation.

In court records, the regulatory agency has said that allowing refinancing of title loans goes against the intent of state high-interest loan laws and could help more people get stuck in debt cycles.

“The real result of TitleMax’s unlimited refinances is that the principal is never repaid and TitleMax earns interest, usually over 200 (percent), until the borrower can no longer pay and loses their vehicle.” , wrote state attorneys in a registration statement filed with the Supreme Court. “Allowing TitleMax refinances essentially stifles the intent and purpose of Chapter 604A, which is to protect consumers from the conveyor belt of debt. “

The agency began administrative proceedings against TitleMax after the complaint was filed, and an administrative law judge initially ruled in favor of the agency. But the securities lender appealed and obtained an overturn from District Court Judge Jerry Wiese, who concluded that whatever wording TitleMax uses, “refinanced” loans meet all the conditions to be considered legal under state law.

“… TitleMax apparently has a policy of requiring consumers to repay all accrued interest before refinancing a loan, it prepares and executes all new loan documents, and when a loan is refinanced, the obligation original loan is fully satisfied. and off, ”he wrote in order. “While the Court understands the FID’s concern and its assertion that the TitleMax refinancing is in effect an ‘extension’, TitleMax does not ‘extend’ the original loan, but creates a ‘new loan’, which it calls” refinancing. ”The legislator could have prohibited this practice, or limited it, if it had wished, but it did not do so.

Wiese’s order also ruled against FID’s interpretation of a 2017 state law prohibiting securities lenders from making loans in excess of the “fair market value” of their vehicle. The state had interpreted this cap to include interest and charges on high-interest loans, but Wiese’s order stated that “fair market value” did not include charges such as “interest, bounced check, costs and attorney fees ”.

Wiese also wrote that the Supreme Court had “bent over backwards” to interpret state law in a way that would allow them to rule against a payday lender in the previous case, saying it was more in agreement with the dissenting opinion of Judge Kristina Pickering who criticized the majority opinion as not “in accordance” with the intention of the law.

But the state appealed the ruling to the Supreme Court in July, with the court still deliberating on another case heard in March regarding TitleMax’s use of “grace periods”. It is unclear when, or if, the seven-member tribunal will hear oral arguments or even decide to hear oral arguments; the case was not deemed appropriate for a settlement conference in August, meaning the state has 90 days to file its appeal and supporting documents.

The two cases involving TitleMax aren’t the only recent disputes that have affected the way payday loans are regulated in the state; the Supreme Court in end of 2017 ruled against a payday loan company that attempted to bring civil lawsuits against individual borrowers who take out a second loan to pay off an original high-interest loan that is overdue.

In the past two legislative sessions, Democratic lawmakers have introduced bills to cap payday loan rates, which have generally not advanced far into the legislature. But despite fierce industry opposition, lawmakers were successful in pushing a bill through the 2019 legislature allowing the state to create a payday loan database.

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