Payday loan shops could face new limits in Nevada

CARSON CITY, Nev. (AP) -- Payday loan companies offering quick cash with high interest rates would have their fees limited and be subject to other new restrictions under a bill before the state Legislature.

Senators reviewing AB433 on Thursday said they were worried that such shops trapped poor Nevadans in a cycle of debt. Members of the Senate Commerce and Labor Committee said the legislation -- which caps fees at $25 and requires new upfront disclosures -- could help ease such problems.

Democratic Sen. Joe Neal said the shops commit "legalized robbery," adding that he had "run one of them out" of his North Las Vegas district.

Sen. Maggie Carlton said that Spanish-speaking immigrants who visit the short-term loan stores often sign contracts they can't read.

"One thing is represented to them and they end up signing a document that does another," the Las Vegas Democrat said. "It's very difficult for some people from another culture to understand what they're getting into."

AB433 allows customers who take out a loan to cancel the transaction within one business day with no penalty, specifies that check-cashing stores may not mislead customers or misrepresent their services, and caps fees at $25. It also requires the shops to notify customers of all their rights before a transaction.

Jim Marchesi, president of Nevada Financial Services Association and owner of a Las Vegas company called Check City, said the bill would hurt the industry and was based on an outdated "stereotype" that payday loan shops plot to exploit poor workers.

"The stereotype that a lot of you have in mind is not what the business is about today," Marchesi told the Senate panel, which took no action on the bill Thursday.

The Assembly unanimously approved AB433 last month.

There are as many as 24,000 payday loan stores nationwide that take in $2.4 billion in fees and interest each year, according to a 2001 report from the Consumer Federation of America.

The companies charge as much as $30 every two weeks per $100 borrowed -- the equivalent of a 720 percent annual interest rate.

They are able to evade state limits on annual interest rates -- typically between 25 and 60 percent -- by using a loophole in the National Bank Act. The law allows so-called "rent-a-bank" agreements, in which payday lending chains pair up with banks in states with lax lending laws so they can export high interest rates.

Industry groups say the average person who uses payday loan services is a young parent making between $25,000 and $50,000 a year.