Nevada State Treasurer Dan Schwartz hears moans and groans whenever he brings up the subject of payday loans, a financial trap for many borrowers who get buried by enormous interest rates and can never repay their debt.
It’s a vicious cycle of borrowing from Peter to pay Paul, with some people taking out multiple short-term loans to pay off the original amount they needed to pay rent, buy groceries and make ends meet until their next paycheck arrives.
Nevada legislators in 2015 tried to pass a law to cap interest rates on payday loans at 36 percent and limit the number of loans one person can take out, but the proposed legislation was “kiboshed at the highest level” before it ever came to the floor, Schwartz said during a June 8 summit at the Sawyer State Building.
With nothing currently in the works at Carson City, Schwartz says he wants to focus on financial literacy and what consumer protections can be put in place during the next legislative session.
“It’s like someone is in a hole and you’re helping them out by handing them a knife to grab hold of the blade and get out." - A.J. Buhay
“Once you start taking out these loans, you just can’t get rid of them,” he says. “This is clearly a huge issue. Most, if not all, who use these loans find (themselves) in a worse place than the place they began financially.”
Current law says payday lenders can’t loan more than 25 percent of a person’s gross monthly income, but there’s no limit on the number of payday lenders from which that person can borrow. And with no requirement to evaluate expenses, it leaves a lot of vagaries over the person’s ability to repay.
“It’s like someone is in a hole and you’re helping them out by handing them a knife to grab hold of the blade and get out,” says A.J. Buhay, field director of Progressive Leadership Alliance of Nevada, one of about a dozen consumer advocates who attended the summit.
It’s evident that payday lenders target lower-income, military and minority populations who are most vulnerable to falling into the trap, adds Justin Gardner, a doctorate’s degree candidate at UNLV’s School of Environmental and Public Affairs. You see payday loan storefronts on nearly every corner in the east Valley and North Las Vegas, but never in upscale communities such as Summerlin, he notes.
The most common reason for using payday loans are: unexpected expenses (24.3 percent); paying monthly bills (20.1 percent); paying for housing (14.8 percent); paying credit cards, car loans and student loans (14.2 percent); money for school supplies (8.9 percent); money for leisure expenses (6.5 percent); holiday gifts (5.9 percent); and medical emergencies (5.3 percent), according to a UNLV study.
Federal regulators are taking action to rein in the $50 billion payday loan industry, but some say the restrictions will hurt the very people who need the loans the most.
“There’s a capital access issue here,” Schwartz says. “There’s just no access for some of these people.”
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