Industry watchers predict surge in payday lending

Economically Southern Nevada has become one of the hardest hit metros in the entire country due to the state’s dependency on the leisure and hospitality industry, depleting finances for countless families. 

It’s difficult to predict how financial behavior will change as a result of the COVID-19 pandemic, but some financial advocates fear an increase in the use of short-term, high-interest payday loans by vulnerable Nevadans.

“A lot of people right now are somewhat protected because of the moratorium on evictions, but once that lifts and people owe three months rent, there’s going to be a lot of people scrambling to figure out where to get that money,” said Barbara Paulsen, an organizer for Nevadans for the Common Good, which lobbies for legislation in the state to regulate the payday loan industry.

Nevada regulators lack data that would indicate whether the pandemic and accompanying economic upheaval have pushed people to increase reliance on payday lenders but at least one payday lender, Advance America, said the company has not had an increase in loan applications in Nevada, according to Jamie Fulmer a spokesperson for the company.

“In fact, due to social distancing and the stay-at-home orders that have been in place, visits to our stores in Nevada and elsewhere have been down considerably,” wrote Advance America’s Jamie Fulmer in an email.

Several other payday lending companies and lobbyists for the industry did not respond to interview requests for this story.

Critics of the industry say the loans are designed to trap borrowers into a cycle of debt. Nearly 20 states have capped rates on payday loans, but lawmakers have rejected efforts to cap the high interest loans in the Silver State, where the industry has contributed generously to politicians. The Center for Responsible Lending reports that the typical annualized percentage interest on a payday loan in Nevada is 652 percent.

There are some signs that the sudden economic downturn has affected borrowers ability to pay back these loans. While the division does not have access to the volume of loans in real time, inquiries about payday loans from customers have been “more than usual.”

“Currently, the division is receiving calls/inquiries from customers that are reporting concerns of inability to pay and lender’s unwillingness to modify loan terms or defer payments,” wrote Teri Williams, a spokesperson for the Department of Business and Industry, in an email.

In March, Gov. Steve Sisolak and the division asked payday lenders and other lenders in the financial services industry “to take steps to meet the financial service needs of affected customers and communities,” including possibly waiving late fees, lowering interest rates, and halting collection efforts, but there is no legal requirement for businesses to modify their practices.

Some payday lenders in Nevada like Advance America, however, say they are working with customers to provide flexibility on payment plans during the COVID-19 pandemic, including extended payment plans and suspending late and non-sufficient fees.

“We are committed to working with every customer to figure out what makes the most sense for their personal financial situation,” Fulmer said in an email.

During the last legislative session a bill passed requiring the creation of a statewide database to track information on high-interest, short-term loans, including repayment plans, fees, and extensions but the system is still a long way from being developed. State law requires provisions of the bill to be in place by July 1 but a series of delays due to the COVID-19 pandemic has hindered work on the database.

“The July 1st deadline at this point is not realistic,” said Williams via email, adding that it’s possible there will be further delays.

Recently the industry has also sought to further delay the implementation of the database, citing COVID-19 as an industry concern. 

“We’ve never experienced the health crisis or economic disaster as far reaching as this pandemic,” Cash 1 L.L.C. general counsel Marty Baker said during a hearing set by the state Financial Institutions Division to adopt regulations. “We are already dealing with thousands of different payment plans. This is not the time to hurry the implementation of the database to meet an arbitrary deadline. Nevada lawmakers certainly didn’t intend to implement this database in the middle of a pandemic.”

Several other states have already developed similar online databases to track payday loans. In fact according to data from two state databases there is evidence that the use of payday loans has decreased in at least some states.

One example is Indiana, where there were about 54 percent less payday loan transactions in April than there were at the same time last year, according to data provided to the Indiana Department of Financial Institutions by the loan processing firm Veritec Solutions.

In Kentucky, the industry processed about 20 percent fewer short-term, typically high-interest loans in March than it did the previous March, according to reporting by the Kentucky Center for Investigative Reporting.

Charla Rios, a researcher at the Center for Responsible Lending who focuses on payday lending and predatory debt practices, warned that despite some states seeing a decrease in payday lending there is not enough data to say whether a decrease in lending is a nationwide trend. 

“Since we’re still in the early stages of COVID-19 comparatively some of the data still isn’t there,” Rios said. “We don’t have data from all states yet.”

The Great Recession example

Rod Jorgensen, the Senior Business Development Advisor for the Nevada Small Business Development Center at the University of Nevada, Reno, said based on his own experience he doubts that payday loans have seen any significant increase in Nevada. 

“My bet would be that they are seeing a decrease, simply due to the unemployment rate and thus people are not eligible,” Jorgensen said.

If payday lending activity has decreased, it’s not for a lack of trying on the industry’s part, Jorgensen noted. Payday lenders have advertised themselves as fast and easy loans options during the pandemic. 

Advance America, states on their website ”As we go through these uncertain times, you can remain certain that we will be here for you” adding that they are “committed to working with customers to navigate their credit needs” meanwhile a $500 bi-weekly loan in Nevada has a 482 percent APR. 

Title Max, which lists 29 locations in Nevada for title loans, also has a statement on its page on COVID-19. “Our customers and Team Members are this Company’s main priorities. We are focused on maintaining a clean and safe environment to help you take care of your financial needs during this unprecedented time.”

Dollar Loan Center’s website has kept it simple through the pandemic: “COVID-19 UPDATE: WE ARE OPEN. WE ARE HERE FOR YOU.”

A statewide database on high-interest short-term loans is crucial to truly understanding the scope of the payday loan industry in Nevada in the coming months, said Nevada Coalition of Legal Service Providers policy director Bailey Bortolin, who suspects “a large increase in loans due to the dire financial situation.”

“It is imperative that it be enacted as soon as possible,” said Bortolin.

Financial advocates and researchers warn that any decrease in the use of payday loans may only be temporary.

“Some of the economic impacts won’t be seen for many months or years to come,” Rios, a researcher at the Center for Responsible Lending, said. “What we anticipate seeing is that while there may be a decrease now once these moratoriums or forbearances are lifted we’ll see an increase in payday lending.”

Past financial crises may provide some insight into how economic downturns will affect the use of payday loans in the long term. In 2018 Kyoung Tae, an assistant professor for the Department of Consumer Sciences at The University of Alabama, analyzed the effects of credit constraints on the likelihood of using payday loans before and after the Great Recession.

He found that households with bad credit were more likely to use payday loans than those who didn’t, and that reliance on payday lenders only grew after the Great Recession. Tae’s research also found most borrowers reported that payday loans were the only financing option available to them after their credit was damaged during the financial crisis, and they used them to pay other bills and loans.

Data from the Survey of Consumer Finances conducted by the Federal Reserve Board also suggests that more middle-income borrowers have been using payday loan services since The Great Recession.

“There’s no available dataset to analyze the current COVID-19 pandemic period, but I strongly expect that there should be an increased rate of using payday loans in the U.S.,” Tae said this week via email. “Even though the US government has invested substantial efforts to help US households sustain their financial status, especially, with the CARES Act (e.g., individual stimulus checks), we’re still facing an unexpected period of severe economic hardship.”

This story was updated Wednesday with comments by a spokesperson for Advance America, a payday lender.