TitleMax and state argue over term limits for short-term loans in Supreme Court
Like many Nevadans, Las Vegas resident Ray Diaz took out a loan from lender TitleMax to help pay his bills while he was unemployed during the pandemic.
But the high interest rate has dried up his unemployment benefits and stimulus checks, leading to a debt “merry-go-round”, he said. Diaz said he had already taken loans from TitleMax and paid them back within four months, but this time his contract was “extended” through a process called refinancing, which resulted in an increase in interest.
“I said ‘let’s go and pay some of the bills.’ But that made it worse and put me behind on other bills because the money I got was being used to pay principal and interest, ”Diaz said. The Nevada Independent. “It brought down my credit rating. It was a domino effect that really fucked me up all around.
Diaz’s situation is the premise of the most recent case that challenges the creative use of title loan refinancing as a way to bypass the state-permitted 210-day loan term limit. On Wednesday, the Nevada Supreme Court heard oral arguments in the third case that has been appealed since 2016 involving TitleMax and the Division of Financial Institutions (FID) of the Nevada Department of Business and Industry, which regulates high interest lenders, including TitleMax.
Nevada law allows businesses to make short-term, high-interest loans of various types to individuals, but sets a generally strict deadline of 210 days to avoid massive interest accumulation. The law allows lenders to give grace periods after the 210-day period, but only under conditions where a lender does not offer a new loan agreement or charge the customer additional interest.
Unlike the Dollar Loan Center or other well-known “payday lenders,” TitleMax offers so-called title loans, which are extended after a person exchanges title to their vehicle for collateral. State law prohibits property loans from exceeding the value of a car, but state regulators have argued in court that the company’s “refinancing” practices violated the company’s intent. law.
“While (state law) specifically limits the term of a title loan to a maximum of 210 days and explicitly prohibits the extension of that period under any name, TitleMax’s loan product does not has no fixed payment end date and extends the payment due. date on original principal well beyond the outer 210-day limit… ensuring TitleMax collects over 210 days of amortized interest, ”said Solicitor General Heidi Parry Stern.
Lawyer Dan Polsenberg, representing TitleMax, told judges on Wednesday that refinancing was allowed for title loans because they are different from other loans that prohibit refinancing – namely because they hold the car as collateral. He argued that refinancing is explicitly prohibited in the case of payday loans and other high interest loans, and that the absence of a similar prohibition on title lending is sufficient to allow this practice.
“Because it’s a different nature, an extension is just that – an extension of that loan. The lawyer pointed out that all of these laws talk about repayment, renewal, refinancing and consolidation, ”Polsenberg said. “Well, certainly the law recognizes that refinancing is not something prohibited unless it is expressly prohibited. Refinancing … is the use of another loan to terminate that loan. “
TitleMax has been involved in two other Supreme Court appeals. In each case, TitleMax and the state disagree on the correct interpretation of Nevada’s securities lending laws. A recurring problem is the limit on how long a title lender is allowed to charge interest.
In one Case 2019, the court unanimously ruled that TitleMax broke state law by offering a loan product with a “grace period” that exceeded the 210-day limit and charged additional interest. But the court did not punish the loan company for ruling that TitleMax had not “willfully” violated state law on short-term loans.
The first call between the State and TitleMax resulted in cancellation and referral in the lower court in October 2017 after the Supreme Court ruled that the district court erred in the decision by dismissing TitleMax’s declaratory relief action. The case arose after TitleMax received an “improved needs” rating from IDF and the lender then went to the district court to seek interpretation of the laws cited in the IDF assessment.
The Supreme Court did not render an immediate ruling in the latest case on Wednesday.
Meanwhile, Diaz said he had to make a decision this week. If he doesn’t pay this month’s $ 1,440 for his loan, he will have to give TitleMax his car, leaving him and his family with one vehicle. But his mortgage is $ 1,470.
“There’s a possibility I could try to find it, but then it’s like an anchor around my neck for six more months.” [to continue paying the loan], and the patience soon ends with me, so I have to make a decision… What is most important? Obviously the house would be, ”he said.