Like many Nevadans, Ray Diaz, a resident of Las Vegas, 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 “carousel”, 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 allowed interest to continue. to accumulate.
âI said ‘Let’s go pay some of the bills.’ But that made it worse and put me behind on other bills because the money I got was used to pay principal and interest, âDiaz said. The Nevada Independent. âIt brought down my credit rating. It was a domino effect that really screwed me up. “
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 argument in the third case 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 companies 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 on condition that a lender does not offer a new loan agreement or charge the customer additional interest.
Unlike Dollar Loan Center or other well-known âpayday lendersâ, TitleMax offers so-called title loans, which are extended after a person has traded in their vehicle title for collateral. State law prohibits title loans from exceeding the value of a car, but state regulators argued in court that the company’s ârefinancingâ practices violated the company’s intent. law.
âAlthough (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 the original principal well beyond the outer 210-day limitâ¦ ensuring TitleMax receives more than 210 days of amortized interest, âsaid General Counsel Heidi Parry Stern.
Lawyer Dan Polsenberg, representing TitleMax, told judges on Wednesday that refinancing is allowed for title loans because they are different from other loans that prohibit refinancing, especially because they hold the car as collateral. He argued that refinancing is explicitly prohibited for payday loans and other high interest loans, and that the absence of a similar prohibition on title lending is sufficient to allow this practice.
âBecause it is of a different nature, an extension is nothing more than an extension of this loan. The lawyer indicated that all of these laws talk about repayment, renewal, refinancing and consolidation, âPolsenberg said. âWell, 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 disagreed on the correct interpretation of Nevada’s securities lending laws. A recurring problem is the limit on the length of time that a securities lender is allowed to charge interest.
In a case 2019, the court unanimously ruled that TitleMax broke state law by offering a âgrace periodâ loan product that extended beyond the 210-day limit and charged additional interest. But the court did not punish the lender because it ruled that TitleMax did not “willfully” violate state law on short-term loans.
The first case of appeal between the State and TitleMax resulted in reversal and dismissal in the lower court in October 2017 after the Supreme Court ruled that the district court erred in its decision by dismissing TitleMax’s declaratory relief action. The case arose after TitleMax received a âneed for improvementâ note from the FID and the lender then went to the district court to seek interpretation of the laws cited in the assessment of the loan. FID.
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 the $ 1,440 this month for his loan, he would have to donate his car to TitleMax, leaving him and his family with one vehicle. But his mortgage is $ 1,470.
“There is 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 abstention ends soon for me, so I have to make a decisionâ¦ What is most important? Obviously the house would be, âhe said.