Judge testifies in favor of measure targeting payday lenders’ practices

CARSON CITY -- A judge urged a state Senate panel on Thursday to support legislation to end abuses by some payday loan companies charging interest rates that are "flat-out unconscionable."

Felix Salcedo, a retired Reno justice of the peace who is now a senior judge, added in comments to the Commerce and Labor Committee that he has seen cases of interest rates as high as 7,300 percent.

Salcedo said forms provided by the payday loan companies disclose the consequences of late or no payments by borrowers, "but when you're desperate and need a couple of dollars, it makes no difference what's on that form."

In pressing for approval of Assembly Bill 478, Salcedo said cases involving payday lenders have clogged courts. He said in most cases borrowers don't show up to tell their side of the story, and lenders can get default judgments unless a judge spots an egregious case and tosses it.

Assembly Speaker Barbara Buckley, D-Las Vegas, said her AB478 would stop the abuses by closing a loophole in a 2005 law. Buckley described the effect of the practices as creating "an endless cycle of debt" for borrowers.

A 2005 law change banned abusive collection practices and limited the interest rates and fees charged by payday loan companies. Lenders may charge any rate for an initial period, but if a customer can't pay it back, the rate must drop.

That law applied only to lenders that issue short-term loans, which were defined as one year or less. But some companies simply stretched out the terms of their loans to last more than a year, Buckley said, adding that her bill would limit fees and terms on any loan that charges more than 40 percent interest.