New Nevada High Interest Loan Statutes

Posted by: on Sun, Jan 06, 2013

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NEVADA HIGH INTEREST LOAN REGULATIONS

Until 2007, when Nevada adopted certain high-interest loan regulations into NRS Chapter 604A, Nevada did not have a usury law of any kind, of which we are aware. Nevertheless, in 2005, a new Nevada statute was enacted, NRS Chapter 604A, which regulated certain types of high interest loans. In 2007, “high interest loans” were added to that statute and came to be regulated thereby. The 2007 amendments were “approved” in June 2007 and became effective October 1, 2007.

Nevada’s new interest statute defines a “high interest loan” as follows:

1. “High-interest loan” means a loan made to a customer pursuant to a loan agreement which, under its original terms, charges an annual percentage rate of more than 40 percent.

2. The term includes, without limitation, any single-payment loan, installment loan or open-ended loan which, under its original terms, charges an annual percentage rate of more than 40 percent.

3. The term does not include:

(a) A deferred deposit loan
(b) A refund anticipation loan; or
(c) A title loan.1

As a result of the foregoing statute, in the event a financial transaction is deemed to be a “loan” (as discussed more fully below), and in the event the foregoing statute were made applicable to such loan, then NRS 604A would impose some additional requirements on the “lender” of such a deemed loan.  These requirements include, first and foremost, a duty to obtain a license to issue high interest loans, as required by NRS 604A.400.  That statute provides for misdemeanor criminal penalties if one does any of the following without a license issued by the Division of Financial Institutions in this State:

1. A person, including, without limitation, a person licensed pursuant to chapter 675 of NRS, shall not operate a check-cashing service, deferred deposit loan service, high-interest loan service or title loan service unless the person is licensed with the Commissioner pursuant to the provisions of this chapter.

2. A person must have a license regardless of the location or method that the person uses to operate such a service, including, without limitation, at a kiosk, through the Internet, through any telephone, facsimile machine or other telecommunication device or through any other machine, network, system, device or means, except that the person shall not operate such a service through any automated loan machine in violation of the provisions of subsection 3.

(Emphasis added.) Presumably, in addition to criminal penalties, a court might simply invalidate a high interest loan which was issued in violation of this statute by a non-licensed high-interest lender.

In addition, such a loan arguably would have been made contrary to various other statutes which are part of NRS 604A, governing high interest loans, and could also be invalidated there under. These include the following (non-exhaustive list):

1. Limitations on the term of such loans (35 days maximum) – See NRS 604A.408;
2. Limitations on the amount of the loan (i.e., the loan cannot require any monthly payment to exceed 25% of the expected gross monthly income of the customer) – See NRS 604A.425;
3. A prohibition on accepting collateral (except a vehicle title), including a prohibition on an “assignment of wages, salary, commissions, or other compensation for services, whether earned or to be earned” as security – See NRS 604A.435; and
4. A prohibition in taking any note or “promise to pay” which does not disclose the date and amount of the loan, amount financed, annual percentage rate, finance charge, total of payments, payment schedule, and description of all fee amounts (regardless of the name given to the fee) – See NRS 604A.435.

Hence, aside from the licensure concerns described above, if a financial transaction is deemed to be a loan, problems could arise if: (1) the term exceeds the 35 day maximum, (2) the repayment amount is not limited to a portion of the 25% gross monthly income of the borrower, (3) the Purchase Agreement requires collateral in the form of an assignment of compensation (although an argument exists that this was not compensation for “services”), and (4) may not comply with the disclosure requirements described in NRS 604A.435. The violation of any of these issues could be utilized to invalidate the transaction if it is treated as a loan.

As a result, one must answer the questions of whether an agreement is, in fact, a “loan,” and, thus whether the high interest regulations added to NRS 604A in 2007 (which might invalidate the loan as they were not met) apply thereto.

A. Definition of a Loan

Pursuant to NRS 604A.080, a “Loan” means “any deferred deposit loan, high-interest loan or title loan, or any extension or repayment plan relating to such a loan, made at any location or through any method, including, without limitation, at a kiosk, through the Internet, through any telephone, facsimile machine, or other telecommunication device, or through any other machine, network, system, device, or means.”  This definition does not specifically address the distinction between a traditional loan, on the one hand, whereby money is loaned with a definite expectation of repayment, and an advancement, or investment, on the other hand, whereby a duty of payment arises only in the event of the satisfaction of a future contingency.  Nevertheless, the statute expressly recognizes that a court may treat a transaction as a “loan” even if the parties thereto use a different name.  NRS 604A.200 provides as follows: “Application of chapter to persons who seek to evade its provisions.  The provisions of this chapter apply to any person who seeks to evade its application by any device, subterfuge or pretense, including, without limitation:  1.  Calling a loan by any other name; . . . .”

If the Agreement is deemed to be a “Loan”, then one must consider whether it would be regulated by the statute. As noted above, high interest loans (i.e., loans charging an APR greater than 40%) are regulated. NRS 604A.407 discusses the manner in which a court is required to calculate whether a particular loan is, in fact, a “high interest” loan under Chapter 604A, stating that:

Except as otherwise provided in this section, for the purposes of determining whether a loan is a high-interest loan, when determining whether a lender is charging an annual percentage rate of more than 40 percent, calculations must be made in accordance with the Truth in Lending Act and Regulation Z, except that every charge or fee, regardless of the name given to the charge or fee, payable directly or indirectly by the customer and imposed directly or indirectly by the lender must be included in calculating the annual percentage rate, including, without limitation:

(a) Interest;
(b) Application fees, regardless of whether such fees are charged to all applicants or credit is actually extended;
(c) Fees charged for participation in a credit plan, whether assessed on an annual, periodic or nonperiodic basis; and
(d) Prepaid finance charges.

While the loan vs. advance distinction is not discussed, it is interesting, and probably not helpful, that the statute refers to “interest” as an obvious factor to be considered, but also states that such charges are considered interest “regardless of the name given to the charge”, such that a borrower may raise the argument that calling such charges “Proceeds” of an investment does not automatically remove it from the regulations imposed by the foregoing statute.

1 It should be noted that these types of loans are regulated elsewhere in NRS Chapter 604A and are excluded from the definition of “high interest loan” only for that reason, not because they are otherwise favored.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on commercial litigation.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.