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State, Department of Business and Industry v. Titlemax of Nevada, Inc.

Supreme Court of Nevada

September 26, 2019

THE STATE OF NEVADA, DEPARTMENT OF BUSINESS AND INDUSTRY, FINANCIAL INSTITUTIONS DIVISION, Appellant,
v.
TITLEMAX OF NEVADA, INC., D/B/A TITLEBUCKS, D/B/A TITLEMAX, A DELAWARE CORPORATION, Respondent.,

          Appeal from a district court order granting a petition for judicial review of an administrative decision. Eighth Judicial District Court, Clark County; Joseph Hardy, Jr., Judge.

          Aaron D. Ford, Attorney General, Heidi J. Parry Stern, Solicitor General, David J. Pope, Senior Deputy Attorney General, and Vivienne Rakowsky, Deputy Attorney General, Carson City, for Appellant.

          Lewis Roca Rothgerber Christie LLP and Daniel F. Polsenberg, Joel D. Henriod, and Dale Kotchka-Alanes, Las Vegas; Brownstein Hyatt Farber Schreck, LLP, and Patrick John Reilly, Las Vegas, for Respondent.

         BEFORE THE COURT EN BANC.

          OPINION

          STIGLICH, J.

         The Nevada Legislature adopted NRS Chapter 604A in an effort to protect Nevada consumers from predatory lending practices related to certain short-term, high-interest loans such as title loans. A title loan is a loan agreement that charges an annual percentage rate of more than 35 percent and requires the customer to secure the loan by either giving possession of a vehicle that they legally own or by perfecting a security interest in the vehicle. See NRS 604A. 105(1). Key to this case, Nevada law restricts the duration of title loans, allowing either a 30-day loan that may be extended up to six times in 30-day increments or a 210-day loan. Title lenders offering a 210-day loan are required to structure the loan such that it "ratably and fully amortize[s] the entire amount of principal and interest payable on the loan." NRS 604A.445(3) (2007).[1] Although title lenders may not offer an "extension" on a 210-day loan, NRS 604A.445(3), they are permitted to offer a "grace period"-that is, they may extend the life of the loan but may not charge additional interest. See NRS 604A.070 (2007); NRS 604A.210 (2005).[2]

         In this case, we must determine whether the Grace Period Payment Deferment Agreement (GPPDA) that respondent TitleMax of Nevada, Inc., marketed as an amendment to its 210-day loan complies with the statutory restrictions on the duration of a title loan. Because the GPPDA required borrowers to make unamortized payments and consequently charged "additional interest, " it impermissibly extended the duration of the loan. We therefore conclude the Administrative Law Judge (ALJ) was correct when she held that the GPPDA violated NRS 604A.445 and NRS 604A.210. Accordingly, the district court erred when it granted [ judicial review and vacated the ALJ's order in this regard. But we agree ` with the district court that TitleMax's statutory violation was not "willful" ' and thus did not warrant the statutory sanctions imposed by the ALJ. Accordingly, we affirm in part and reverse in part.

         FACTS AND PROCEDURAL HISTORY

         In 2014, TitleMax offered a 210-day title loan to its customers in Nevada. This traditional 210-day loan agreement complied with NRS 604A.445(3) in that it lasted 210 days, payments were charged in installments, the payments were "calculated to ratably and fully amortize the entire amount of principal and interest" in the 210 days, there were no extensions to the loan, and there were no balloon payments. NRS 604A.445(3). These loans further included a contracted rate of interest, which was calculated into each payment. See id. An example of such a loan is reproduced in this table:

         Traditional 210-Day Title Loan for $5, 800 at 133.7129%[3]

Month

Payment Amount Toward Interest

Amount Toward Principal

1

$1, 230.45

$705.82

$524.63

2

$1, 230.45

$564.65

$665.80

3

$1, 230.45

$520.96

$709.49

4

$1, 230.45

$403.32

$827.13

5

$1, 230.45

$312.57

$917.88

6

$1, 230.45

$201.65

$1, 028.80

7

$1, 230.46

$104.19

$1, 126.27

Totals

$8, 613.16

$2, 813.16

$5, 800.00

         In 2014, TitleMax also began offering a "Grace Period Payment Deferment Agreement, " marketed as an amendment and modification to the 210-day loan. Under the GPPDA, TitleMax collected seven months of interest-only payments calculated based on a static principal balance and then collected seven months of payments amortizing principal. An example of a GPPDA offered on the $5, 800 loan at 133.7129% described above is j reproduced in this table:

         GPPDA for $5, 800 at 133.7129%[4]

Month

Payment

Amount Toward Interest

Amount Toward Principal

1

$637.42

$637.42

$00.00

2

$637.42

$637.42

$00.00

3

$637.42

$637.42

$00.00

4

$637.42

$637.42

$00.00

5

$637.42

$637.42

$00.00

6

$637.42

$637.42

$00.00

7

$637.42

$637.42

$00, 00

8

$828.57

$00.00

$828.57

9

$828.57

$00.00

$828.57

10

$828.57

$00.00

$828.57

11

$828.57

$00.00

$828.57

12

$828.57

$00.00

$828.57

13

$828.57

$00.00

$828.57

14

$828.58

$00.00

$828.58

Totals

$10, 261.94

$4, 461.94

$5, 800


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