Like many Nevadans, Las Vegas resident Ray Diaz took out a loan with lender TitleMax to help pay bills while he was unemployed during the pandemic.

But the high interest rate dried out his unemployment benefits and stimulus checks, resulting in a “merry-go-round” of debt, he said. Diaz said he had previously taken loans from TitleMax and paid them back within four months, but this time around, he had his contract “extended” through a process called refinancing, which resulted in the interest continuing to rack up. 

“I said ‘let's go and pay some of the bills off.’ But it made it worse, and it put me behind on other bills because the money I did get I was using to pay the principal and the interest,” Diaz told The Nevada Independent. “It dropped my credit score. It was a domino effect that really screwed me all the way 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 circumvent the 210-day loan term limit allowed by the state. On Wednesday, the Nevada Supreme Court heard oral arguments in the third case that’s been appealed since 2016 involving TitleMax and the Nevada Department of Business and Industry’s Financial Institutions Division (FID), which regulates high-interest lenders including TitleMax. 

Nevada law allows for businesses to extend short-term, high-interest loans of various types to individuals, but sets a generally strict 210-day time limit to avoid the massive accumulation of interest. The law allows lenders to give grace periods after the 210-day timeframe, but only under the terms that a lender does not offer any new loan agreement or charge the customer additional interest.

Unlike Dollar Loan Center or other well-known “payday lenders,” TitleMax offers what are called title loans, which are extended after a person exchanges the title of their vehicle for collateral. State law prohibits title loans from exceeding the value of a car, but state regulators argued in court that the company’s “refinancing” practices violated the intent of the 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 time period under any name, TitleMax’s loan product here has no fixed end date for payment and extends the payment due date on the original principal well beyond the 210-day outer limit … ensuring that TitleMax collects more than 210 days of amortized interest,” state Solicitor General Heidi Parry Stern said.

Attorney Dan Polsenberg, representing TitleMax, told justices on Wednesday that refinancing is permissible 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 the absence of a similar prohibition for title loans is enough to allow the practice. 

“Because it's different in kind, an extension is simply that — an extension of that loan. Counsel brought up that all these statutes talk about repayment, renewal, refinancing and consolidation,” Polsenberg said. “Well, certainly, the statute is recognizing that refinancing is not something prohibited unless it's expressly prohibited. Refinancing ... is the use of another loan to end this loan.”

TitleMax has been involved in two other appeals before the Supreme Court. In each case, TitleMax and the state have disagreed about the correct interpretation of Nevada’s title lending laws. A recurring issue is the limit on the length of time a title lender is allowed to charge interest. 

In a 2019 case, the court unanimously ruled that TitleMax broke state law by offering a “grace period” loan product that extended past the 210-day limit and charged additional interest. But the court did not punish the lending company because it decided TitleMax did not “willfully” violate the state statute around short-term loans.

The first appeal case between the state and TitleMax resulted in reversal and remand to the lower court in October of 2017 after the Supreme Court decided that the District Court erred in the ruling by dismissing TitleMax’s declaratory relief action. The case came after TitleMax received a “needs improvement” rating from FID and the lender then took to the District Court seeking interpretation of the statutes cited in FID’s assessment. 

The Supreme Court did not make an immediate decision in the latest case on Wednesday. 

Meanwhile, Diaz said he has to make a decision this week. If he does not pay this month’s amount of $1,440 towards his loan, he would have to give TitleMax his car, leaving him and his family with just one vehicle. But his mortgage is $1,470. 

“There is a possibility I can try to come up with it, but then it's like an anchor around my neck for six more months [to continue paying the loan], and forbearance ends pretty soon on my home, so I gotta make a decision … What's more important? Obviously, the house would be,” he said.