Courts Are Overloaded With Payday Loan Lawsuits - 8 News NOW

Adrienne Augustus, Investigative Reporter

Courts Are Overloaded With Payday Loan Lawsuits

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Clerk supervisor Kristina O'Conner said, "Five years ago, ten years ago you didn't see this type of industry on the corners of the street. You saw more of the pawn shops, title loans, those types of items." Clerk supervisor Kristina O'Conner said, "Five years ago, ten years ago you didn't see this type of industry on the corners of the street. You saw more of the pawn shops, title loans, those types of items."

The courts are swamped with lawsuits and one-third of all cases come from payday loan-type businesses. It's a reflection of the loan industry and it is bogging down the courts.

The I-Team's Adrienne Augustus explains why so many loan companies are filing lawsuits and how the courts are coping with it.

It's a real problem for the county clerk's office. About 60,000 civil cases are filed every year. Nearly 20,000 are lawsuits filed by loan companies against clients who didn't repay their loan.

The court system is struggling to keep up. Everyday they show up by the box load -- high interest payday lenders and installment loan companies filing hundreds of lawsuits against their customers.

Kristina O'Conner, court civil division manager, said, "Five years ago, ten years ago you didn't see this type of industry on the corners of the street. You saw more of the pawn shops, title loans, those types of items."

O'Conner says the jump in payday loan-type businesses directly affects the courts. They are a large reason court clerks are working mandatory overtime.

"The volume was so immense so quickly that it really has kind of bottlenecked with us in the court," she explained.

The high-risk lending industry has steadily increased, despite a client default rate of more than 20-percent, which translates to loan companies and collection agencies suing thousands of people.

Those cases must be processed along with all of the lawsuits filed by everyone else. Many lawsuits filed by lenders end up in default judgment because the defendant doesn't respond. That cycles more paperwork back to the clerks.

When a defendant does respond, the case ends up in front of a judge.

Chief Judge Douglas Smith, of the Las Vegas Justice Court, said, "The first one that I had was a bit of a shock when you had seven or 800-percent interest."

Eight years ago Chief Judge Douglas Smith heard his first payday lending lawsuit. "I believe that I determined that it was a contract of adhesion, which means that it was a bad contract."

When a client doesn't repay the loan, the companies sue for two to three times the amount borrowed. In that case, the defendant had already repaid more than three times what they borrowed.

Reporter Adrienne Augustus: "Are they abusing the judicial system?"

Chief Judge Douglas Smith: "No."

Reporter Adrienne Augustus:  Why do you say no?"

Chief Judge Douglas Smith: "Because they're following the law."

Legislators are working to change lending laws that could end up reducing the number of lawsuits. But until that happens, lenders will continue to sue, as more people borrow and can't, or choose not to make good on their loans.

Click here to read more on Assembly Bill 478.

One attorney says payday and installment loan companies typically recoup only 30 to 50-percent of the money they sue for. But clearly, that doesn't stop them from taking people to court.

Again, clerks currently have about 20,000 cases they have to handle. And it takes months to go from the initial filing to the actual judgment and settlement.

Email your comments to Investigative Reporter Adrienne Augustus.

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