The average person who takes out a short-term loan borrows about $650 and pays about 340 percent interest. But rates on payday, title and installment loans would be capped at 36 percent if reformers get their way during the 2015 legislative session.
There were 657 small loan companies in New Mexico in 2013, many charging more than 175 percent, according to a report from the state Regulation and Licensing Department.
The industry’s supporters say they give poor people access to money they couldn’t get from a bank and that customers who borrow small amounts and pay them back on time don’t pay that much interest.
Prosperity Works, a financial counseling nonprofit promoting the reform, collected publicly available data and counted two dozen lobbyists working for small lenders. The list contains many names familiar to those who follow New Mexico politics, including former Gov. Jerry Apodaca, former Speaker of the House Raymond Sanchez and former state senator and Republican National Committeeman Mickey Barnett.
“We are one of the only states in the nation that doesn’t have a usury law and we are the laughing stock of the nation,” Ona Porter of Prosperity Works said Monday. “The whole business model is predicated on the idea that people can’t repay their loans.”
Supporters of reform have launched a website, LoanSharkAttack.com, to promote their cause.
Polls have shown that more than 85 percent of New Mexicans support caps on the loans. And at least in public, the loans are politically unpopular; the cities of Albuquerque, Santa Fe, Alamogordo and Las Cruces have all passed resolutions in support of limiting interest rates.
But the industry’s lobby remains very powerful. Lenders and industry associations reported pouring more than $13 million into politics at the national level last year, according to a recent report from Americans For Financial Reform.
The state passed a 400 percent interest rate cap on payday loans in 2007, but the law’s narrow definition has allowed lenders to lend money at exorbitant rates by describing them as title loans and “installment” loans, Porter said.
“I think it’s very much a human rights issue,” Sen. William Soules, D-Las Cruces said Monday. “We are charging people exorbitant interest rates on very small loans. It takes money away from those who can least afford to pay,” he said, adding that the money consumers spend on interest is effectively taken out of the economy.
Industry representatives say they couldn’t afford to makes the loans at lower interest rates because so many people default on their loans. They say limiting the amount of interest they can charge would put them out of business and drive people to borrow money from unregulated sources online.
States with more restrictive lending laws have not seen major problems with online lenders, Soules and Porter said. Instead, consumers come up with other solutions to their budget problems.
Most people have no idea how the storefront loan rates are, Soules said, but when they do find out they are shocked.
Former state Sen. Steve Fischmann was at the Capitol Monday to advocate for lowering interest rates on the loans. In an editorial he wrote last spring, he described posing as a disabled construction worker an applying for small loans.
“Nobody with good credit would touch these loans,” Fischmann wrote. “They go to their bank or credit union for low-cost money. The victims of these loan sharks are those that can least afford it; the poor, single moms, down on their luck veterans, the elderly, and people of color.”
Veterans have been particularly vulnerable to what the Department of Defense described as “predatory lending.” In 2006, the Military Lending Act capped the lending rate at 36 percent for military families, but loopholes in the law still allow abuse, according to a Consumer Financial Protection Bureau report released in December 2014. The Department of Defense is now proposing to further restrict the loans for service members and veterans.
This story is part of a reporting partnership between New Mexico In Depth, KUNM and NMPBS, People, Power and Democracy, that attempts to pull back the curtain on how the New Mexico Legislature works and, in some cases, doesn’t. It's funded by the Thornburg Foundation and the Loeks Family Fund.