Earlier this year, the House Business and Industry Committee met with lobbyists and consumer protection advocates and devised a bill that would place a cap on the annual percentage rates for payday loans similar small loans at 36 percent. The panel consisted of 11 members, but they didn’t vote on the issue. The chairwoman of the committee, Debbie Rodella, asked if anyone objected, but no one did.
This marked an ending to a proposal for which consumer advocates have pushed for many years, trying to control an industry that targets financially strapped individuals with APRs that can be as high as 9,000 percent.
New Mexico and Payday Loans
Since 2010, there were at least 11 bills proposed that would have capped interest rates on loans from storefront lenders. A total of 32 bills related to this industry were squashed during that time. Certain states, notably New York, Pennsylvania and Arizona, have already placed caps on payday loans or banned them completely, but New Mexico has had no such luck. In fact, the state has some of the most permissive laws regarding small loans.
As a result of this, New Mexico has been rewarded by the storefront lending industry. That is, over $866,000 has gone toward campaign coffers since 2010, mostly to Republicans. House Bill 26 was the most recent casualty of Rodella’s committee over the past seven years, a time during which she received $18,200 in donations from lending companies that offer payday loans.
No Movement Toward Reduction of Sky-High Interest Rates
Steve Fischmann, a former state senator and co-chairman of the New Mexico Fair Lending Coalition, stated that the inaction is shameful. His organization has long been fighting for limits on interest rates tied to payday and other small loans. Fischmann continued that eliminating the high interest rates would be an opportunity to change policies to stop taking advantage of the poor.
Another bill was subsequently announced by Rodella’s committee, House Bill 347, which would limit interest rates on many small loans to 175 percent. However, the chances of it passing in the Senate are grim.
Lending Company Pulls a Fast One
Since 2010, only three bills related to the storefront lending industry have passed. Two of those did not affect the ability for people to accumulate snowballing debt and the other was non-binding. One of the bills even exempted lenders who charge an APR lower than 175 percent from having to file annual reports to the state Regulation and Licensing Department.
In 2007, then New Mexico Governor Bill Richardson signed a bill into law that placed a cap on small loans to $15.50 per $100, prohibited immediate loan rollovers and restricted the total amount of loans a single consumer could acquire. Unfortunately, the bill had huge loopholes and a company called FastBucks Holding Corp. took advantage of them.
FastBucks, a lending company based in Dallas, Texas, started offering installment loans with APRs of as high as 520 to 650 percent, according to then state Attorney General Gary King during testimony in a lawsuit. The District Judge at the time, Michael Vigil, determined that the company created new installment loans to get around the regulations from the 2007 bill. Vigil stated in his decision that FastBucks took advantage of borrowers who lacked the knowledge or experience by deliberately directing them to loans with higher interest rates, which caused them to be trapped in a cycle of recurring debt.
Last year, another state judge ordered the company to pay $32 million in restitution to consumers in New Mexico from the 2012 case.
Conflict of Interest?
Many lending companies that offer payday and other small loans are known contributors to politicians. This seems to be a conflict of interest that makes it questionable as to why no cap is being placed on APRs tied to smaller loans. Most notably, House Minority Leader Nate Gentry has received $29,700, former Rep. Janice Arnold Jones received $29,400 and Rep. Patty Lundstrom received $25,275 from small loan companies over the years.
Lundstrom believes the reason her city, Gallup, has more small loan lenders than any other area in the state is that it borders the largest Indian reservation in the entire country. She claims she doesn’t think that is a coincidence.
As for House Bill 347, although Rodella and other lawmakers believe the 175 percent cap on payday loans is an acceptable compromise, others feel it’s still too high and unfair. Roybal Caballero stated that he would not support anything that is in triple digits.
Relationships Holding Back Change
Fischmann believes that it’s not only money that’s holding back legislators from reforming the storefront lending industry. He states that much of it is because of relationships as well and that lobbyists have a hold on legislators, which results in them doing whatever they want. Legislators, in turn, forget about the wants and needs of citizens.
Lynn Canning, who works at the Santa Fe Neighborhood Law Center, stated that consumers gasp at the idea of a 36 percent rate cap on payday loans and that the compromise of the 175 percent cap is not a compromise at all. She inquired about Democrats and whether they truly want to get people out of poverty.