The
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Guadalupe Credit Union created two lending, including what used to be known Peter Wirth, D-Santa Fe, took his first shot at reducing the rate cap to 36% in programs specifically to help people spi- as “payday loans.” Legislative reform efforts have been 2009, with a bill supported by then-state raling into debt, including Predatory Debt Relief Loans, which help people who have stymied for years, as lending companies Attorney General Gary King. He ran into already taken out a loan from a store- have hired teams of lobbyists and spread an industry-backed brick wall. He supports Soules’ effort this year, front lender and are struggling to pay it campaign contributions around the state. The most recent campaign finance pointing out that aside from a small handoff. Guadalupe helps people pay off their loans by offering interest rates around filings reviewed by SFR show more than ful of states that have essentially no lim20% versus the rates in the 100s that most $40,000 donated by the industry to a its on interest rates other than the legal nearly evenly split number of Democratic distinction of “unconscionability,” New lenders require. The borrower also has to agree to and Republican lawmakers during the Mexico’s current rate of 175% is topped only by Oklahoma and Mississippi for the meet twice with a financial coach to make 2020 season. New Mexico Senate Majority Leader two largest installment loan categories. sure they can afford to pay the loan with “Once again, New Mexico is one Guadalupe, Nava, the credit union’s of the last to fix something like this, CEO, tells SFR. Other requireand I think now more than ever it’s ments include that the payment time to give it a real shot,” Wirth has to be 20% or less of the borrowState Rate Caps for $500 Loans tells SFR. “With the poverty issues er’s monthly income, they have to that we deal with and now with have been employed for two years COVID and the financial crisis that’s and they have to commit to meet $500 Six Month Loan facing many families, this particular monthly with a financial coach Maximum APR in States with Cap option is a really dangerous path for once they are accepted for a loan. (45 states plus DC) them to take.” The requirements were put Soules has tried to get a into place for a specific reason: 36% rate cap passed in the Guadalupe has to make money, too. Legislature for years as well. “They have to come in and see The best chance for reform a financial coach,” Nava says. “This Annual cost of borrowing came in 2017, but the bill that allows them to show some commit$400 at 175% APR ultimately passed, presented ment to wanting to improve the during legislative debates as a situation.” “compromise,” resulted in the Guadalupe also has a Borrow $400 x 175% = $700 175% rate. and Save loan, which helps lowWirth and Soules dewealth households build savings $400 + $700 = $1,100 scribed similar experiences and reduce reliance on high-cost with a difficult choice: Make loans. The interest rates are in the some incremental change in low 20% range and with each inan area in which it was sorely stallment, money goes into savings Annual cost of borrowing needed, or stand against what as well as to the borrower. $400 at 36% APR they both believed was a law Nava says most credit unions offer small-dollar loans, but that the that would not protect New $400 x 36% = $144 Predatory Debt Relief Loan proMexicans enough. gram is “unique” to Guadalupe. Both voted against the $400 + $144 = $544 Several municipal employers measure; Soules called it his around the state also have begun to toughest-ever vote during offer short-term, lower-rate loans eight years in the Senate. “I decided that I couldn’t as well. Members of Nava’s staff sleep with myself if I voted will testify at this year’s legislative for 175%,” Soules says. “Now, session in support of the upcoming The Difference = $556 I get attacked by people saybill. Nava herself is “100%” in favor ing, ‘How could they possibly of the reform. Bottom Line: It costs $556 be promoting 36% interest? “I would love to in my lifetime more to borrow $400 at 175% That’s outrageously high. How see that type of lending go away,” APR than at 36% APR could you do this to poor peoNava says of short-term loans with ple?’ I explain to them that sickeningly high interest rates. “I currently it’s 175%.” don’t believe they’re necessary beSOURCE: THINK NEW MEXICO Reformers anticipate cause…you can join a credit union at least two voices they’ve and get a small-dollar loan.” heard during past legislative ses‘New Mexico is one of the last’ sions to once again stand in the Beginning at statehood, New way of a 36% cap: Sen. Mark Mexico had what’s known as a usuMoores, R-Albuquerque, and Rep. ry statute that essentially capped Patricia Lundstrom, the Gallup interest rates on all kinds of loans. Democrat who chairs the House It was abandoned in 1981, opening Appropriations and Finance the door to decades of a gold rush Committee. Lundstrom, in particuSOURCE: NATIONAL CONSUMER LAW CENTER of largely unregulated small-dollar lar, has long been considered an ally
to the lending industry and co-sponsored the 2017 legislation. Neither Moores nor Lundstrom responded to SFR’s requests for interviews. For John Thompson, a former colleague of Meyers in the AG’s Office who now works for the Consumer Financial Protection Bureau in DC, the hurdles to change in the Legislature aren’t surprising. “Our efforts to do something substantive at the legislative level tended to die in committee,” he tells SFR. “My stomach turned every time I went to the Roundhouse.” So, along with Meyers, he set his sights on litigation, spearheading two landmark cases in which government lawyers won significant court victories in 2013 and 2014 that could have laid the groundwork for more enforcement going forward. “When [lenders] constantly hector existing borrowers to take out new loans for increasing amounts; when they constantly try to upsell borrowers into loans for larger amounts than they even asked for; when they try to get borrowers to refinance their loans rather than pay off their loans and get off that debt treadmill that they’re on, that is a procedurally unconscionable,” Thompson says, using the court’s verbiage. “And it is at the core of small-dollar lending. It is a crucial component of their profitability. The New Mexico Supreme Court said you can’t do that and gave the AG’s Office the power to investigate businesses that engage in those practices.” There appears to have been little, if any, such investigation in recent years. Thompson favors reform through a different mechanism: ballot initiative. Nationally, Arkansas, Arizona, Montana, Ohio and others have put the question on the ballot. Montana, a historically red state, passed it by a margin of 72-28 in the 2010 midterm elections, which saw a red wave across the country. Soules tells SFR the ballot initiative route in New Mexico would be difficult, because voters are only asked questions about proposed amendments to the state constitution. But he is hopeful that, finally, his bill has a real chance to pass this year with support from multiple corners, including most New Mexicans. “Every time voters have been given the opportunity, no matter whether they are red or blue voters in red or blue states, they have voted by a supermajority to cap interest rates for small-dollar lenders,” Thompson says. “I don’t think the poor in New Mexico are different from the poor in Arkansas, Ohio or Montana, in that the experience of poverty just isn’t that different.”
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JANUARY 13-19, 2021
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