SFR PICKS

Guadalupe Credit Union created two lending, including what used to be known Peter Wirth, D-Santa Fe, took his first programs specifically to help people spi- as “payday loans.” shot at reducing the rate cap to 36% in raling into debt, including Predatory Debt Legislative reform e orts have been 2009, with a bill supported by then-state 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. front lender and are struggling to pay it campaign contributions around the state. He supports Soules’ e ort this year, o . Guadalupe helps people pay o their The most recent campaign finance pointing out that aside from a small handloans by o ering 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 lenders require. nearly evenly split number of Democratic distinction of “unconscionability,” New

The borrower also has to agree to and Republican lawmakers during the Mexico’s current rate of 175% is topped meet twice with a financial coach to make 2020 season. only by Oklahoma and Mississippi for the sure they can a ord to pay the loan with New Mexico Senate Majority Leader two largest installment loan categories. Guadalupe, Nava, the credit union’s “Once again, New Mexico is one CEO, tells SFR. Other require- of the last to fix something like this, ments include that the payment and I think now more than ever it’s has to be 20% or less of the borrow- State Rate Caps for $500 Loans time to give it a real shot,” Wirth er’s monthly income, they have to tells SFR. “With the poverty issues have been employed for two years that we deal with and now with and they have to commit to meet monthly with a financial coach once they are accepted for a loan. The requirements were put $500 Six Month Loan Maximum APR in States with Cap (45 states plus DC) COVID and the financial crisis that’s facing many families, this particular option is a really dangerous path for them to take.” into place for a specific reason: Soules has tried to get a Guadalupe has to make money, too. 36% rate cap passed in the

“They have to come in and see Legislature for years as well. a financial coach,” Nava says. “This The best chance for reform allows them to show some commit- Annual cost of borrowing came in 2017, but the bill that ment to wanting to improve the $400 at 175% APR ultimately passed, presented situation.” during legislative debates as a

Guadalupe also has a Borrow $400 x 175% = $700 “compromise,” resulted in the and Save loan, which helps low- 175% rate. wealth households build savings $400 + $700 = $1,100 Wirth and Soules deand reduce reliance on high-cost scribed similar experiences loans. The interest rates are in the with a di cult choice: Make low 20% range and with each in- some incremental change in stallment, money goes into savings an area in which it was sorely as well as to the borrower. Annual cost of borrowing needed, or stand against what

Nava says most credit unions of- $400 at 36% APR they both believed was a law fer small-dollar loans, but that the that would not protect New Predatory Debt Relief Loan pro- $400 x 36% = $144 Mexicans enough. gram is “unique” to Guadalupe. Both voted against the

Several municipal employers $400 + $144 = $544 measure; Soules called it his around the state also have begun to toughest-ever vote during o er short-term, lower-rate loans eight years in the Senate. as well. Members of Nava’s sta “I decided that I couldn’t will testify at this year’s legislative sleep with myself if I voted session in support of the upcoming The Difference = $556 for 175%,” Soules says. “Now, bill. Nava herself is “100%” in favor I get attacked by people sayof the reform. Bottom Line: It costs $556 ing, ‘How could they possibly

“I would love to in my lifetime more to borrow $400 at 175% be promoting 36% interest? see that type of lending go away,” APR than at 36% APR That’s outrageously high. How Nava says of short-term loans with could you do this to poor peosickeningly high interest rates. “I ple?’ I explain to them that don’t believe they’re necessary beSOURCE: THINK NEW MEXICO currently it’s 175%.” cause…you can join a credit union Reformers anticipate and get a small-dollar loan.” at least two voices they’ve 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 usu- Moores, 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 particuof largely unregulated small-dollar SOURCE: NATIONAL CONSUMER LAW CENTER 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 O ce who now works for the Consumer Financial Protection Bureau in DC, the hurdles to change in the Legislature aren’t surprising.

“Our e orts 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 o their loans and get o 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 O ce 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 di cult, 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 di erent from the poor in Arkansas, Ohio or Montana, in that the experience of poverty just isn’t that di erent.”