Payday Loan Times

Supporters of a proposal to severely restrict New Mexico payday loans are urging a compromise between two competing proposals to regulate the industry.

Lt. Gov. Diane Denish, who supports a payday loan measure by Sen. Bernadette Sanchez, D-Albuquerque, on Wednesday suggested sitting down with the sponsor of the other proposal, Rep. Patricia Lundstrom, D-Gallup.

Denish said Lundstrom’s bill “doesn’t get us where we want to be.”

Lundstrom _ whose proposal to regulate quick cash loans died in a filibuster on the last day of the 2006 session - said she is willing to work with anyone, but said no one had contacted her.

“It’s just political posturing,” she said.

Payday lenders in New Mexico typically charge annual interest rates of 390 percent to 780 percent, a legislative financial analyst said.

Borrowers can renew a no credit check payday loan repeatedly by paying only the interest at the end of a two-week term - meaning costs can build up and exceed the amount borrowed. When the loan rollover limit is reached, borrowers sometimes turn to another payday lender to borrow to pay off the first.

People using payday loans “are on a treadmill that you never get off,” said Don Kidd, a former state senator and president of Western Commerce Bank in Carlsbad.

“There are hundreds of millions of dollars of wealth being stripped out of New Mexico” via payday loans, said Ben Heyward, president of First Financial Credit Union in Albuquerque.

The industry said it loans money to people who don’t qualify for bank loans.

State officials have estimated 400,000 high-interest payday loans totaling $140 million originated in New Mexico last year.

Sanchez has proposed capping rates on faxless payday loans at 36 percent, which matches a federal law that goes into effect Oct. 1 that would limit interest rates to 36 percent for members of the military.
Lundstrom’s bill would limit payday loan fees to $15.50 for every $100 borrowed and would let a borrower renew a payday loan only once. It also would not allow someone to take out a payday loan worth more than 25 percent of the person’s pretax monthly income.

Lundstrom’s bill would provide for a payment plan after the renewal if the money on the no fax cash advance had not been paid off.

Supporters of Sanchez’s bill say Lundstrom’s proposal would allow an interest rate as high as 89.9 percent.

Gov. Bill Richardson “wants strong payday lending legislation” but has not decided what version to support, Denish said.