Friday, July 14, 2006

New Mexico Payday Loan Controvery Heats Up; Proposed Cash Advance Legislation Debated

By J.J. Cameron
Payday Loan Writer

Do New Mexico payday loans help or hurt those in need? That was a question The Albuquerque Tribune previously raised - in yet another artice on the issue, recent legislation and cash advance controversy is delved into deeper.

The piece starts by discussing the multitide of car title and/or payday loan stores in the radius of a few blocks; seven establishments exist there, to be exact. Some even have a drive-through window!

A Payday Loan Protest

A group protests the practices of a local payday loan company. One man even brought an inflatable shark to represent preadtory lending. Naturally.

Overall, New Mexico is home to over 700 payday loan and car-title stores. This is a fairly poor state and, therefore, fertile ground, for an industry that's scarcely controlled by law - even though some of the state's most prominent political figures are passionate about reining it in. So why haven't they done so? Attorney General Patricia Madrid sheds light on the issue.

Voices for ayday loan reform: Madrid has vivid memories of the 1999 legislative session, her first as attorney general, when she spoke to lawmakers in fervent support of a Senate bill that would have capped interest rates on cash loans at 45 percent.

"I gave a good, spirited speech," she said during an interview at her Albuquerque office. "I was quoting the Bible, the Talmud, the Koran. It was great."

Senator Cisco McSorley, an Albuquerque Democrat, sponsored that bill. It was intended to outlaw the three-digit annual percentage rates charged by payday loan and car-title lenders. It seemed like a slam-dunk to Madrid.

"The newspapers all supported the bill," Madrid said. "I thought sure it was going to pass. Was I naive. Sitting in the back while I was making my speech were hordes of lobbyists for the small-loan industry."

In the end, it wasn't even close. The Senate defeated the bill by a vote of 28-11. In sessions since then, other bills designed to regulate what Madrid calls the predatory online payday advance lending industry have been introduced. She backed some of them and was appalled by ones she felt did little more than legalize industry practices she considers abusive. None of the bills passed.

Main payday advance regulators: The closest New Mexico has come to curbing the payday loan and car-title lending industry is a set of proposed regulations worked out by the governor's and attorney general's offices and announced in May. If they pass the muster of public input, they could go into effect as soon as next month.

Among other things, the regulations cap the fee on faxless payday loans to $15.50 per $100 borrowed. One thing missing from the proposed payday regulations, though, is a cap on annual percentage rates, an element most consumer advocates consider essential to a strong law.

Supporters of the quick payday advance industry, of course, don't see a need for these caps. John Rabenold, vice president of government affairs with Check 'n Go, a Cincinnati-area company with 1,300 payday stores in 33 states, including New Mexico, said an annual percentage rate is not the best way to measure a two-week-long loan.

"A 36 percent APR on $100 for two weeks yields $1.38 gross revenue," Rabenold said during a phone interview from Des Moines, Iowa. "That's a prohibitively low rate. We couldn't afford to pay our utility bills."

Consumer advocates insist that annual percentage rates are important, however. Why? Because payday loan companies know full well that many of their borrowers can't afford to pay off loans on time and will continue to renew or roll over loans and pay interest on them for months or years - eventually paying back many times the value of the original loan.

Old payday loan laws in the state: New Mexico wasn't always this open to payday loan use. The Small Loan Act of 1955 capped interest rates at 36 percent for personal loans up to $150, 12 percent for loans between $150 and $300 and 10 percent for all loans a year after the original due date.

But those limits were repealed in 1981, due to concerns that then-escalating mortgage rates might exceed the caps and hamper mortgage lending in the state. In the last 15 years, the payday and car-title loan business exploded across the country.

"The industry started when customers realized banks and credit unions were not offering small loans and when they realized their fees for bounced checks at banks were soaring to $25 and $30," Check 'n Go's Rabenold said. "People will use our service to avoid a bounced-check charge and to avoid having their bounced checks reported to credit-rating services."

Cash from Payday Loans

Now, most of the 700 faxless payday advance loan and car-title stores in New Mexico are concentrated in areas populated by low-income communities. According to the Attorney General's Office, the biggest concentration per capita - about one lender to every 500 residents - is in Gallup, where many of New Mexico's American Indians live. By comparison, the ratio is about one to 2,500 in Albuquerque and one to 7,000 statewide.

The industry, Rabenold said, puts its payday loan stores where they are most likely to be used.

"We locate where the people are and target 70 percent of the population," he said. "The wealthiest 15 percent have other means and the poorest 15 percent don't qualify because they don't have a job or a steady source of income. One-hundred percent of our customers have checking accounts, but their financial institutions are not providing them with a specific need."

So, what are the proposed regulations? Gov. Bill Richardson and Attorney General Patricia Madrid recently proposed regulations aimed at controlling the payday loan industry in the state. They would:

• Set a flat fee for new loans and renewals at $15.50 per $100.

• Give consumers the sole discretion of renewing a cash loan two times at a maximum of $15.50 per $100.

• Cap the amount of borrowed money at 25 percent of the borrower's gross income.

• Give consumers the chance to enter into a longer-term payment plan - up to 130 days - with no additional fees after a second loan renewal.

Legislators are also split about which regulations - if any - to actually pass. We'll keep you updatd as this payday advance situation continues.

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