By Sens. Bernadette Sanchez and Leonard Tsosie
Albuquerque and Crownpoint Democrats
John Kelly, the chairman of the Governor's Task Force on Payday Lending, describes HB 409, introduced during the 2006 legislative session, as a good payday lending reform bill.
Don't be fooled. HB 409 was a wolf in sheep's clothing that would have legalized the current abusive practice of predatory lending. That's why we opposed the bill, which died on the Senate floor on the session's last day.
How could it have been a good law for consumers when it would have allowed an annual percentage rate of 443 percent on a 14-day loan? That would be one of the highest allowable interest rates charged anywhere in the country. It also allowed for a 1,500 percent interest rate on a 3-day loan.
The average New Mexico payday-loan borrower earns $25,000 annually. HB 409 permits New Mexicans to borrow up to 30 percent of their gross monthly income or $1,500. This borrowing limit is triple that of the national average, the highest in the country.
Additionally, the bill contains provisions allowing payday loan companies to escape restrictions, limitations and consumer protections that exist in the Small Loan Act. It enables them to avoid the federal law, which requires them to refund interest to borrowers who pay off their loans early.
These outrageous interest rates have provided exorbitant profits to lenders, enabling them to multiply like weeds throughout our state. There are so many that payday loan outlets outnumber McDonalds four to one.
This industry and its army of lobbyists coordinate national campaigns to protect its 400-600 percent interest rates. Payday lenders hope that their contributions to those running for office at the local and national level will result in legislation that protects the industry. The high rates will continue to ruin consumer credit and enslave families in a cycle of debt.
Many New Mexicans, PIRG (New Mexico Public Interest Research Group), AARP and the Navajo Council strongly support instituting a usury cap at an annual percentage rate of 36 percent. The U.S. Department of Defense also supports a usury cap.
HB 409 was not supported by consumer protection groups or the Attorney General's Office, which through its consumer protection division provides services to the victims of this practice.
Attorney General Patricia Madrid has taken a bold step to protect consumers by implementing regulations under the Unfair Practice Act capping payday loans at 54 percent and a maximum term of 120 days.
Stopping passage of HB 409 was a productive step. Legislation should protect the public, not pretend to do so.
We will continue to introduce legislation that provides protection for consumers with a 36-60 percent cap on the APR. We must join other states in doing what is right for all New Mexicans by passing such legislation that truly protects our citizens from predators and that places New Mexico at the top of the list nationwide in payday-lending reform.
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