Storefront consumer lending barely existed when New Mexico eliminated interest rate caps back in the early 80's. Most people went to banks or credit unions for loans and a relatively few desperate borrowers resorted to underworld lenders that charged annual interest rates around 200 percent.
After usury caps were lifted, the high cost storefront lending industry exploded. Legal interest rates on small loans soared to an average of 300 percent. Single moms, elderly citizens living on fixed incomes, students and hundreds of thousands of New Mexicans who had rarely been victims of high cost loans now routinely found themselves lured into lingering debts with annual interest costs ranging from 100 to 2,000 percent.
Today's legal storefront loans do far more damage to people's lives than the less expensive illegal ones ever did. And they do it to many more people. Deceptive and abusive practices that keep borrowers in debt have become the norm. While the middle class mortgage debt crisis gradually subsides, a lower class storefront debt crisis silently rages on at almost seven hundred store locations across the state.
That is why major cities and counties including Las Cruces, Dona Ana County and Mesilla; the Navajo Nation; 280 faith leaders; the New Mexico Municipal league and dozens of civic and community service organizations rallied to ask New Mexico to follow the lead of many other states and reinstate interest rate caps of 36 percent during the 2015 legislative session.
It doesn't take a rocket scientist to see that annual interest payments of $3,000 on a typical $1,000 dollar car title loan can only bring misery to borrowers who cannot even qualify for a credit card. High cost storefront lenders are not really in the business of extending credit, they are in the business of extending very sticky fingers into borrowers' bank accounts.
Unfortunately, this proved very difficult to figure out for a legislature cloistered with an army of high powered industry lobbyists armed with misleading arguments and confusing financial terminology. Lawmakers summarily dismissed interest cap proposals in favor of complicated fake reform proposals written by the loan industry. In the end, nothing was passed and the storefront loan industry got exactly what it wanted - business as usual. New Mexico citizens who favor interest caps by a six to one margin got.....well you know.
It was particularly distressing to see how a resoundingly non partisan issue in the real world became partisan in the confines of the Capitol. Republican legislators who supported interest rate caps going into the session were whipped into a party line opposition vote by their leadership. By all appearances, a governor's office that has taken sizable contributions from the payday loan industry had a big hand in the process. While most Democrats supported interest caps, it was clear that too many of them also were more concerned with protecting the loan industry than the welfare and wishes of their constituents.
Here's a list of Dona Ana County legislators who protected high cost loan sharks at the expense of our most economically vulnerable during the 2015 legislative session. Ask them to comment about their votes (or lack thereof) next time you see them at a public gathering.
Representatives Andy Nunez and Ricky Little voted to kill 36 percent interest caps and to support tax refund loans that would be far more expensive than current payday loans.
Representative Terry McMillan voted to kill 36 percent interest caps and skipped the vote on tax refund loans.
Representative John Zimmerman ducked the high cost loan issue altogether by skipping floor votes on both 36 percent interest caps and expensive tax refund loans.
Senator Mary Kay Papen voted to support tax refund loans that would be far more expensive than current payday loans in the Corporations Committee. There was no vote on interest caps in the Senate.
Steve Fischmann is a former state senator, and co-chair of the New Mexico Fair Lending Coalition.