It’s become a cycle of desperation for low-income residents with bad credit scores: They take out a high-interest installment loan to get by in tough times and soon rack up an unmanageable burden.
They pay off old debts with new loans at rates up to 175%.
For years, state legislators introduced legislation capping the interest rate on these loans at 36%. Their efforts to pass the bills repeatedly failed. Last year, an attempt to forge a compromise — with a 99% cap on smaller loans, up to $1,100, and 36% on larger amounts — stalled in the House of Representatives.
The nonprofit New Mexico Ethics Watch released a report this week on a study exploring the possible effects of industry lobbying efforts — both money and messages — to ensure the cap does not not be lowered. According to Kathleen Sabo, executive director of Ethics Watch, the study found that lobbyists’ arguments against lowering the interest rate cap were even “more effective” than campaign donations when it came to to influence legislators.
“This is an issue that has plagued vulnerable New Mexicans for some time,” Sabo said.
The report says that front-end lenders have contributed at least $450,000 to New Mexico lawmakers’ election campaigns since 2005. But the study did not find “significant amounts of campaign contributions to small-company lawmakers in ready that you find in other industries”.
Industry campaign contributions to 58 state lawmakers in the 2020 election cycle totaled $140,000, with most going to Democrats.
Rep. Patti Lundstrom, D-Gallup, and former state senator Clemente Sanchez, a Democrat from Grants, received the highest industry contributions, $7,500 each, according to the report.
It lists several high-profile lobbyists who represent storefront loan companies, including attorney Daniel Najjar, former state Rep. Raymond Sanchez and Vanessa Alarid, the wife of state Rep. Moe Maestas, a Democrat from Albuquerque.
Efforts to reach Najjar, Sanchez and Alarid for comment were unsuccessful.
A key argument against capping interest rates on storefront loans, Sabo said, is that people who rely on small lenders would be left “in a mess, with no money” if high-interest loans n were not available.
The report disputes this. In states where such businesses have closed – potentially due to interest rate caps – “people will go back to making money the traditional way: working overtime, selling assets, borrowing from friends and family,” the report said. And the number of people turning to high-interest online lending companies instead “has only increased gradually.”
Ethics Watch encountered a challenge determining the amount of campaign donations to lawmakers from lobbyists for storefront lenders, the report said.
The state’s guidelines for lobbyists’ disclosure reports allow them to list contributions on behalf of multiple clients or under their own or company name. Some donations from established lenders may therefore not be clear.
The Ethics Watch report comes as Democratic lawmakers in the House and Senate reintroduce legislation to cap interest rates for small lenders at 36%.
Rep. Patricia Roybal-Caballero of Albuquerque introduced House Bill 78, while Sens. Bill Soules of Las Cruces and Katy Duhigg of Albuquerque filed similar legislation Thursday that has yet to be given a number.
Soules and Duhigg introduced similar legislation in 2021. Although the Senate approved the bill, Lundstrom sponsored a House amendment to set the interest rate cap at 99% for loans of $1,100 or less and 36% for loans between $1,100 and $10,000.
The bill died as time ran out during the session.
Roybal-Caballero did not respond to requests for comment Thursday.
Duhigg wrote in an email Thursday that the bill she and Soules introduced is the same one they sponsored last year.
“We have tried many times before and it is important that we keep trying until the practice of predatory lending in New Mexico is gone for good,” she wrote.
Sabo said she plans to contact the governor’s office on Friday to ask for his support in getting the bill heard this year.
Nora Meyers Sackett, the governor’s spokeswoman, wrote in an email Thursday, “We strongly agree that this is an important issue that needs to be addressed, as evidenced by the attention given by Governor to this issue in the last 60 day session”.
But, added Sackett, “with such a heavy agenda to deal with in just 30 days…we are not prepared to compromise the importance of the issue by adding it to the agenda without a consensus of good faith among stakeholders that will result in substantive action and protections for New Mexicans.If these sponsors have identified such a consensus, we would be happy to hear about it and assess the situation from that point.
Soules said he and Duhigg were talking with House leaders to see if they could reach an agreement on the 36% rate cap. So far, he said, “there is no kind of commitment” on the deal, but he intends to keep working on it.
Many local lenders are affiliated with national corporations, and much of the money they raise comes out of state.
“And it’s low-income people, especially those unsophisticated in the world of finance, who are targeted by the small-loan industry with promises of ‘no credit checks’ and ‘cash within “30 minutes”, Ethics Watch report said.
“Native Americans in particular are targeted by these businesses,” the report said, adding that in Gallup, a town of about 22,000 people considered the commercial center of the Navajo Nation, there are 40 small loan offices.