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Ethics watchdog issues report on payday loan industry lobbying

Ethics watchdog issues report on payday loan industry lobbying
Written by Publishing Team

It has become a cycle of desperation for low-income residents with poor credit scores: they take out a loan with high interest payments to weather tough times and quickly build up an unmanageable burden.

They pay off old debts with new loans at rates as high as 175 percent.

For years, state lawmakers have tried unsuccessfully to introduce legislation that would limit the interest rate for such loans at 36 percent. Their efforts failed again and again. Last year’s attempt to compromise — with a 99 percent cap on the smallest loans, up to $1,100, and 36 percent on higher amounts — stalled in the House.

The nonprofit New Mexico Ethics Watch released a new report this week on a study that explores the potential effects of industry lobbying efforts — money and messaging — on ensuring the cap is not lowered. What the study found was that lobbyists’ arguments opposing a lower rate cap were “more effective” than campaign donations when it comes to influencing lawmakers, said Kathleen Sabo, executive director of Ethics Watch.

“This is an issue that has been confusing the vulnerable New Mexicans for some time,” Sabo said.

The report says that so-called store lenders have contributed at least $450,000 to the campaigns of New Mexico legislators since 2005. But the study did not find “significant amounts of campaign contributions for lawmakers from small loan companies that it finds from other industries.”

Campaign contributions from industry to 58 state lawmakers in the 2020 election cycle totaled $140,000, most of which went to Democrats.

The report said Representatives Patty Lundstrom and de Gallup and former Senator Clemente Sanchez, a Grants Democrat, received the highest contributions from the industry, $7,500 each.

It lists several notable lobbyists representing the storefront lending firms, including attorney Daniel Carpenter, former State Representative Raymond Sanchez and Vanessa Ardor, wife of Representative Mo Maistas, an Albuquerque Democrat.

Efforts to reach Najjar, Sanchez and Al-Areed for comment were unsuccessful.

One of the main arguments against setting interest rate caps on shop loans, Sabo said, is that people who rely on small lenders will be left “in a bind, without money” if high-interest loans are not available.

The report argues this. In states where such businesses have closed – possibly due to interest rate caps – “people will return to making money in what might be seen as traditional ways: working overtime, selling property, borrowing from friends and family,” the report says. And the number of people turning instead to online high-interest loan companies has “only increased”.

Ethics Watch faced a challenge in determining the amount of campaign donations to lawmakers from lobbyists to store lenders, the report says.

State guidelines for lobbying disclosure reports allow them to list contributions on behalf of multiple clients or in their own or company names. So some of the donations from storefront lenders may be inconspicuous.

The Ethics Watch report comes as House and Senate Democratic lawmakers are introducing new legislation to reduce interest rates for small lenders by 36%.

Representative Patricia Roibal Caballero of Albuquerque introduced Bill 78 to the House of Representatives, while Senators Bill Sols of Las Cruces and Katie Duhigg of Albuquerque introduced similar legislation Thursday for which a number has yet to be set.

Soules and Duhigg introduced similar legislation in 2021. Although the bill was approved by the Senate, Lundstrom sponsored an amendment in the House to set an interest rate cap of 99 percent for loans of $1,100 or less and 36 percent for loans between $1,100 and $10,000.

The bill is missed as time runs out in the session.

Roybal-Caballero did not respond to requests for comment Thursday.

Duhigg wrote in an email Thursday that the bill she and Souls filed is the same as the bill she sponsored last year.

“We’ve tried many times before and it’s 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 reach out to the governor’s office on Friday to ask for her support in hearing the bill this year.

“We fully agree that it is an important issue that needs to be addressed, as evidenced by the governor’s focus on this issue in the 60-day hearing,” Nora Myers Sackett, a spokeswoman for the governor, wrote in an email Thursday.

But, Sackett added, “With such a heavy agenda to be addressed in just 30 days…we are not willing to compromise on the importance of the matter by adding it to the agenda without a good faith consensus among stakeholders which would lead to substantive action being taken. and protection for the New Mexicans. If these patrons had established such a consensus, we would be glad to hear about it and we would assess the situation from that point on.”

Solz said he and Duhigg are talking with House leaders to see if they can craft an agreement on a 36 percent rate cap. So far, he said, “there is no kind of commitment” on the deal, but that he intends to continue working on it.

Many of the local lenders are affiliated with national companies, and much of the money they collect comes out of the state.

Low-income people, especially those who aren’t sophisticated in the world of finance, are being targeted by the microcredit industry with promises of ‘no credit checks’ and ‘cash within 30 minutes,’ an Ethics Watch report says.

“Native Americans in particular are targeted by these businesses,” the report says, adding in Gallup, a city of about 22,000 people that is the commercial center of the Navajo Nation, there are 40 microcredit offices.

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