Payday Loan Times

A bill to impose new consumer protection rules on the New Mexico payday loan industry is marching through that state's legislature. It passed the House, 63-4, with its next stop the Senate Judiciary Committee. But it's not quite the bill it was when it first showed up in Santa Fe, writes the Gallup (N.M) Independent.

Rep. Patricia Lundstrom, a Democrat from Gallup, introduced the bill and is fine with the changes that have been made to it. But payday lobbyists and owners resent that they're being singled out at all, and staunch consumer advocates think the changes have weakened it.

New Mexico has been wrestling with regulating the payday advance industry, which offers cash loans against a customer's paycheck(s), for some time. Lundstrom's bill proposed a cap on how much a person could borrow — at either $1,000, or 25 percent of his/her monthly income, whichever was less. It also proposed limiting interest rates to 92 percent annually.

The bill was doing fine until the House Judiciary Committee voted it down, and approved a substitute that raised the cap on a loan to $1,500 or 30 percent of a customer's gross monthly income. Lundstrom, along with the religious groups and the AARP, had no problems with the changes. So where does the problem stem from?

Last year, the state assigned a task force to come up with a list of regulations that actually had a chance of passing in 2006. Among the key points that lawmakers cannot reach a consensus on is how to cap payday loans, and at what amount. Most of the task force agreed on $1,000, but industry representatives — determined not to be muscled out of business — have been angling for at least $1,500 from the start.

"Why should payday loans be targeted and restricted?" Stephen Solomon, an attorney for one cash loan franchise, asked. "Our product lets our clients keep their lights on, their homes warm. If there wasn't a need, there wouldn't be so many stores. Consumers speak with their feet."

The industry's critics, meanwhile, want to make sure that reasonable terms are in place, and some consumer advocates think the legislation is not going far enough. For example, the director of the New Mexico Public Interest Research Group, Jeanne Basset, thinks Lundstrom's bill does not do the job.

"The bill will not stop the debt treadmill, and that is our main concern," she said. "It's great they're trying to do this, but let's do it in a way we know helps (borrowers) get out of the debt trap."

Basset would prefer a maximum APR of 54 and an extension of the 14-day period customers have to repay their loans — which she says results in cycles of debt that often take months, even years to get out of. The current bill does not mandate a longer repayment period or even guarantee 14 days.

Does this payday loan bill go far enough to protect consumers, and should it even be moving through the legislature at all? Regardless of whether it is eventually signed into New Mexico law, these questions will be debated for a long time as people on both extremes (and everywhere in between) jockey for position.