Sunday, May 21, 2006

Local payday loan firms and their customers have been waiting longer than usual for their day in court lately. According to Cynthia Sanders, chief clerk of the McKinley County (N.M.) Magistrate Court, two judges have recused themselves from all cases involving the payday loan business for the past three weeks.

While it's not unheard of for judges to recuse themselves from an entire category of cases, said Karen Janes, director of the Magistrate Court Division of the state's Administrative Office of the Courts, it is an unusual development.

"This is the first time I've seen it," said Sanders, a 25-year veteran of the court.

The McKinley County Magistrate Court deals with dozens of instant payday loan firms seeking to garnish the salaries of delinquent customers every week. When judges recuse themselves, it falls on the county's district court to find judges in other counties to hear the case. If things go smoothly, the search shouldn't last more than a few weeks. If not, however, it can take months.

Judge John Carey declined to comment on the reasons for his recusals. Judge George Galanis summed up his decision in one word.

"Unconscionable is the key word here," he said, referring to his take on the terms most lenders demand for payday loans.

According to the New Mexico Attorney General's Office, interest rates on the average payday loan in the state tops 500 percent annually. Industry representatives say they need to charge those rates to stay in business, but critics counter that consumers are often forced to take out new loans to pay off old ones, leading to inevitable default.

"My job is never to hear any case where I have a preconceived opinion, so I don't think it's fair for the lender or the borrower for me to hear these cases," Galanis said. "If I didn't believe in the death penalty, I couldn't conscionably sit on a case where the death penalty is an option. That's just an example."

But even Galanis was hesitant to share all his thoughts on the industry or the reasons for his recusals. Peter Kelly, an associate planner for the Northwest New Mexico Council of Governments, believes the judges might also be fed up with lenders clogging their dockets with cases about payday advances.

McKinley County is home to one of the busiest magistrate courts in the state, and civil cases should take up less than 10 percent of the load. But even that accounts for 1,605 cases since last July — an estimated two-thirds of which come from payday lenders.

"[Carey and Galanis], I think, are sick and tired of being bogged down by what they consider these frivolous lawsuits. I think they're trying to send a message to the payday lenders and say, 'Look, this is frivolous litigation,'" Kelly said.

Mike Pyles, former owner of Gallup Payday Loans, believes Carey and Galanis are simply shirking their duties by consistently recusing themselves. But under state laws, they have every right. Judges can and must exercise the ethical duty to recuse themselves when they believe they cannot preside over a case fairly and objectively, according to New Mexico law.

But by refusing to hear the cases, Pyles said, Carey and Galanis are making it harder for lenders to collect on the money they're legally due. If that eventually forces a fast payday loan company to close up shop, it could also make it harder for locals to find lenders, a byproduct that consumer advocates might not mind.

The county's district judges could conceivably order Carey and Galanis to stop recusing themselves from payday loan cases, although the pair could then appeal to the New Mexico Supreme Court. Galanis won't say how long he plans on recusing himself or what might convince him to stop, saying only that nothing lasts forever.

A list of new payday lending regulations Gov. Bill Richardson and Attorney General Patricia Madrid unveiled Thursday might change their minds. While the officials do not propose an interest cap on the New Mexico payday loan industry, Richardson and Madrid do propose a flat fee of up to $15.50 for every $100 borrowed, whether on a new loan or a renewal, as well as limiting the size of the loan to 25 percent of the borrower's gross monthly income.

They would also give the borrower sole discretion over renewing cheap payday loans two times and, after that, the option of entering into a 130-day repayment plan with no additional fees. Gilbert Gallegos, Deputy Director of Communications for Gov. Richardson, expected the proposal to be finalized and implemented no sooner than mid-July.

The payday loan industry has experienced substantial growth across the state during the past decade, and in few cities more than Gallup, home to the fourth highest number of payday loan agencies in the state (17) and the second highest per capita, just behind Los Lunas.

All in all, it will be very interesting to continue to monitor the actions of the judges as the payday advance loan firms' litigation moves through the system.

This entry was posted on Sunday, May 21st, 2006 at 12:23 pm and is filed under New Mexico.