New Mexico Consumer Groups Urge Alternatives to Car-Title, Payday Loan Companies
By Desmond CarlislePayday Loan Writer
David Seely, president of Kirtland Federal Credit Union, which makes small, short-term, personal loans to its members at a federally mandated interest rate cap of 18 percent or less, doesn't want to hear it.
That is, he can't believe when payday loan and car-title loan companies complain about being squeezed out of business when and if New Mexico caps interest rates at 36 or 54 or 60 percent.
"We do very well at that rate," Seely told the Albuquerque Tribune, which is running a series of stories about the payday loan industry.
Seely said payday loan regulations proposed by New Mexico are a good first step in regulating predatory lending, but he regrets the regulations don't include an interest cap.
"It could be 36 percent or 48 percent. It needs to be something less than nothing at all. If we can live at 18 percent, why can't they live at some multiple of that?" he said.
John Rabenold, V.P. of Government Affairs with Check 'n Go, has an idea. He said credit unions can get by on 18 percent interest because they are non-profit companies that don't pay taxes. When the rare credit union, such as Kirtland Federal, offers small, short-term loans, it's only a small part of their overall business, he says.
"Small loans is something they can do and not miss, but small loans are 100 percent of our business. In our business, a 90 percent or even a 100 percent (annual interest rate) cap means you can't pay for bringing the product to market," Rabenold said.
Nonetheless, Albuquerque consumer advocates Diana Dorn-Jones and Vicki Plevin agree that the state should mandate an APR cap that is at least somewhere shy of 100 percent and should require terms that give borrowers at least 90-120 days to pay back loans.
"Studies show that's the average time it takes people to pay off loans," Plevin said.
In New Mexico, payday lenders charge an average annual percentage rate of more than 560 percent for fast payday loans that are due to be paid back in two weeks, as the state is one of the few with no cap. Car-title lenders charge an average rate of more than 322 percent on loans due in 40 days.
Proposed regulations — which represent a compromise hammered out by Gov. Bill Richardson and Attorney General Patricia Madrid's offices and could go into effect as early as next month — not only lack an interest cap but give borrowers just 14-35 days to pay the loan back.
"We are not happy with the (proposed) regulations," Dorn-Jones said.
Plevin, the Director of the Project Change Fair Lending Center, is equally concerned about a regulation limiting the amount of a loan to 25 percent of a borrower's gross monthly income. For buyers with smaller incomes, that represents an enormous percentage of their funds. She said she has seen people mortgage their homes to pay back payday loans.
In an effort to help, Project Change offers workshops aimed at training New Mexico residents to protect themselves and their communities from predatory lending. Dorn-Jones said creating small, grass-roots, neighborhood credit unions to help people out of financial tight spots might be an idea worth investigating.
Kirtland Federal Credit Union — whose members include military personnel assigned to Kirtland Air Force Base as well as New Mexico National Guard members and the state's military reservists — works with the Air Force Family Support Center to provide financial education for the military, especially Air Force personnel serving in their first duty station.
According to Angelica Anaya Allen, the state's Assistant Attorney General in the consumer protection division, military families are prime targets of payday and car-title lenders because the personnel are not well paid. She said one recent survey indicates that 9 percent of all enlisted personnel and 12 percent of all mid-level officers use no fax payday loans.
Seely counters that has not been a pronounced problem among the military ranks in Albuquerque, or the elderly (also a frequent target of shady lenders) due to the proactive approach taken by the air base and Kirtland Federal. Seely said Kirtland Federal tries to go the extra mile in other ways, offering a 6 percent rate on small loans made to any military personnel about to deploy.
"We don't make money on deployment loans. But we take the philosophy that we are here to serve our members. We find value in that, and as long as we stay in the black, we're okay," he said.
Seely said most banks and credit unions could be doing more to help out the little guy. He said the climate for the rapid growth of predatory lending about payday advance firms was created because institutions have lost sight of their requirements — to meet the credit needs of communities, including low- and moderate-income neighborhoods.
"Banking has changed. It used to be locally owned banks with local concerns. Now, there are huge, nationally owned banks more interested in commercial and business loans than in small loans. If you walked into a bank and said you would like to get a loan to buy a car, they'd probably say, 'Well, please do that at the dealer,'" Seely said.
