Friday, July 14, 2006

It all started because Johnny Walker didn't want to be late on rent.

"I should have just paid the late fees on the rent. That would have cost me only $25 plus $5 a day," he said.

Instead, the Santa Fe, N.M., resident was out $1,300 poorer and lost his family's Chevy Lumina by the time the ordeal was over, the Albuquerque Tribune reports.

The 48-year old became one of the tens of thousands of people in New Mexico who turn to car-title or payday loan companies each year for fast cash with few questions asked. As a poor state, New Mexico is prime territory for the industry. Yet there is not one law or regulation governing payday loan and car title firms in the state, which have gone from few dozen 15 years ago to about 700 now.

The companies appeal to people anxious to get money for rent, car repairs, medical emergencies or other desperate situations because their no credit check payday loan applications involve little hassle. After all, people who have good credit don't need their services in the first place. New Mexico is just one of 11 states with no APR limits.

As a result, payday and car-title companies charge people like Walker (above) an average APR of 322 percent.

Efforts to pass laws controlling the industry have been stymied as the state's lawmakers remain split along free-market and consumer protection lines. Strong lobbying on the industry's behalf has also helped the Land of Enchantment remain that way for payday loans.

All anyone needs to get a small, short-term, high-interest personal loan from one of these places is an open checking account, proof of employment for payday lenders, and title to a vehicle for car-title lenders. Walker, a Wal-Mart employee and part-time musician, used the family car as collateral on a $250 car-title loan. Then he paid his $1,175 rent.

So far, so good, right? Well, the problem is that if you're having trouble coming up with the rent money, you're likely going to have trouble repaying the payday or car title loan plus interest. Often people living paycheck-to-paycheck manage only to pay the interest, and then renew or carry the loan over and pay interest on it again. And again. And so on.

"I paid on that thing for a year, and not a dime of it went to the principal. If you do manage to pay something on the principal and you're late the next month, they take money from the principal to pay your late fee and you're back to where you started," Walker said.

According the New Mexico Financial Industries Division, the state's 148 car title lenders made more than $18 million dollars in loans in 2004, with more than 19,000 loans outstanding at the end of the year. In that same calendar year, the 234 payday lenders in New Mexico made more than $80 million in loans.

After paying $1,300 on his loan for 12 months, Walker went on the road with his wife, Diana, for an out-of-state music gig. Driving back to Santa Fe in his Lumina, he realized he was returning too late to make his loan payment on time.

"We were just late coming home. I called to let them know I'd be in at 10 in the morning when they opened to pay what I owed," he said.

At home, they parked the car outside their apartment and went to bed. About 4:30 in the morning, the loan company confiscated their car and took it to Albuquerque.

That was a year ago, but Walker still appeared stunned and angry. Right after the car-title company took the car, an official told him he could get it back for $750.

"I told them, 'No,' and then they called back and said $400, and I said, 'No,' and then they said $300, and I said, 'Hell no. You already got $1,300 out of me,'" Walker recounted.

Paying interest and late fees on either kind of loan for a year can easily cost a consumer more than $1,000 without putting a dent in the principal.

Walker has used payday loan companies as well, and he has no gripes with them. With payday lenders, the collateral on the loan is not a car but a signed, post-dated check made out to the payday loan company for the amount owed or electronic debit access to a checking account.

"I pay $36 on a $200 payday loan. It's far easier to deal with than car-title loans, and I can pay my bills and feed my family. Payday loans have dug me out of some holes," he said.

But payday loans have put other people in holes.

Cheryl Winrow, an area supervisor for an Alamogordo convenience store chain, borrowed $600 from a bad credit payday loan company to help her older son out of some legal problems.

"I kept renewing because I couldn't pay the $600. Then I finally did pay it off, and they said, 'You qualify for $1,000,'" she said.

Winrow accepted the offer, because who couldn't use an extra $1,000? But the decision turned her life into a nightmare.

"Sometimes, I think an alien possessed my brain," she said. "I can actually talk about it now, but six months ago all I could do was cry."

Eventually, in an effort to pay off the $1,000 loan, she had six loans from six payday cash advance lenders. She was able to come to reasonable terms with most of the lenders, agreeing to pay $25 or $40 every two weeks. But the original lender got tough with her, using the access she had granted as collateral to withdraw more than $1,200 from her checking account, leaving a balance of $40, and then telling her she still owed $500 in late fees.

"They threatened to garnish my wages, threatened to garnish my husband's wages, said they were going to turn me over to their legal department, threatened to take me to court. On April 20, they sent me another 'nastygram' saying they had reported me to people who keep track of credit and that they were considering taking civil action or taking possession of my property," Winrow said.

She contacted the Attorney General's office, but since there are no laws regulating payday and car-title lending in New Mexico, there's not a lot the state can do beyond supporting the consumer's rights under the Unfair Practices Act. It remains to be seen how much - if any - that will help Winrow.

"I got into this to solve an immediate problem, not thinking what the long-term problems would be. I just get mad at myself. I'm a college-educated person. What was I thinking?" she said.

There are 150 active complaints about payday loan and car-title lenders on file in the Attorney General's Office. Attorney General Patricia Madrid has been hoping some kind of solid legislation controlling the industry would have been passed in the eight years since she took office.

But despite Gov. Richardson's recent efforts to crack down on payday loans and institute some sort of cap, that hasn't happened. Only time will tell if that changes, or if the industry lobbyists and free-market advocates in the legislature are simply too strong.

This entry was posted on Friday, July 14th, 2006 at 7:13 am and is filed under New Mexico.