Can you pay 175% interest on a loan in New Mexico? Yes, and it’s legal
NEW MEXICO (KRQE) – This is the kind of transaction you would expect to do in a late night alley. Yet in New Mexico there is a thriving industry that is legally making hundreds of millions of dollars. We are talking about the storefront installment loan business. Each year, more than 200,000 New Mexicans take out short-term loans at exorbitant interest rates, as high as 175%.
“It’s a very serious threat. I think it’s outrageous, ”says Albuquerque lawyer Karen Meyers. Meyers headed Attorney General Gary King’s consumer division. “There is no political reason that supports continuing to charge for unfair, unaffordable and exploitative loans,” Meyers said. “No one should have to pay triple-digit interest rates on a loan,” says Lindsay Cutler, lawyer for the New Mexico Center on Law and Poverty.
“It’s absolutely devastating,” said a woman in northern New Mexico who asked that her name not be released. We will call it Rebecca. She lives just off the Navajo reservation near Farmington. After her husband was fired due to COVID-19, her family faced a financial crisis. “We had to pay our rent, our utilities and also help my mother, who lives (on the Navajo reservation)”, Rebecca mentionned.
In order to get emergency cash, she sought out a Farmington storefront lender. Using the title of his car as a guarantee, Rebecca was loaned $ 3,500 at an interest rate of 155%. “It was very attractive… It’s like, yes, that’s the answer to our prayers,” Rebecca mentionned. Only after signing the papers Rebecca realizing that she couldn’t afford the payments. “On a loan of $ 3,500, we will repay $ 11,445.”
Rebecca is now behind on his payments. “We’re just going to have to give them the vehicle. It’s the only vehicle we have. So now we just have to hand it over to them because we can’t afford that payment. ” Rebecca said.
Rebecca Is not alone. Every year tens of thousands of New Mexicans are left with short-term loans at astronomical interest rates. It is an industry that appeals to families who may have bad credit and need access to cash. Many are not eligible for conventional bank loans. The downside, however, is the unaffordable payments. In 2019, the New Mexico storefront loan industry took out installment loans totaling $ 660 million.
“No one should have to choose between paying for basic necessities, putting food on the table or paying the rent that month and making a payment on a triple-digit interest rate loan,” says Lindsay Cutler of the New Mexico Center on Law and Poverty. “A loan at 175% interest is an abusive loan, it is unaffordable. It’s an alarming interest rate, ”says Lindsay Cutler.
Let’s put this in perspective.
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The average interest rate on an auto loan is 5.27%. The average interest on a 30-year residential mortgage is 4.07%. In New Mexico, the interest rate on a six-month, $ 500 short-term loan can be as high as 175%. And all of this is perfectly legal. The New Mexico installment loan industry is the only group of companies in the state allowed to charge triple-digit interest, thanks to the state legislature.
“This is a tribute to the power of industry lobbyists (installment loans) who are among the most powerful in Santa Fe,” said former state senator Dede Feldman. “Money is their business, and they’re very good with it. They know how to use it to work their way through the New Mexico legislature, ”said Dede Feldman.
In fact, New Mexico is one of the few states in the country where triple-digit interest on short-term installment loans is legal. As a result, the industry thrives here. Nearly 600 storefront lenders are licensed in New Mexico. They have names like Security Finance. Lend Nation. Max Title. The Cash Store. In Albuquerque, there are three times as many storefront lenders (96) as there are McDonald’s restaurants (33). Forty storefront lenders sell high-interest loans just outside the Navajo reservation in Gallup, a community of just 21,000 people.
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“What is particularly alarming about this industry is that so many of these companies cluster together in communities of color and native communities in New Mexico. Two-thirds of all (storefront lenders) are within 15 miles of New Mexico tribal lands, ”says Lindsay Cutler. “The lending industry has targeted people who often cannot afford to repay (the loans),” Cutler said.
“Interestingly, 85% of (storefront lenders) are non-state corporations. Much of the money taken from New Mexicans leaves the state, ”says lawyer Karen Meyers. “Last year, New Mexicans paid about $ 220,000,000 in fees for these types of loans,” Meyers said.
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“It really is a terrible situation,” says Winona Nava, CEO of Guadalupe Credit Union (Santa Fe). “(Consumers) see (storefront lenders) as easy. They see them just as quickly. The people who work there are very nice. And when people go there, they feel like they’ve been helped. But when they get home and see the reality of the payments, they realize they haven’t been helped, ”says Winona Nava.
“The financial damage is well documented in terms of people who lose their cars, are unable to repay their debts, end up defaulting, cannot pay their rent because they are heavily in debt,” said Karen Meyers. In 2019, storefront lenders repossessed 2,293 vehicles after borrowers defaulted on high-interest loans.
“I didn’t know how to get the extra money right away. So I would try the loan companies, ”Felyne Peters told Gallup. Ms. Peters knows the problem firsthand. Needing cash to pay her bills, she borrowed $ 565 from Gallup’s Cash Store at an interest rate of 174.78%. “Having to pay every pay period is like, oh my gosh,” says Felyne Peters.
After Ms Peters fell behind on payments, The Cash Store withdrew the money straight from her checking account, eventually emptying it. After Ms Peters defaulted on the loan, The Cash Store sued her. New Mexico Legal Aid stepped in and the case was ultimately dropped.
“I lost my 32-year-old husband, I had two grandchildren who lived with us, and there was no life insurance,” said a retiree from Santa Fe who asked not to have her name is not disclosed. We will call it Sandra. Without savings, fighting cancer and living on social security, Sandra turned to storefront lenders to cover expenses. Over the course of several years, she took out five separate installment loans, all at triple-digit interest rates.
“I got to the point where I took whatever loans they would offer me. So it was endless. The loans were not repaid. You pay one loan to open another. They give you an extra $ 50, you’ll take it, ”says Sandra. She told KRQE News 13 that the lenders knew she had bad credit, no insurance, no savings and that she was living solely on Social Security. They still gave him high interest loans. No one refused it.
Unable to make payments, Sandra risked having his car repossessed. “It would be devastating to walk from the apartment to the bus stop every day. It’s not close. I wouldn’t know what to do without a vehicle ”, Sandra said.
Fortunately, an alert Guadalupe Credit Union employee discovered Sandra’s difficulty in repaying high interest loans. Through Guadalupe CU’s unique Predator Debt Relief Loan program, Sandra was able to escape the huge triple interest debt. Now she can sleep at night.
Today, the storefront installment loan industry is under pressure to reduce its high interest rates. State lawmakers are considering a bill that would bring New Mexico in line with most other states by capping the consumer loan interest rate at 36%.
“There is no stretch of the imagination that an interest rate of 175% is reasonable,” said former state senator Dede Feldman.
On Tuesday, legislation that caps interest on installment loans at 36% (SB66) was passed by the Senate 25-14. The bill now goes to the State House for consideration.