Ethics watchdog issues report on payday loan industry lobbying

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It’s become a cycle of despair for low-income residents with low credit scores: They take out a high-interest installment loan to get them through tough times and soon pile up an unmanageable burden.

They pay off old debts with new loans at rates of up to 175 percent.

For years, state legislators have tried unsuccessfully to introduce legislation capping the interest rate on such loans at 36 percent. Their efforts have repeatedly failed. Last year, an attempt to forge a compromise, with a 99 percent cap on the smallest loans, up to $1,100, and 36 percent on larger amounts, stalled in the House of Representatives.

The nonprofit New Mexico Ethics Watch released a new report this week on a study exploring the potential effects of industry lobbying efforts — both money and messaging — to ensure the cap isn’t lowered. What the study found, said Kathleen Sabo, executive director of Ethics Watch, is that lobbyists’ arguments in opposition to a drop in the interest rate cap have been even “more effective” than campaign donations when used. tries to influence legislators.

“This is a problem that has been plaguing vulnerable New Mexicans for quite some time,” Sabo said.

The report says so-called store lenders have contributed at least $450,000 to the election campaigns of New Mexico legislators since 2005. But the study found “no significant amounts of campaign contributions to legislators from small loan companies found in other industries.

Industry campaign contributions to 58 state legislators in the 2020 election cycle totaled $140,000, with the majority going to Democrats.

Rep. Patti Lundstrom, D-Gallup, and former state Sen. Clemente Sanchez, a Grants Democrat, received the highest contributions in the industry, $7,500 each, according to the report.

It lists several high-profile lobbyists who represent storefront loan companies, including attorney Daniel Najjar, former state Rep. Raymond Sanchez, and Vanessa Alarid, the wife of state Rep. Moe Maestas, an Albuquerque Democrat.

Efforts to contact Najjar, Sanchez and Alarid for comment were unsuccessful.

A key argument against the interest rate cap on business loans, Sabo said, is that people who rely on small lenders would be “stranded out of money” if high-interest loans weren’t available.

The report denies it. In states where such businesses have closed, possibly due to caps on interest rates, “people will go back to making money in what can be thought of as traditional ways: working overtime, selling possessions, borrowing from friends and family “says the report. And the number of people turning to high-interest online loan companies “increased only incrementally.”

Ethics Watch faced a challenge determining the amount of campaign donations to lawmakers by lobbyists for store lenders, the report says.

State guidelines for lobbyist disclosure reports allow them to list contributions on behalf of multiple clients or under their own names or the names of their companies. Therefore, some donations from store lenders may not be clear.

The Ethics Watch report comes as Democratic lawmakers in the House and Senate are reintroducing legislation to cap interest rates for small lenders at 36 percent.

Rep. Patricia Roybal-Caballero of Albuquerque introduced House Bill 78, while Senators Bill Soules of Las Cruces and Katy Duhigg of Albuquerque introduced similar legislation Thursday that has yet to be assigned a number.

Soules and Duhigg introduced similar legislation in 2021. Although the Senate passed the bill, Lundstrom sponsored an amendment in the House to set the interest rate cap at 99 percent for loans of $1,100 or less and 36 percent for loans. loans between $1,100 and $10,000.

The bill died when time ran out in session.

Roybal-Caballero did not respond to requests for comment Thursday.

Duhigg wrote in an email Thursday that the bill she and Soules introduced is the same one they sponsored last year.

“We have tried many times before and it is important that we keep trying until the practice of predatory lending in New Mexico is gone forever,” he wrote.

Sabo said he plans to contact the Governor’s Office on Friday to ask for their support for the bill to be heard this year.

Nora Meyers Sackett, a spokeswoman for the governor, wrote in an email Thursday: “We absolutely agree that this is an important issue that needs to be addressed, as evidenced by the governor’s focus on the issue in the last 60-day session.”

But, Sackett added, “with an agenda this important to be addressed in just 30 days… we are not willing to compromise the importance of the matter by adding it to the agenda without a good faith consensus among stakeholders that results in action.” noun and protections for New Mexicans. If these sponsors have identified such a consensus, we would be happy to hear about it and would assess the situation from there.”

Soules said he and Duhigg are talking to House leaders to see if they can come to an agreement on the 36 percent rate cap. So far, he said, “there is no kind of commitment” on the agreement, but he intends to continue working on it.

Many local commercial lenders are affiliated with national corporations, and much of the money they raise goes out of state.

“And it’s low-income people, especially those who aren’t financially sophisticated, who are being targeted by the small loan industry with promises of ‘no credit checks’ and ‘cash in 30 minutes,'” reports the Ethics Watch report. He says.

“Native Americans in particular are targeted by these businesses,” the report says, adding that in Gallup, a city of about 22,000 that is considered the commercial center of the Navajo Nation, there are 40 small loan offices.

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