For low-income earners with bad credit, it has become a cycle of desperation: they take out a high-interest installment loan to get through tough times and soon accumulate an unmanageable burden.
They pay off old debts with new loans at rates of up to 175 percent.
For years, state legislatures have enacted laws capping the interest rate on such loans to 36 percent. Their efforts to pass the bills have repeatedly failed. An attempt last year to forge a compromise — capping 99 percent 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 this week released a report on a study examining the potential impact of industry lobbying – both money and messages – on ensuring the cap is not lowered. The study found, according to Ethics Watch executive director Kathleen Sabo, that lobbyists’ arguments against lowering the interest rate cap are “even more effective” than campaign contributions at influencing lawmakers.
“This is an issue that has plagued vulnerable New Mexicans for quite some time,” Sabo said.
According to the report, in-store lenders have contributed at least $450,000 to New Mexico state legislature campaigns since 2005. However, the study did not find “large amounts of campaign donations to lawmakers from small lending firms that you find in other industries.”
Industry campaign contributions to 58 state legislators in the 2020 election cycle totaled $140,000, with most going to Democrats.
Rep. Patti Lundstrom, D-Gallup, and former state senator Clemente Sanchez, a Grants Democrat, received the industry’s highest contributions, $7,500 each, the report said.
It lists several high-profile lobbyists representing store loan companies, including attorney Daniel Najjar, former state congressman Raymond Sanchez, and Vanessa Alarid, the wife of state congressman Moe Maestas, a Democrat from Albuquerque.
Attempts to reach Najjar, Sanchez and Alarid for comment were unsuccessful.
A key argument against the store loan interest rate cap, Sabo said, is that if the high-yield loans aren’t available, people who rely on small lenders will be “left out with no money.”
The report denies that. In states where such businesses have shut down — possibly because of interest rate caps — “people will go back to making money in what can be considered traditional: working overtime, selling possessions, borrowing from friends and family,” it says it in the report. And the number of people turning to high-yield online lending companies instead has “only increased incrementally.”
Ethics Watch encountered a challenge in determining the amount of campaign contributions to lawmakers from lobbyists for in-store lenders, the report said.
Government guidelines on lobbyist disclosure reports allow them to list posts on behalf of multiple clients or under their own name or the name of their companies. So some donations from in-store lenders might be unclear.
The Ethics Watch report comes as Democratic lawmakers in the House and Senate reintroduce legislation to cap interest rates for small lenders to 36 percent.
Rep. Patricia Roybal-Caballero of Albuquerque filed House Bill 78, while Sens. Bill Soules of Las Cruces and Katy Duhigg of Albuquerque filed similar bills Thursday that had not yet been assigned a number.
Soules and Duhigg filed a similar bill in 2021. Although the Senate approved the bill, Lundstrom sponsored an amendment in the House of Representatives to set the interest rate cap at 99 percent for loans of $1,100 or less and 36 percent for loans between $1,100 and $10,000.
The bill died when the session ran out of time.
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 as the one they sponsored last year.
“We have tried many times, and it is important that we continue to try until the practice of predatory lending is finally abolished in New Mexico,” she wrote.
Sabo said she plans to contact the governor’s office on Friday to ask for their support in hearing the bill this year.
Nora Meyers Sackett, a spokeswoman for the governor, wrote in an email on Thursday: “We absolutely agree that this is an important issue that needs to be addressed, like the governor’s focus on the issue in the last one 60-day session shows.”
But, Sackett added, “with such a weighty agenda that needs to be addressed in just 30 days … we are not willing to jeopardize the importance of the matter by putting it on the agenda without a bona fide consensus among stakeholders that.” leading to substantive action and protection for New Mexicans. If these sponsors have established such a consensus, we would love to hear about it and would assess the situation from that point.”
Soules said he and Duhigg are speaking with House leaders to see if they can reach an agreement on the 36 percent tax ceiling. So far, he said, “there is no commitment whatsoever” to the deal, but he intends to continue working on it.
Many local lenders are affiliated with national companies, and much of the money they raise goes abroad.
“And it’s low-income people, particularly those who are not financially savvy, who are being targeted by the microcredit industry with promises of ‘no credit checks’ and ‘cash within 30 minutes,'” the Ethics report says Watch says.
“Native Americans in particular are being targeted by these companies,” the report said, adding that there are 40 small credit bureaus in Gallup, a city of about 22,000 that’s considered the trading hub of the Navajo Nation.