COMMENTARY: Recently released government data on small loans in New Mexico confirms what consumer advocates have known all along. Title loan borrowers may as well pay a thief to steal their car.
About 41,000 title loans were written in New Mexico in 2014, and 10,000 vehicles were repossessed. Horrible as that is, it doesn’t tell the full story. Many loans were renewals because borrowers could not afford to pay off the debts when they came due. So while there were 41,000 loans, there were maybe 25,000 borrowers. Roughly four out of 10 customers lost their cars. At average title loan interest rates of 272 percent, many wound up paying thousands of dollars for the privilege.
While all high-cost lenders harm the public, title lenders are particularly destructive. Loss of a car often means the borrower can no longer get to work or take their loved ones to the doctor.
State regulators renew licenses for 700 small-loan con artists annually, contrary to any logic and without any apparent conscience. Not one title lender has been denied a license since 2007. State financial regulator Cynthia Richards declared to the legislative Indian Affairs Committee last year that there is no predatory lending problem in New Mexico – then passed out a report documenting loans with interest rates of up to 2,700 percent.
State Sen. Joseph Cervantes has disingenuously suggested the problem of predatory title and payday loans might already be solved by the New Mexico Supreme Court’s 2014 King vs. B&B decision. That decision ordered two lenders to pay restitution for “unconscionable” loans requiring over $1,000 in payments on $100 borrowed. It does not impact any lenders other than the two companies that were sued.
While King vs. B&B may be a strong precedent for future legal actions, Attorney General Hector Balderas has shown no inclination to pursue the issue. After accepting $25,000 in campaign contributions from the loan industry and its lobbyists, he fired the AG staff attorney most responsible for winning King vs. B&B.
Industry buys complicity
The industry buys government complicity in loan ripoffs at many levels.
Over 20 of the most powerful lobbyists in the state have been retained by storefront lenders. Sources tell us some of those lobbyists have threatened to cut off client campaign contributions to lawmakers who vote against the industry, even from clients that are not lenders.
One of the industry lobbyists is the brother of Senate Majority Leader Michael Sanchez. Sen. Sanchez sponsored a 36 percent interest cap bill in 2014 and then mysteriously failed to convince a normally compliant Rules Committee chairperson to hear it.
Gov. Susana Martinez and Republican legislative leadership have accepted substantial industry contributions, both directly and through their political action committees. No surprise then that a number of Republican representatives who supported interest-rate caps going into last year’s legislative session abruptly chose to vote in a solid party block against them.
If they wanted to, state regulators and the Legislature could reduce consumer suffering in a relative heartbeat. Lawmakers could follow the lead of 29 states that have banned auto title loans and 12 states that have enacted across the board interest rate caps of 36 percent or less.
The governor has the power to deny license renewals to irresponsible lenders. She could also take administrative actions to stimulate adoption of lending models costing less than a tenth as much as the average storefront loan.
It’s time to end the suffering of up to a quarter million New Mexicans ripped off by high cost small loans annually. Stop dithering and give us genuine reform.
Porter and Fischmann are co-chairs of the New Mexico Fair Lending Coalition.