COMMENTARY: Many participants at the employee benefits meetings had tears of relief in their eyes. One man asked, “You’re sure I can get a loan even with my credit score?” After years of financial abuse from non-bank lenders, they were being given access to affordable loans despite troubled credit histories. For them, the new loan program could be a financial lifeline.
Kudos to Doña Ana County for becoming the first local government in New Mexico to introduce a no-fuss, no-credit-check, affordable loan program for its employees.
The average New Mexico loan-store borrower paid an astounding $2,670 in interest on a $1,000, one-year loan in 2015. Doña Ana County employees will pay $140 interest on the same loan. Many will use their affordable loans to pay off abusive debt from storefront loan sharks.
Doña Ana County has managed to offer this program at no cost or risk to taxpayers. An outside vendor will provide the loan funds, and assume all loan collection obligations and loan loss risk. There is no charge to the county for providing the service and all administrative support is the responsibility of the vendor.
The secret behind the low interest rates is that borrowers agree to repay through voluntary payroll deductions at their place of employment. Because the loan is automatically repaid so long as the borrower continues working, the risk of default is greatly reduced. Because the lender does not have to pay the high advertising costs of storefront operations, interest rates can be further reduced.
Half of all workers in the United States lack even $400 to handle an emergency medical expense or auto repair. High-cost lenders exploit their vulnerability. One in five government employees have resorted to taking out expensive storefront loans.
Public sector employers are in a perfect position to help stop the financial carnage wrought by high-cost lenders. Imagine the benefits if New Mexico’s schools, universities, cities and other public institutions adopted affordable loan programs for their tens of thousands of employees.
Borrowers would have more dollars in their pockets to meet living expenses and support local business. Public agencies would benefit from workers who are less distracted by financial emergencies — and from recruiting advantages with new hires who value the loan perk.
Doña Ana County Manager Julia Brown is leading the charge by introducing the loan program to the New Mexico Association of Counties. Meanwhile, Sen. Jerry Ortiz y Pino and Rep. Joanne Ferrary are introducing legislation that requires the state of New Mexico to investigate offering cost-free, affordable loan services to its 18,000 workers.
New Mexico’s corporate-lobbyist dominated Legislature has resisted implementing commonsense interest cap loan protections for a decade. Is the state so deeply in the pocket of storefront lenders that it would deny a cost-free, affordable loan benefit to its own employees?
We’re about to find out.
Steve Fischmann is a former New Mexico state senator and advocate on consumer finance and utility issues.