NEW MEXICO (KRQE) – It’s the kind of transaction you would expect to make in a back alley late at night. Yet in New Mexico, there’s a thriving industry that’s legally cashing in on hundreds of millions of dollars. We’re talking about the storefront installment loan business. Every year, more than 200,000 New Mexicans take out short-term installment loans at exorbitant interest rates, as high as 175%.
“It’s a very serious threat. I think it’s outrageous,” says Albuquerque attorney Karen Meyers. Meyers headed up Attorney General Gary King’s Consumer Division. “There are no policy reasons that support continuing to charge unfair, unaffordable, and exploitive loans,” Meyers said. “No one should have to pay triple-digit interest rates on a loan,” says New Mexico Center on Law and Poverty attorney Lindsay Cutler.
“It’s absolutely devastating,” says a Northern New Mexico woman who asked that her name not be disclosed. We’ll call her Rebecca. She lives just off the Navajo Reservation near Farmington. After her husband got laid off due to COVID-19, her family faced a financial crisis. “We needed to pay for our rent, our utilities, and also help my mom, who lives (on the Navajo Reservation),” Rebecca said.
In order to secure emergency cash, she sought out a Farmington storefront lender. Using the title of her car as collateral, Rebecca was loaned $3,500 at 155% interest. “It was very enticing … It’s like, yes, this is the answer to our prayers,” Rebecca said. Only after signing the papers did Rebecca realize she couldn’t afford the payments. “On a $3,500 loan, we’re going to be paying back $11,445.”
Rebecca is now behind on her payments. “We’re going to have to just give them the vehicle. It’s the only vehicle that we have. So now we have to just surrender it to them because we can’t afford that payment,” Rebecca says.
Rebecca is not alone. Every year tens of thousands of New Mexicans end up with short-term installment loans at astronomic interest rates. It’s an industry that appeals to families who may have bad credit and need access to ready cash. Many do not qualify for conventional bank loans. The downside, however, is unaffordable payments. In 2019, New Mexico’s storefront lending industry wrote installment loans totaling $660,000,000.
“No one should be having to make the choice between paying for basic necessities, between putting food on the table or making rent that month and making a payment on a triple-digit interest rate loan,” says Lindsay Cutler with the New Mexico Center on Law and Poverty. “A 175% interest loan is a predatory loan, it’s unaffordable. It’s an interest rate that’s alarming,” Lindsay Cutler says.
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 home mortgage is 4.07%. In New Mexico, the interest rate on a $500 six-month short-term installment loan can be a whopping 175%. And it’s all perfectly legal. New Mexico’s installment loan industry is the only business group in the state allowed to charge triple-digit interest, courtesy of the State Legislature.
“It’s a tribute to the power of the (installment loan) industry’s lobbyists who are some of the most powerful ones in Santa Fe,” says former State Senator Dede Feldman. “Money is their business, and they’re very good with it. They know how to use it to get their way in the New Mexico Legislature,” Dede Feldman said.
In fact, New Mexico is among only a handful of states across the country where triple-digit interest on short-term installment loans is legal. As a result, the industry flourishes here. Almost 600 storefront lenders are licensed in New Mexico. They go by names like Security Finance. Lend Nation. Title Max. The Cash Store. In Albuquerque, there are three times more storefront lenders (96) than there are McDonald’s restaurants (33). Forty storefront lenders peddle high-interest loans just outside the Navajo Reservation in Gallup, a community of only 21,000.
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“What’s particularly alarming about this industry is that so many of these businesses cluster in communities of color and the native communities in New Mexico. Two-thirds of all (storefront lenders) are within 15 miles of tribal lands in New Mexico,” Lindsay Cutler says. “The lending industry has targeted people who often cannot afford to pay back (the loans),” Ms. Cutler said.
“Interestingly enough, 85 percent of (storefront lenders) are out-of-state corporations. So much of the money that is taken from New Mexicans leaves the state,” attorney Karen Meyers says. “Last year, there was approximately $220,000,000 in fees paid by New Mexicans for these kinds of loans,” Meyers said.
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“It’s really a terrible situation,” Guadalupe Credit Union (Santa Fe) CEO Winona Nava says. “(Consumers) see (storefront lenders) as easy. They see them as fast. The people that work there are very nice. And when people leave there, they feel like they’ve been helped. But then when they get home and see the reality of the payments, they realize they haven’t been helped,” Winona Nava says.
“The financial harm is well documented in terms of people who lose their cars, are unable to pay off debt, end up defaulting, can’t pay their rent because they’re in so much debt,” Karen Meyers said. In 2019, storefront lenders repossessed 2,293 vehicles after borrowers defaulted on high-interest loans.
“I didn’t know how to get extra money right away. So I would try the loan companies,” says Felyne Peters in Gallup. Ms. Peters knows the problem first hand. In need of cash to pay bills, she borrowed $565 from The Cash Store in Gallup at an interest rate of 174.78%. “Having to pay every pay period, it’s like, oh, my gosh,” Felyne Peters says.
After Ms. Peters fell behind on payments, The Cash Store withdrew the money directly from her checking account, eventually draining it. Once Ms. Peters defaulted on the loan, The Cash Store took her to court. New Mexico Legal Aid intervened, and the case was eventually dropped.
“I lost my husband of 32 years, and I had two grandchildren living with us, and there was no life insurance,” says a retired Santa Fe woman who asked that her name not be disclosed. We’ll call her Sandra. With no savings, battling cancer, and living on Social Security, Sandra turned to storefront lenders to meet 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 was taking out every loan they would offer me. So it was never-ending. The loans weren’t getting paid off. You pay one loan off to open another one. They offer you $50 more, you’re going to take it,” Sandra says. She tells KRQE News 13 the lenders were aware that she had bad credit, no insurance, no savings, and was living solely on Social Security. They made the high-interest loans to her anyway. No one turned her down.
Unable to make payments, Sandra risked having her car repossessed. “That 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 says.
Fortunately, an alert employee at the Guadalupe Credit Union found out about Sandra’s difficulty paying off the high-interest loans. Through Guadalupe CU’s unique “Predatory Debt Relief Loan” program, Sandra was able to escape the massive triple interest debt. Now she is able to 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 interest rate on consumer installment loans at 36%.
“There is no stretch of the imagination that a 175% interest rate is conscionable,” former State Senator Dede Feldman says.
On Tuesday, the legislative measure that caps installment loan interest at 36% (SB66) passed the State Senate 25-14. The bill now goes to the State House for consideration.