Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.
By definition, predatory lending benefits the lender, not the borrower, and ignores or hinders the borrower’s ability to repay the debt. These lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms or finances in general.
Predatory lending is a huge problem in New Mexico — there are more loan sharks in New Mexico than fast food restaurants and interest rates on these small loan products can rise to almost 2,000%.
Luckily, there are a number of bills that have been introduced this session to combat these destructive practices. One of those bills — Senator Bill Soules’ SB 72, Loan Interest Rate Caps — will have its first legislative hearing this afternoon. Senator Soules’ bill would cap interest rates for these loans at 36% — a number 6 out of 7 New Mexicans favor, according to a 2014 poll.
A website has been set up by the New Mexico Fair Lending Coalition with tons of great information about predatory lending, it’s effect on our economy, and the solutions being offered to remedy this dire situation. Go to www.LoanSharkAttack.com to learn more, but here are a few of the most telling facts from the site:
There are more state licensed loan shark locations than chain fast food outlets in the state of New Mexico. There are currently 684* small loan licensees typically charging 200% to 2000% interest on loans, while only 405 fast food locations are listed in the online business directory Manta.
A single mother of three, Henrietta Charley had monthly take home pay of $1,300. Her monthly expenses before food and gas exceeded $1,000. She took out a $200 one year loan from a New Mexico lender to cover a cash shortfall. Finance charges on the loan totaled $2160.40. (NM Supreme Court Records)
Title loans are effectively banned in 30 states. New Mexico is one of only thirteen states that have no interest caps on title loans up to $2,500 at all. 29,700 low income New Mexicans took out one month title loans in 2013. The average borrower spent $1721 to repay a $769 loan after renewals.
High cost small loans cost jobs. A recent independent study shows that for every dollar spent on expensive payday loans, the economy loses $.24 in purchasing power. That’s money that could have been spent with local merchants and created local jobs*. The problem is worse in New Mexico where five out of six loan stores** are owned by out of state corporations so the profits go out of state. So while loan stores do hire folks, they get lots more folks fired. They cost New Mexico a net of about 500 jobs in 2013 using the calculations in this study. (*Insight Center for Community Economic Development. ** New Mexico Department of Regulation & Licensing)
Senator Soules’ SB 72 will be heard in the Senate Corporations and Transportation Committee at 2:00p (or a half-hour after the end of the Senate floor session) in room 311 of the State Capitol.