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Payday Loans Go Unchecked
Thursday, February 23, 2006

By John J. Kelly, chairman
Governor's Task Force on Payday Lending
    Many New Mexicans live from pay check to pay check without significant savings, and without access to reasonably priced credit to take care of the unexpected doctor bill or to repair a leaking roof.
    The needs of these consumers were overlooked again this session when the Senate failed to pass payday-loan reform legislation.
    New Mexico is one of the few states with no usury law, and no limit whatsoever on the charge for a short term (two week) loan of $300. I was so embarrassed by the Legislature's inaction in 2005 on payday loans that I volunteered to facilitate a task force of consumer and industry representatives during the interim in an attempt to find common ground on the issue.
    This approach was enthusiastically supported by Gov. Bill Richardson and Lt. Gov. Diane Denish, and the goal of finding some compromise was largely achieved after seven long sessions of mediation.
    HB 490 would have substantially reduced interest rates on payday loans, provided an exit strategy for those consumers who were hooked on the loan product, and enacted into law a number of best regulatory practices that would have benefited consumers for years to come.
    HB 490 was a good bill and it was poised to become law until it was talked to death in a filibuster on the last day of the session by Sens. Bernadette Sanchez and Leonard Tsosie. Because of their filibuster, the 400 percent to 600 percent prevailing rate on payday loans will continue.
    Perhaps these two senators killed the bill because it was not a perfect bill. Certainly, the consumer-advocacy community sees it that way, but then so do the lenders. In fact a number of payday lenders would likely have closed their doors had the bill become law.
    There is a place in politics for principle, but on this issue ideology carried the day. HB 490 was a good compromise and an important first step in effectively regulating this consumer credit product. The moderates on both sides of the issue understood this point, but it was not their voices that were heard on the floor of the Senate last Thursday.
    So, who's going to suffer because of the stance of these two senators? Not the consumer lobbyists inside state government and out. They will surely be back next session in search of the elusive "perfect bill." Certainly not the industry representatives; they will continue to charge outrageous interest rates for another year secure in the thought that they were willing to compromise had the liberal wing in the Senate been willing to do the same.
    The only ones hurt by legislative inaction are the working people who need an extra $200 to pay this month's gas bill. Ironically, many of these consumers reside in Sen. Tsosie's part of the state— west central New Mexico— where there are more pay day loan shops per capita than in any other part of the state.
    Perhaps the senators expect the attorney general to find a way to regulate the industry under the Unfair Trade Practices Act. The AG has clearly stated her intention to do so, but those regulations have already been challenged in court and may never become effective.
    Payday lending has been a difficult issue for sure. But to come so close to a reasonable solution and to fail because of a filibuster by consumer advocates is most unfortunate.
   
John J. Kelly is a former U.S. attorney.