Predator or Prey?
Lenders, customers, state officials give opposing views of the payday lending industry in New Mexico

The average annual percentage rate on new payday loans is 542 percent, according to a report from the New Mexico Financial Institute Division. The report was based on information from 79 small loan licensees. Payday loan industry representatives claim using APR is unfair because most loans are short-term. [Photo Illustration by John A. Bowersmith]

By Zsombor Peter
Staff Writer

GALLUP — Anyone listening in on the public hearing inside UNM-Gallup's Calvin Hall Auditorium Thursday evening on Attorney General Patricia Madrid's proposal to impose new rules on the state's small loan lenders would have heard a tale of two cities.

There was the Gallup brimming with benevolent lenders helping their customers out of their financial binds and going out of their way to make sure the public never needs their business. Then there was the Gallup infested with predatory lenders preying on desperate victims and reaping obscene profits.

The attorney general believes in the latter view of not only Gallup, but the state. She's proposing to cap the interest rates the state's payday and car title lenders charge at an annual percentage rate (APR) of 54 percent. Now free to charge what they wish, the industry's rates average 542 percent and sometimes soar into the thousands. Madrid would also give borrowers a minimum of four months to pay back their loans, and forbid lenders from awarding a customer a new loan to pay off an old one.

Madrid's staff hosted the Gallup hearing the last of five hearings around the state to gather public input before she decides by Nov. 21 whether to go ahead with her plan.

It was an appropriately divisive hearing complete with lobbyists and Madrid staffers lobbing insults at one another and payday customers fighting back tears to recount their ordeals on an equally divisive issue.

Opponents claim the rules will drive the industry out of the state.

At 54 percent APR, said Steve Solomon, an attorney for the national lending chain Fast Bucks, the company's New Mexico stores will earn $2.07 on every $100 they loan.

"For $2.07 on every $100 loan, we will be put out of business," he said.

Proponents of Madrid's plan, who acknowledge the need for payday and car title lenders but demand more protection for consumers, call that nonsense.

Just as people with bad credit will always have a need for loans, reasoned McKinley County District Attorney Karl Gillson, the payday and car title industry will always have a demand to meet.

With state laws regulating everything from alcohol sales to the burrito an elderly lady sells at a laundry mat, he said, small loan lenders ought to live by some regulations of their own.

Opponents say they're regulated already. Industry lawyer John Rabenold held up a thick three-ringed binder filled with the conditions a payday lender must meet before opening for business.

Proponents say those regulations aren't strict enough.

The interest rates those lenders charge, they claim, trap borrowers into cycles of debt in which they're forced to keep refinancing or rolling over their loans to pay off the principal. According to industry reports, the average customer rolls over a loan four times before paying it off. According to the Attorney General's Office, the number, based on anecdotal reports, is closer to 10.

To hear Solomon tell it, his company despises rollovers as much as its customers. But the company's Web site tells another story. It entices prospective franchise owners with the promise of high profits "due, in large part, to rollovers.

"80 percent of our customers will come back before payday and pay the fee and roll over the original loan," the site reads. "Now they owe the fee again on the same loan."

Some at the hearing knew that all too well.

Earl Milford said he was in the process of paying off not one loan, two loans, three loans, or even four, but 23, "so you can't say I don't know what I'm talking about."

"They try to tell you that they're helping you," he said. "These companies work on the weakness of man."

"They don't care if you starve to death; they want their money ... They don't care about your credit; they want that money," Milford continued. "They're not helping the people; they're hurting the people."

Lloyd Becenti told the crowd of losing his jewelry business after spending more than $10,000 to pay off a pay-day loan that was worth a fraction of that.

According to the Attorney General's office, Gallup has the highest per capita rate of lenders in the state, with one store now for every 500 residents.

"That tells me that it's a needed and wanted service the community has decided to use," said Sally Ellison, a Fast Bucks employee in Albuquerque.

It tells Kimberly Ross-Toledo something else.

The industry's ubiquity in Gallup, she said, "is primarily because we are a people of color, we are oppressed, and we live in poverty."

"The reason we have more of these operations in Gallup ... is because these predators are preying on poor people," Gillson agreed.

State Rep. Patricia Lundstrom, D-Gallup, still committed to pushing for a legislative solution after two failed attempts at passing more industry regulations, doesn't believe Madrid even has the authority to impose or enforce any new regulations without new laws from the Legislature.

Industry representatives have predicted a legal challenge should Madrid try implementing her plan.

If she does, said Chris Coppin, special counsel to the attorney general, the new rules would not take affect any sooner than late December.