Judges won't hear payday loan cases
Galanis: Loan terms 'unconscionable'

By Zsombor Peter
Staff Writer

GALLUP — Local payday lenders and their overdue customers have been waiting longer than usual for their day in court lately. According to Cynthia Sanders, chief clerk of the McKinley County Magistrate Court, the city's two magistrate judges have been recusing themselves from all payday loan cases for the past three weeks.

While it's not unheard of for judges to recuse themselves from an entire category of cases, said Karen Janes, director of the Magistrate Court Division of the state's Administrative Office of the Courts, "it is unusual."

"This is the first time I've seen it," said Sanders, whose been with the court for 25 years.

The McKinley County Magistrate Court deals with dozens of payday lenders seeking to garnish the salaries of delinquent customers every week. When judges recuse themselves, it falls on the county's district court to find judges in other counties to hear the case. If things go smoothly, Sanders said, the search shouldn't last more than a few weeks. If not, she said, it can take months.

Magistrate Judge John Carey declined to comment on the reasons for his recusals. Judge George Galanis summed up his decision in one word.

"Unconscionable is the key word here," he said, referring to his take on the terms most payday lenders demand for their loans.

According to the New Mexico Attorney General's Office, the interest rate on the average payday loan in New Mexico tops 500 percent APR. Industry representatives say they need to charge those rates to stay in business. But with two weeks in most cases to pay those loans off, their customers, critics counter, are too often forced to take out new loans to pay off old ones and eventually default.

"My job is never to hear any case where I have a pre-conceived opinion," said Galanis, who clearly sides with the critics, "so I don't think it's fair for the lender or the borrower for me to hear these cases."

"If I didn't believe in the death penalty, I couldn't conscionably sit on a case where the death penalty is an option," Galanis said. "That's just an example."

But even Galanis was hesitant to share all his thoughts on the industry or the reasons for his recusals.

Peter Kelly, an associate planner for the Northwest New Mexico Council of Governments who's helped council director and state Rep. Patricia Lundstrom push for legislative reform of the industry, believes the judges might also be fed up with the payday lenders clogging their dockets.

Even in McKinley County, Janes said, home to one of the busiest magistrate courts in the state, civil cases should take up less than 10 percent of the load. But even that, according to Sanders, accounts for 1,605 cases since last July. She estimated two-thirds of those come from payday lenders.

"(Carey and Galanis), I think, are sick and tired of being bogged down by what they consider these frivolous lawsuits," said Kelly. "I think they're trying to send a message to the payday lenders and say, 'Look, this is frivolous litigation.' "

With all the magistrate judges around the state still willing to entertain the lenders, Galanis doubts his recusals will keep any borrowers out of court.

Mike Pyles, the former owner of Gallup Payday Loans, believes Carey and Galanis are simply shirking their duties by consistently recusing themselves. But according to Janes, they have every right.

"Judges have not only the right but the ethical duty to recuse themselves" when they believe they cannot preside over a case fairly and objectively, she said.

But by refusing to hear the cases, Pyles said, Carey and Galanis are making it harder for the lenders to collect on the money they're legally due. And if that eventually forces lenders to close shop, Kelly added, it could also make it harder for locals to find lenders, a consequence he conceded some consumer advocates might not mind.

At some point, Janes said, the county's district judges, wielding their supervisory control over the magistrates, could order Carey and Galanis to stop recusing themselves from payday loan cases, although Carey and Galanis could still appeal to the New Mexico Supreme Court.

Galanis won't say how long he plans on recusing himself or what might convince him to stop, offering only that nothing lasts forever.

If there's anything at all on the horizon that might change their minds it's a list of new payday lending regulations Gov. Bill Richardson and Attorney General Patricia Madrid unveiled Thursday. While the pair do not propose an interest rate cap per se, Richardson and Madrid do propose a flat fee of up to $15.50 for every $100 borrowed, whether on a new loan or a renewal, and limiting the size of the loan to 25 percent of the borrower's gross monthly income. They would also give the borrower sole discretion over renewing a loan two times and, after that, the option of entering into a 130-day repayment plan with no additional fees.

Gilbert Gallegos, the governor's deputy director of communications, expected the proposal to be finalized and implemented no sooner than mid-July, following an opportunity for public comment.

That's assuming the payday loan industry which insists that the Legislature alone has the authority to regulate its practices does not tie up the plan with legal challenges, as it's done to a stricter set of rules Madrid proposed several months ago.

The payday loan industry has experienced substantial growth across the state during the past decade, and in few cities more than Gallup. According to data from the state's Regulation and Licensing Department, Gallup is home to the fourth highest number of payday lenders in the state with 17 and the second highest per capita, just behind Los Lunas.