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Stop the Assault by Predatory Lending Thumbnail

Stop the Assault by Predatory Lending

Physical assault is a crime in every state, yet strangely, financial assault is an accepted way of doing business.

Wait, is that real — financial assault?

Sadly, in New Mexico, it is and it’s legal. You might know it by other names — predatory lending or payday loans.

Predatory lenders are one of the worst forms of destructive capitalism, charging exorbitant interest rates on small loans to desperate people. Predatory lending is merely abusive in most states, charging a maximum annual interest rate of 36 percent.

In New Mexico, the interest rate cap on predatory loans is 175 percent, which is shameful even in the world of finance. It goes beyond financial abuse and is financial assault.

One hundred and seventy-five percent interest is so bad that the U.S. military put a cap of 36 percent on what predatory lenders can charge our troops in any state. Otherwise, it impacts our armed forces’ combat readiness. Service personnel who are deeply in debt are both distracted and a security risk.

Here’s how financial assault works: Mary Shay on the Navajo Nation needed firewood for the winter, so she took out a small loan worth a few hundred dollars. But when the loan was due, she couldn’t pay it all off, so she took out another loan to pay the first loan, which the predatory lenders wanted and expected to happen.

That’s their business model.

Of course, Shay was in the same predicament when the next loan was due and the next. A decade later, Shay owed $600 a month on half a dozen loans.

Our interest rate laws also create a poverty trap that siphons hundreds of millions of dollars from our state each year.

In 2019, the New Mexico Regulation and Licensing Department reported New Mexicans paid $220 million in fees and interest on predatory loans, 80 percent of which goes to out-of-state corporations.

These national corporations are like sharks in a feeding frenzy, which is why we have 10 times more predatory lenders than McDonald’s restaurants per capita, the worst ratio of any state.

And these practices are racist, too. Nearly 60 percent of New Mexico’s small-loan lenders are located within 10 miles of a pueblo or tribal reservation, according to the New Mexico Center on Law and Poverty.

We need to end the cycle of financial assault inflicted on our community by predatory lending.

So why does this problem persist?

Between 2006 and 2020, legislators from both parties introduced nearly two dozen bills to lower the cap on short-term interest rates — but they all died. Why? Because predatory lenders give donations to state parties and elected officials and hire teams of professional lobbyists.

In contrast, the poor people harmed by predatory lending don’t have money to line politicians’ pockets.

The individuals of both parties who accept political contributions from predatory lenders are like the money changers in the temple that Jesus threw out on their backsides.

Yes, I know that I’m being melodramatic, but as a former monk whose monastery went bankrupt because of predatory lending practices, I think I’ve earned my outrage.

Fortunately, we can quickly fix this problem. Sen. William Soules, D-Las Cruces, deserves praise for introducing Senate Bill 66 in this legislative session. SB 66 would align New Mexico with most states and the U.S. military’s rules to cap predatory loans at 36 percent interest.

And Think New Mexico, the nonprofit, nonpartisan think tank, has helped secure support for SB 66 from many key legislative players, including Gov. Michelle Lujan Grisham.

Route 66 brought economic life to New Mexico, and Senate Bill 66 can help do the same.

Every legislator who opposes SB 66 this legislative session will have a stain on their souls that voters should never forgive or forget.

But will you do your small part to help the poor and oppressed?

How about a quick email to your legislators in support of SB 66?

You can find your legislators’ names and contact information by typing in your street address at openstates.org.

And always remember: Your income is from someone else’s spending. Raise up your neighbor, and you raise up yourself.

Doug Lynam is a partner at LongView Asset Management in Santa Fe and a former monk. He is the author of From Monk to Money Manager: A Former Monk’s Financial Guide to Becoming A Little Bit Wealthy — And Why That’s Okay. Contact him at douglas@longviewasset.com.

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