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Payday loan bill revised

February 12, 2006 - Gallup, New Mexico

A bill that would impose new consumer protection rules on the payday lending industry continues its march through the New Mexico Legislature this week. But it's not quite the bill it was when it first showed up in Santa Fe.

Rep. Patricia Lundstrom, D-Gallup, said she didn't mind the changes her House colleagues have made to the bill she introduced. But it's only driven the groups at either extreme of the debate further apart. Some industry representatives still resent the fact that they're being singled out at all. The most staunch consumer advocates didn't think much of the bill to begin with, and say the changes only make it worse.

Legislators have been wrestling with the idea of regulating the payday lending industry, which offers cash advances against a customer's paycheck, for years. Many believe their short repayment terms and high interest rates averaging more than 500 APR according to the New Mexico Attorney General's Office trap customers in cycles of debt.

The centerpiece of Lundstrom's bill, as introduced, proposed a cap on how much a customer could borrow from a lender at either $1,000 or 25 percent of his or her gross monthly income, whichever was less. It also proposed charging borrowing fees that, according to Lundstrom, would effectively limit interest rates to 92 percent.

The bill was doing fine until it reached the House Judiciary Committee, which voted it down. It its place, the committee approved a substitute that kept most of the bill's original language, but raised the cap on a loan to $1,500 or 30 percent of a customer's gross monthly income.

Lundstrom said she accepted the changes, and that religious groups and the AARP had no problems with them either. Lundstrom herself had proposed a $1,500 cap in previous efforts to regulate the industry.

So why the $1,000 cap in her latest effort?

The bill Lundstrom introduced was actually the child of a task force Gov. Bill Richardson convened last year to come up with a list of regulations that actually had a chance of passing the Legislature in 2006. For all the group's diversity, it managed to find common ground on a majority of ideas. But even after eight meetings over the course of three-and-a-half months, consensus on a few critical points eluded them.

Among those points: how to cap the amount of a payday loan.

"Obviously (the bill) is not a consensus of the task force," said Chris Cervini, Lt. Gov. Diane Denish's chief of staff, "but it is a reflection of the ideas of the task force."

General Services Cabinet Secretary Arturo Jaramillo, who helped draft the bill, said most of the task force agreed on $1,000.

Some industry representatives were pushing for at least $1,500 from the start.

Stephen Solomon, an attorney for Fast Bucks, which has an outlet in Gallup, feels like people are picking on the payday industry for no good reason.

"Why should payday loans be targeted and restricted?" he asked. "Our product lets our clients keep their lights on, their homes warm."

If New Mexicans didn't want their services, he said, they wouldn't keep walking through their doors. The state has seen a proliferation of payday outlets across the state over the past decade, perhaps nowhere more than in Gallup.

"If there wasn't a need, there wouldn't be so many stores," Solomon said. "Consumers speak with their feet."

Not even the industry's harshest critics say New Mexicans should not be able to access payday loans. They just want to make sure they can all do so on reasonable terms.

Jeanne Basset, director of the New Mexico Public Interest Research Group, appreciates Lundstrom and every other government official willing to take on the issue, but she does not believe the Gallup representative's bill does the job.

The fees she's proposing aren't nearly as affective as a strict cap on interest rates, said Basset, who'd prefer a maximum APR of 54. And by not giving customers more than the 14 days most customers currently have to pay back their loans, she added, the lenders will keep trapping customers in cycles of debt that often take several months even years to get out of.

Not only does the substitute bill not mandate a longer repayment period, it does not even guarantee 14 days.

"The bill will not stop the debt treadmill, and that is our main concern," she said. "It's great they're trying to do this, but let's do it in a way we know helps (borrowers) get out of the debt trap."

The substitute version of Lundstrom's bill passed the House 63-4. Its next stop is the Senate Judiciary Committee.

News Source

Gallup Independent, Zsombor Peter, Staff Writer

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