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Consider options before going to a payday lender

July 15, 2006 - Albuquerque, New Mexico

David Seely feels like scratching his head when he hears payday and car-title loan companies squawking about being squeezed out of business if New Mexico caps interest rates at 36 percent or 54 percent or 60 percent.

Seely is president of Kirtland Federal Credit Union, which makes small, short-term loans to its members at a federally mandated interest rate cap of 18 percent -- or less.

"We do very well at that rate," Seely said during an interview in his office at Louisiana and Gibson boulevards Southeast.

He said payday loan regulations proposed by New Mexico are a good first step in regulating the "predatory loan industry," but he regrets the regulations don't include an interest cap.

"It could be 36 percent or 48 percent," he said. "It needs to be something less than nothing at all. If we can live at 18 percent, why can't they live at some multiple of that?"

John Rabenold, vice president of government affairs with Check 'n Go -- a Cincinnati-area company with 1,300 payday stores in 33 states, including New Mexico -- has an answer.

He said credit unions can get by on 18 percent interest because they are nonprofit companies that don't pay taxes. He said that when the rare credit union, such as Kirtland Federal, offers small, short-term loans, it's only a small part of their overall business.

"Small loans is something they can do and not miss, but small loans are 100 percent of our business," Rabenold said. "In our business, a 90 percent or even a 100 percent (annual interest rate) cap means you can't pay for bringing the product to market."

Still, Albuquerque consumer advocates Diana Dorn-Jones and Vicki Plevin agree that the state should mandate an annual percentage rate cap that is at least somewhere shy of 100 percent and should require terms that give borrowers at least 90 days to 120 days to pay back loans.

"Studies show that's the average time it takes people to pay off loans," Plevin said.

Right now, in unregulated New Mexico, payday lenders charge an average annual percentage rate of more than 560 percent for loans that are due to be paid back in two weeks. Car-title lenders charge an average annual percentage rate of more than 322 percent on loans due in 40 days.

Proposed regulations -- which represent a compromise hammered out by Gov. Bill Richardson and Attorney General Patricia Madrid's offices and could go into effect as early as next month -- not only lack an interest cap but give borrowers just 14 days to 35 days to pay the loan back.

"We are not happy with the (proposed) regulations," Dorn-Jones said.

Plevin said they are especially concerned about a regulation that limits the amount of a loan to 25 percent of a borrower's gross monthly income.

"That's huge," she said. "Especially if you have to pay it back on a low-gross income."

Plevin is director of the Project Change Fair Lending Center, part of the United South Broadway Corp., a nonprofit community-development corporation that Dorn-Jones leads.

They talked about payday and car-title lending recently in Dorn-Jones' office in the old John Marshall Elementary School building on Walter Street Southeast.

Plevin said they have seen people who mortgage their homes to pay back payday or car-title loans.

"We tell them to do anything else -- borrow from Aunt Susie, but don't mortgage your home," she said.

In an effort to help, Project Change offers free workshops aimed at training New Mexicans to protect themselves and their communities from predatory lending.

Dorn-Jones said creating small, grass-roots, neighborhood credit unions to help people out of tight spots might be an idea worth investigating.

Kirtland Federal Credit Union -- whose members include military personnel assigned to Kirtland Air Force Base as well as New Mexico National Guard members and the state's military reservists -- works with the Air Force Family Support Center to provide financial education for the military, especially Air Force personnel serving in their first duty station.

Seely said Kirtland Federal loan officers teach classes of up to 40 Air Force personnel about how to manage money and alternatives to payday loans.

According to Angelica Anaya Allen, state assistant attorney general in the consumer protection division, military families are prime targets of payday and car-title lenders because military people are not well paid.

She said one recent survey indicates that 9 percent of all enlisted personnel and 12 percent of all mid-level, noncommissioned officers use payday lenders.

But Seely said that has not been a pronounced problem among the military ranks in Albuquerque, due, he said, to the proactive approach taken by the air base and Kirtland Federal.

Seely said Kirtland Federal tries to go the extra mile in other ways, too, offering a 6 percent annual rate on small loans made to military personnel about to deploy.

"We don't make money on deployment loans," he said. "But we take the philosophy that we are here to serve our members. We find value in that, and as long as we stay in the black, we're OK."

Seely said there are other credit unions with the same philosophy, but overall he said banks and credit unions could be doing more to help out the little guy.

He said the climate for the rapid growth of predatory loan businesses was created because financial institutions have lost sight of their requirements -- under 1977's Community Reinvestment Act -- to meet the credit needs of their communities, including low- and moderate-income neighborhoods.

"Banking has changed," he said. "It used to be locally owned banks with local concerns. Now, there are huge, nationally owned banks more interested in commercial and business loans than in small loans.

"If you walked into a bank and said you would like to get a loan to buy a car, they'd probably say, 'Well, please do that at the dealer.' "

But, Dorn-Jones said, walk into a payday loan store, and the employees there are your new best friends.

"They cozy up to the consumer and become sort of like financial advisers," she said. "And all the while charging him 800 percent interest."

News Source

The Albuquerque Tribune, Ollie Reed Jr., Tribune Reporter

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