Find compromise on payday lending

Truth is, poor people need a place to borrow money. Because they often are bad credit risks, lenders are not going to hand over money to folks who might not be able to pay. To meet the need, an industry that either provides a necessary service or preys on the poor — and which it is depends on your perspective — has grown up, promising short-term loans so that people can get the money they need in emergencies.

Make no mistake, though. Payday lending is a cutthroat business, with interest on loans averaging 350 percent in New Mexico, and stories of people hounded by lenders common. A person can borrow a few hundred bucks, only to watch the 300 bucks borrowed turn into thousands owed.

That’s no surprise. Lenders aren’t handing out money because they have big hearts. They want to make money. Lots of money. With some 30 percent of New Mexico households reported to resort to what are called “alternative financial services,” lenders rake in the bucks. That’s why lobbyists for the payday lending industry have spent $866,000 influencing lawmakers since 2010. They want to make sure that state laws keep predatory lending legal.

Once again this legislative session, lawmakers sought to cap the interest that payday lenders can charge. Reform proposals would limit the lending rate to 36 percent — still high enough for lenders to make money, as well as in line with other states and with federal guidelines that set caps on loans to military personnel. That reform legislation, unfortunately, is dead.

A compromise bill still has a chance to pass and make it to the governor — not much of one, but a chance. This “compromise,” supported by the industry, would limit interest rates to 175 percent, hardly low enough but better than 350 percent, we’d argue. That legislation — whether a House or Senate version — could die in the session’s last three weeks. It doesn’t have to, though.

Here’s where actual compromise would be useful. No, 175 percent a year is not a decent interest rate. Yes, we — and consumer advocates everywhere — want lower interest rates and better business practices that do not prey on the vulnerable. Recognize, though, such reform will not happen in the near future. So, rather than refusing to budge, reformers should take the 175 percent cap this session. Concentrate on getting the bill passed. Then come back and get lower rates in a future session.

Because, as the saying goes, don’t make the perfect the enemy of the good, or in this case, the barely adequate. Payday lenders and their lobbyists have sunk their claws into lawmakers. Rep. Debbie Rodella, a Democrat from Española, heads the House Business and Industry Committee, where at least three bills that regulate lending have died in recent years. It’s hardly coincidence that lenders have given her $18,200. Former Democratic state Sen. Phil Griego, whose Senate Corporations and Transportation Committee was notorious for killing lending reform, had received $18,400 before resigning in 2015 in the midst of an ethics scandal.

Donating to legislators and other elected officials — including $16,400 to current Attorney General Hector Balderas and $30,000 to former Attorney General Gary King — is a practice that works. Gov. Susana Martinez has received $64,700 from the industry. Both Republicans and Democrats don’t seem to mind taking these donations, a New Mexican report by Steve Terrell reveals.

Consumer advocates would be smart to take the current, even unsatisfactory compromise. A rate of 175 percent is better than the average of 350 percent and certainly improves on high rates that can hit as much as 600 percent. Take the compromise, but don’t stop there.

Reformers can look for better ways to help poor people borrow money in an emergency. Banks gave up the practice because it was too costly. But the need for short-term loans remains. That’s why people go to storefront lenders. A family might need $600 to pay for a funeral or to fix the car. With no savings in the bank, poor people lack choices. Part of reform has to be finding ways to offer alternatives — places where a person without a bank account can cash a check, transfer money and get a short-term loan that won’t double or triple in a few weeks.

Those reforms aren’t happening anytime soon. What could happen, if the squabbling stopped, is approving a cap on interest rates that would save borrowers money. Progress — even small steps — sure beats standing still.