Delayed justice: Obliterating the 175% interest rate

One of my lowest moments as a newspaperman in Santa Fe occurred four years ago this week. Dazed after a 60-day legislative session, I stupidly allowed a “winner’s” designation to appear above a story about a controversial and predatory new law. The measure capped interest rates charged by storefront lenders at 175 percent.

My boss simmered when he saw the story in print.

“If people are paying 175 percent interest, what do they win besides a trip to bankruptcy court?” he asked.

He was right. The only winner in that story was the storefront lending industry.

It made almost 13,000 loans in New Mexico without any interest cap the year before the legislation.

One poor soul was paying an interest rate of 1,679 percent. Rates of 300 or 400 percent were prevalent before the cap.

But the storefront lenders weren’t going to suffer because of the reform.

One consumer-protection group calculated that a $5,000, four-year loan at 175 percent interest would saddle the borrower with a monthly payment of $730. Total interest on the loan would exceed $30,000.

New Mexico’s legislation establishing the 175 percent cap wasn’t a victory for consumers. It amounted to a baby step toward progress.

The 175 percent was better but still immoral — still a trap of endless debt for families trying to survive from one

paycheck to the next.

State Sen. Bill Soules, D-Las Cruces, was haunted and conflicted by the bill for the 175 percent cap.

He voted against the proposal while urging colleagues to support it.

“It was the toughest vote I’ve ever had to take in the Senate,” Soules told me.

He hated the bill. Still, Soules feared vulnerable people would end up paying even more exorbitant interest rates if the rancid reform measure failed.

But Soules has persevered. In turn, I have another chance at the story of predatory lending.

Soules in this year’s legislative session is sponsoring Senate Bill 66. It would cap interest rates on loans at 36 percent.

“Some people still get upset and tell me that’s too high, but 36 percent is the rate established in the lending act for military personnel. That’s what we’re trying to duplicate,” Soules said.

With help from many fairminded people, including the public policy organization Think New Mexico, Soules’ bill cleared the Senate on a 25-14 vote.

Twenty-four Democrats and Republican Sen. Gregg Schmedes of Tijeras voted to reduce the cap to 36 percent from 175 percent.

Thirteen Republicans and Democratic Sen. George Muñoz of Gallup opposed the change.

Soules’ bill cleared another high hurdle Friday. It advanced from the House Commerce and Economic Development Committee.

The bill still must get through the Judiciary Committee to reach the full, 70-member House of Representatives.

With Democrats in control of the House 45-25, Soules might be optimistic. He’s cautious instead.

“I’m taking nothing for granted,” he said. “Yes, we got the bill through the Senate and probably the toughest test in the House. But until it’s upstairs and signed by the governor, nothing has been achieved.”

In years gone by, storefront lenders said a 36 percent interest rate would cripple their business and end up denying the neediest people access to desperately needed loans.

This time, Soules had the perfect counterpoint. The Credit Union Association of New Mexico is supporting SB 66. It says it can provide loans at 36 percent or lower.

Soules and his camp have made some minor compromises. The bill’s effective date would be Jan. 1 rather than July 1, giving lenders more time to prepare for lower rates.

In addition, the bill contains an escalator if hyperinflation were to occur, as it did in the late 1970s and early 1980s.

Soules doesn’t see his bill as perfect. But his mood is brighter than it was four years ago.

He also started that session with the goal of capping interest rates by storefront lenders at 36 percent. Many of the state’s most powerful lobbyists attacked the bill, and they prevailed.

Back then, conservative Democrats were more prevalent in the Senate. They and the Republican caucus were swayed by the lobbyists.

“I pulled out when it became obvious that the payday lending industry was essentially rewriting the bill,” Soules said.

He and everyone else in the Legislature knows 36 percent would still be a heavy lift for many borrowers.

But they wouldn’t be lifetime slaves to the lender. The terror of a 175 percent rate would be limited to reruns of the The Sopranos.