High interest, small dollar loans are abundant in New Mexico. Businesses offer quick cash payments for people who need money right away. But the interest rates on these loans can be as high as two thousand percent, and many people are unable to pay them off.
This is especially true in the state's low-income communities. Statewide, storefront lending businesses outnumber fast food chain restaurants.
People here took out nearly 300,000 of these loans in 2013, often to cover emergencies, or to buy groceries when times were tough. The average interest rate? Well over 300 percent.
Ben Francisco lives on the Navajo reservation near Gallup. Now in his mid nineties, he started working for the railroad in 1927, and only recently retired.
Speaking through a Diné interpreter, Francisco said he went to a storefront lending shop when his daughter fell ill with cancer and he needed gas money to drive her to her treatments. He took out a hundred dollars here, then another couple hundred there, and soon he was in way over his head.
At the beginning of each month, Francisco turned over his retirement and social security checks to the lenders. But that left him without enough money for food or utility bills. His payments on the loans, which had triple-digit interest rates, ballooned until he couldn’t pay them.
Jean Phillips is an attorney for New Mexico Legal Aid in Gallup, who’s helping Francisco with his debt problems. She says cases like his are far from unusual in Gallup, where there are more loan stores per capita than anywhere in the state.
"Over and over again I’ve seen clients who have gone at the beginning of the month, emptied out their bank accounts to pay all their small loans, and then gotten behind on their rent, gotten behind on their utilities, not been able to buy groceries," she said. "I’ve seen people go hungry, I’ve seen people lose their homes over this."
Phillips said Medicaid would have covered Francisco’s daughter’s transportation to medical treatments. But she explains, low-income people often aren’t aware of programs and services that are available to them, so they turn to storefront lenders first.
"The business plan of these predatory lenders is they go to where the access to capital is difficult or hard," said Marvin Ginn, who runs Native Community Finance, an organization that offers financial literacy courses and low interest refinancing of storefront loans in Laguna Pueblo. "The highest interest I’ve refinanced was 1,018 percent. The most recent highest in the past two or three months has been 719 percent."
Ginn said creating alternatives to these loans can have profound benefits for communities saturated with promises of quick cash.
"Some of it may be bad for people," said Sun Loan Executive Vice President Andrew Morrison. "But clearly poorer people need access to credit as much, if not more than rich people. So it's important to have people market to them and provide those services to them."
Morrison says storefront lending shops have to charge more interest because a low interest rate on many small loans doesn’t generate enough income to support their businesses. But he does agree that the storefront lending industry in New Mexico should be regulated more heavily.
A recent proposal to cap interest rates at 36 percent was tabled in the state legislature after strong opposition from the lending industry. Morrison says several other proposals have the potential to offer consumer protections and keep sources of credit within reach of New Mexico’s low income residents.
But according to advocates for capping interest rates, those proposals would not prohibit the triple-digit interest rates and high fees that can trap people in a cycle of debt.
KUNM's Public Health New Mexico project is funded by the WK Kellogg Foundation
