Ethics and Predatory Lending Bill
“You think you’re a big shot. I own you, and I own the legislature,” the liquor industry lobbyist said, speaking loudly at Santa Fe’s La Fonda hotel to a banquet hall full of lawmakers and press.
This legendary event happened in January 1963 during the annual “Hundredth Bill Party”. As the legislative session winds down, it’s a good story to help us remember where we came from.
Here is the story borrowed from David Roybal in his biography of the late lawmaker and reformer, Fabian Chavez Jr., titled “Taking On Giants.”
The lobbyist was Frank “Pancho” Padilla, who would have been a competent lobbyist except while intoxicated. He accosted Chavez, who was sponsoring liquor reform legislation. “I bought you a thousand times,” he added.
At that time, Roybal explains, New Mexico law required liquor sellers to mark up the price of their product by certain minimums. Read this sentence again; it’s hard to believe. Wholesalers had to mark up at least 17.5% on whiskey, 25% on wine and 20% on beer. For retailers, the minimums were 38.8% on wine and whiskey and 25% on beer.
In other words, liquor merchants were required by law to maintain windfall profits. No wonder they thought they belonged to the state. To justify this practice, the argument was that the mark-up protected small companies from unfair competition from large companies. Years later, that struck me as absolute nonsense.
Kind of like the predatory lending nonsense.
Lenders who charge 175% interest to very poor people are doing them and society a favour, says the absurdity, because otherwise they would have no recourse. Lenders are doing them the huge favor of trapping them into never being able to get out of debt.
We finally have legislation, passed and awaiting the Governor’s signature, to replace this outrageous interest rate with a cap of 36%. The 36% cap is set by many other states and is in federal law for active duty military personnel. It has been studied extensively and found to be feasible.
So why on earth did New Mexico take so long to sort out this national embarrassment?
When the legislation was introduced in 2021, co-sponsor Rep. Susan Herrera, D-Embudo, said she couldn’t get the votes she needed. “You know elections are bought and sold by this industry,” Herrera said of payday lenders. The language sounded awfully familiar.
Think New Mexico, a public interest advocacy group, has made this issue a top priority for a few years. They tried to pair it with a proposal to require financial literacy courses as a prerequisite for high school graduation, but that was dropped.
(I disagree with the financial literacy proposition. High school is too late. The students who need this training the most are the ones who won’t graduate, so financial literacy education should start in fourth or fifth grade.)
It is worth reading the 2021 in-depth analysis by New Mexico Ethics Watch (www.nmethicswatch.org) entitled “Big Interest in Small Loans”. The report analyzes the influences that have swayed lawmakers on this issue — including some high-profile lobbyists.
The excuse that poor borrowers will be left behind is, pardon my French, horse hockey. If the storefront lenders all close, another business model will emerge that can make a profit on 36%, like credit unions. They testified in favor of the bill. It is capitalism.
Please consider asking your own representative, in person, how he or she voted on this issue. Any legislator who voted against this reform does not pass the ethics test.
I would have liked to take a high moral stance and recommend that you vote against these legislators in November. Here is the only problem. Their opponents could be worse.
Contact Merilee Dannemann by www.triplespacedagain.com.