by Brett McPherson, Public News Service – NM
May 8, 2017
SANTA FE, N.M. — Critics of a bill approved Thursday by a House panel say it could subject families in New Mexico to a resurgence in predatory lending.
The bill coming out of the House Financial Services Committee would repeal significant pieces of the Dodd-Frank Act. When housing and financial markets crashed in 2008, Wall Street reform and consumer protections were created to stop abusive practices by enhancing regulations on the financial services marketplace.
Professor emeritus Don Simonson of the University of New Mexico Anderson School of Management said he’s worried that the legislation – the Financial CHOICE Act – potentially could create that dangerous atmosphere all over again.
“The new act would repeal consideration of what’s abusive,” Simonson said. “Deregulation has led to tears, and it concerns me that we’re embarking on more of that.”
He said these days, New Mexicans are most commonly subjected to predatory lending through payday advances and car title loans. Passage of this legislation would allow states to obtain waivers against consumer protections for these services; potentially opening the flood gates for lenders to charge even beyond the 175 percent rates they’re restricted to now.
Backers of the bill have said it’s a matter of opinion whether lending of this kind is predatory in nature, and the responsibility rests on consumers to decide what kind of interest they’re willing to pay on borrowed money.
Simonson said with half of all families in New Mexico unable to meet an emergency expenditure of $400, small, short-term credit products can be useful for those with lower incomes. But, he said borrowers in the riskiest markets often aren’t informed enough to be knowledgeable about what financial businesses are doing regarding prices. Dodd-Frank has helped protect them from taking out loans under conditions they don’t fully understand.
“The guiding principle behind a consumer financial protection is the measure of fitting the terms of such a loan such that you don’t jeopardize the borrower’s ability to repay,” Simonson said.
He said removing protections from Dodd-Frank in the Financial CHOICE Act would allow families to go into debt that could leave them trapped on a treadmill they never get off.
The bill now moves on to the full House of Representatives, where a hearing has yet to be scheduled.
Copyright 2017, Public News Service – NM (http://www.publicnewsservice.org/2017-05-08/budget-policy-and-priorities/vulnerable-nm-families-could-lose-protection-under-financial-choice-act/a57584-1)