Loan Sharking in New Mexico and a Washington Cure

Well enough time off recovering from the holidays and a nasty case of something I picked up along the way. Time to get back to reality.

Fortunately, Felix Salmon furnishes just such a dose this evening. He writes of a particularly egregious case of payday lending in New Mexico.

In the case cited, Felix reports the case of a borrower who took out a loan for $100 with a whopping 1147% APR. Yes you read that correctly, one thousand one hundred forty seven percent. He properly calls it loan sharking.

He, however, sees this as a perfect example of why we need a Consumer Financial Protection Agency:

I hope that the New Mexico attorney general does manage to get these loans deemed illegal. But in any case one look at them is enough to prove that they’re not in any way being priced off of credit risk — the lenders are likely to make a massive profit even in most cases where the borrower defaults. This is loan sharking, pure and simple — and, for the time being, it’s legal. Isn’t it about time that we have a Consumer Financial Protection Agency which could put an end to this kind of thing?

Apparently he believes that the New Mexico attorney general and the good citizens of that state are incapable of or unwilling to step in and put an end to this sort of thievery. Ergo, we need the federal government in the form of a newly created bureaucracy to show them the path to righteousness. I disagree.

The mere fact that this case has been brought to light and that the authorities in New Mexico are advocating the rights of this unfortunate borrower argues in favor of letting them solve the problem themselves. From the article, it appears as if these types of lenders have found a loophole in the state’s laws and are abusing it. It would seem quite logical that the state might well recognize their legislative error and correct it without any help from Uncle Sam.

Personally, I find this less an argument in favor of some new consumer regulatory authority and more a rather refreshing example of local government coming to the assistance of one of its citizens who has been wronged.

I’ll leave it up to you to decide if a Washington commission would have performed this effectively.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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