Borrowed Time: Predatory Lenders vs. Native Americans

Great White SharkWhen President Barack Obama comes to New Mexico on Thursday, he’ll apply the considerable power of his presidency to the problem of credit card consumer abuse.

In a speech at Rio Rancho High, Obama will endorse current federal legislation that would force the powerful credit card companies to outlaw sudden interest rate hikes, unfair penalties and hidden fees while prohibiting them from giving cards to anyone under 21.

This consumer advocacy is welcome, coming from the only people with the power to actually make the hugely profitable industry retract apparently arbitrary policies that hurt millions of Americans.

But the shameful practices of the credit card companies are just one leg of a sticky web of predatory lending practices that include car title loans, payday loans and tax refund anticipation loans.

That point is borne out shockingly in a new report that says New Mexicans living in counties with high Native American populations paid more than $12 million in fees in 2005 to obtain tax refund anticipation loans, or RALs. The loans, which are unregulated in New Mexico, can carry interest rates of up to 500 percent.

The report, Borrowed Time: Use of Refund Anticipation Loans Among EITC Filers in Native American Communities, was done by the Colorado-based First Nations Development Institute and the Center for Responsible Lending.

The report looked at New Mexico counties with high Native American populations and focused on filers who received the Earned Income Tax Credit, a refundable tax credit that’s only available to low- and moderate-income workers.

Estimating that each filer paid about $250 for tax preparation and special refund anticipation loan fees, the report concluded that thousands of the poorest New Mexicans shelled out at least $12 million to obtain their loans – effectively wiping out the advantage the tax break was supposed to provide to their families in the first place.

It may be a long shot, but the local tax policy group New Mexico Voices for Children is hoping the president takes time while he’s here to address the problem of tax refund anticipation loans in New Mexico.

“RALs are entirely unregulated in New Mexico, and tax preparers aren’t even required to disclose their interest rate,” said Bill Jordan, policy director with New Mexico Voices for Children. “We’ve been working toward consumer protection on RALs in New Mexico, but legislation in this last session got nowhere,” said Jordan. “A lot of legislators believe this issue really needs to be addressed on the national level. It’s time to shine a light on these predatory RAL practices…and no one can do that better than the president.”

Education (and a little bit of regulation) plays a huge part in the three recommendations made in the report: Set up more IRS Volunteer Income Tax Assistance (VITA) sites where low-income New Mexicans can get help with their tax returns at no cost and RALs are not available; cap the interest rate lenders can charge for RALs; and launch an education campaign about RALs in Native communities.

Here’s the full 10-state report by First Nations Development Institute and the Center for Responsible Lending is available online.

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