GALLUP, N.M. – Short on cash six years ago, Carlotta Chimoni drove from her home in Zuni Pueblo to a small-dollar lender in nearby Gallup and took out a several hundred-dollar installment loan. “We had a family emergency and needed money,” said Chimoni, whose $22,000 teacher’s assistant salary is the only predictable income in her 11-person family.
Endless Debt: Native Americans Plagued by High-Interest Loans
But when Chimoni, 42, was laid up with migraines, she missed consecutive days at work and fell behind on payments. To avoid defaulting, Chimoni rolled the first installment loan into another one – and then another. “I ended up using loans to cover loans,” she said. By early 2014, Chimoni was carrying nearly a dozen loans from seven lenders, most with interest rates over 100 percent.
Hundreds of thousands of small-dollar loans are issued each year in Gallup and other New Mexico towns that border Native American reservations, according to New Mexico state lending data obtained by NBC. Most come with sky-high interest rates that can trap borrowers in an endless cycle of debt. Advocates including Human Rights Watch say that Native American communities appear to be more saddled with predatory loans than any other community in the United States.
On The Reservation: Taking Out Loans to Pay Loans
“These lenders are circling the reservations,” said Arvind Ganesan read this, director of Human Rights Watch’s business and human rights division, who has researched lending practices on reservations in multiple states. “Their business model is to look for the most vulnerable, poorest people and set up shop.”
Ganesan’s research, which surveyed nearly 400 Native Americans in New Mexico and South Dakota reservations, found that half had used small-dollar, usually high-interest loans-the kind of financial products advocates call predatory. It’s a rate far above the national average for small-dollar loan usage. According to research by the Pew Charitable Trust, 6 percent of Americans use payday loans, which are heavily regulated in New Mexico but which have been replaced there by similar installment and title loan products. Most borrowers take out multiple loans, and the majority do so because they lack the financial cushion to afford even modest unexpected costs, the Human Rights Watch research found.
On Zuni and Navajo land near Gallup, tribal laws prohibit high-interest lending on reservations. But those laws have little effect, experts say, because lenders don’t operate on tribal lands, forcing residents to travel to border towns for loans.
“The reservations are credit ghettos,” said Marvin Ginn, the director of Native Community Finance, a U.S. Treasury-chartered Native Community Development Financial Institution, which provides credit and financial services to the underserved. “When we come off the reservation, the easiest and sometimes only way to get a loan is through a predatory lender.”
Gallup, a city of 22,000, boasts the largest per capita concentration of small-dollar lenders in New Mexico, according to NBC’s analysis of public data on state licensed lenders. Strip malls are lined with at least 45 installment, auto title and tax refund lenders with names like Cash Man, Sun Loans, and New Mexico Title Loans, so ubiquitous they nearly fade into the background. In 2012, these lenders issued more than 52,000 loans worth $27.5 million with interest rates of at least 175 percent, according to the state data obtained by NBC.
Their customer base: The 200,000 people who live in or around Gallup and McKinley County, which has the state’s highest proportion of Native Americans-75 percent.
“Many people taking out these loans are just not financially savvy,” Ginn said. “Predatory lenders are draining resources out of our communities.”