That loan led to more loans, a dozen of them, until she was funneling most of her income into interest payments
Mary Shay, 65, took out her first installment loan 10 winters ago when she couldn’t afford firewood for the two-room home she shares with her sister on the Navajo reservation 10 miles from Gallup.
“I thought they’d arrest me,” said Shay, who says the lenders started calling her at work, first at the hotel where she cleaned rooms and later at the Catholic Charities run thrift store where she works now. Shay can’t count the number of cold payday loans in Nebraska nights she passed without firewood, which she couldn’t afford due to interest payments.
Because she earns so little, it’s likely that if her lenders took her to court, the amount they would be able to garnish from her paycheck would be hundreds less than she had been paying in interest.
Tammy Lee, a 21-year-old Navajo woman, says taking out a small-dollar loan was the worst decision she ever made
Jean Philips, an attorney at New Mexico Legal Aid in Gallup, says the consequences of small-dollar lending reaches far beyond debt and can deeply impact a borrower’s life. Her clients regularly lose their cars and mobile homes to repossession. “I’ve had clients who’ve gone hungry because they are paying back their loans,” she said.
In , Lee, a soft-spoken new mother living on the Navajo Reservation, was living on about $11,000 a year and struggling to afford diapers when she took out a tax refund loan from a Gallup lender called Cash Cow.
Tax refund loans, which are to be repaid with an expected tax return, are common in New Mexico’s reservation border towns, the only places in the state where licensed lenders provide these high-interest loans, according to state data. Research by the First Nations Development Institute, a research and advocacy group, released in 2010 suggests that Native consumers were far more likely to take out a loan against their tax return than non-Native consumers.
Lee says she expected that Cash Cow would prepare her taxes and then give her a loan for the value of her refund, which she anticipated to be around $3,000 from the Earned Income Tax Credit.
According to Lee, she met with an agent who told her that Cash Cow would not lend her the full value of the refund, but could offer her a loan of $300, with a $100 fee, at a 110 percent annual interest rate. The agent also took Lee’s Social Security card and birth certificate, along with her son’s documents, to use in preparing the family’s taxes, and charged her $269 for the service.
But then Lee says the agent told her that before she could get a loan from Cash Cow, which also sells merchandise, “you have to get something inside the store.” She needed cash immediately, so she walked out with a Samsung Tablet worth $300, which like the loan and the tax preparation fees, she’d planned to pay off with her refund.
Cash Cow’s CEO, Tim Delgado, 40, known by some employees by the nickname Loan Ranger, denies that Cash Cow requires customers to buy merchandise before receiving a loan. “That’s incorrect,” Delgado says. “They might have thought that way because we do offer [merchandise].”
Several weeks later, Lee returned to Cash Cow to check on the status of her return and retrieve her Social Security card and birth certificate. The refund had not come in yet, but Lee says the agent began pressing her to use the rest of it on a down payment for a car from Cash Cow’s used car dealership.