New Mexico May End Predatory Lending by Capping Interest Rates at 36% | My opinion
A top priority for the current legislative session is to help New Mexicans recover from the unprecedented economic and public health emergency they have faced over the past year. This stimulus package must include an end to predatory loans which are making matters worse for so many families.
Think New Mexico supports Senate Bill 66 – sponsored by Senses Bill Soules, D-Las Cruces and Katy Duhigg, D-Albuquerque, and Reps Susan Herrera, D-Española and Gail Armstrong, R-Magdalena, and endorsed by Governor Michelle Lujan Grisham – to reduce the state’s maximum interest rate on small loans from 175% to 36%.
Senate Bill 66 was passed by the Senate 25-14, but unfortunately during its last House committee the bill was amended to increase the interest rate cap from 36% to 99 %. We now urge the House to reinstate the 36% cap.
When Think New Mexico released its End of Predatory Lending Report last fall, many New Mexicans were shocked to learn that our state allows lenders to charge interest rates of up to 175% per year, one of the highest permitted rates in the country.
By lowering that cap to 36%, SB 66 would restore a law that worked well for New Mexico for decades.
In the mid-1950s, the New Mexico legislature and governor capped annual loan interest rates at no more than 36 percent. This law protected consumers while allowing wide access to credit. Sadly, in the late 1970s the United States entered a period of double-digit inflation that pushed interest rates above the limits set by the usury laws of many states, including that of New Mexico.
In response, in the early 1980s, the legislature and governor lifted interest rate caps on all types of loans, and predatory lenders flocked to New Mexico. At last count, there were 561 storefront lenders in our state: one for every 3,819 new Mexicans. On the other hand, there is a McDonald’s for 23,298 New Mexicans.
These predatory lenders, 85% of whom are based out of state, drain hundreds of millions of dollars from our local economy and push struggling families into debt traps where they must choose between keeping track of their loan payments and saving money. food on the table. .
In 2006, the Department of Defense recognized that predatory lending had an impact on national security, as many members of the military were trapped in high interest loans. So Congress passed the Military Loans Act, capping annual interest rates on loans to military service members and their families at 36 percent. This federal law already protects 17,741 active-duty members of the National Guard and Reserve in New Mexico.
States have started to pass similar laws. Whenever one of these laws was passed, high-cost lenders argued that it would dry up access to credit and send borrowers to unregulated online loans.
Their arguments turned out to be false.
Study after study has shown that borrowers in states with interest rate caps of 36% maintained access to credit through a variety of more affordable options, including:
- Loans from credit unions (of which New Mexico has 41 with 142 locations) and community development finance institutions (of which New Mexico has 17).
- Loans from employers to companies like TrueConnect, which already provide 16,000 New Mexicans with access to affordable credit.
- Small, responsible lenders who can and do provide credit at 36% APR.
Supporters of SB 66 include many nonprofits as well as the towns of Albuquerque and Las Cruces, McKinley and Valencia counties, the All Pueblo Board of Governors and the Navajo Nation, among others.
New Mexicans deserve to have access to fair credit at reasonable rates. Please visit the Think New Mexico website (www.thinknewmexico.org) to contact your state senator and representative and urge them to support SB 66 and cap annual small loan interest rates at 36%.
Kristina G. Fisher is Associate Director of Think New Mexico, a results-oriented think tank.