Ending Robbery Loans in New Mexico: Capping Annual Interest Rates to 36%

Comment: One of the top priorities of the current legislature is to help New Mexicans recover from the unprecedented economic and health emergency they faced last year. This recovery package must include ending the robbery loans that are worsening the dire situation for so many families.

Think New Mexico supports Senate Bill 66, sponsored by Senator Bill Soules (Las Cruces), Senator Katy Duhigg (Albuquerque), Rep. Susan Herrera (D-Espanola) and Rep. Gail Armstrong (R-Magdalena) and supported by Governor Lujan Grisham, the Lower state maximum interest rate for small loans from 175% to 36%.

The Senate Bill passed Senate 25-14, but unfortunately the bill was changed in the last House Committee to increase the interest rate cap from 36% to 99%. We now urge the House to restore the 36% ceiling.

When Think New Mexico released our report on the end of predatory lending last fall, many New Mexicoers were shocked to learn that our state allows lenders to charge interest rates of up to 175% a year in our state – one of the highest allowed interest rates across the country.

By lowering that cap to 36%, Senate Bill 66 would restore a law that worked well for New Mexico for decades.

In the mid-1950s, the New Mexico legislature and governor limited annual loan interest rates to no more than 36%. This law protected consumers while still allowing ample access to credit. Unfortunately, in the late 1970s, the United States entered a period of double-digit inflation that pushed interest rates beyond the limits of the usury laws of many states, including New Mexico.

In response, in the early 1980s the legislature and governor abolished interest caps on any type of loan, and predatory lenders poured into New Mexico. At the last count, our state had 561 storefront lenders: one in 3,819 new Mexicans. In contrast, there is one McDonalds for every 23,298 new Mexicans.

These predatory lenders, 85% of whom are outside of the state, are pulling hundreds of millions of dollars from our local economy, pushing struggling families into debt traps where they have to choose whether to keep up with their loan payments or put groceries on the table.

In 2006, the Department of Defense realized that predatory loans were harming national security because so many military personnel were trapped in high-interest loans. For example, Congress passed the Military Lending Act, which limits the annual interest rate on loans to military personnel and their families to 36%. This federal law already protects 17,741 active Soldiers, National Guards and reservists in New Mexico.

States began to enact similar laws. Every time one of these laws was passed, expensive lenders argued that it would dry up access to credit and attract borrowers to unregulated online credit.

Their arguments turned out to be wrong.

Study after study has shown that borrowers in states with a 36% interest rate cap still have 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 Financial Institutions (of which New Mexico has 17);
  • Employer loans from companies like TrueConnect, which already gives 16,000 New Mexicans access to affordable credit;
  • Responsible small lenders who can and do grant loans at 36% APR.

Senate 66 supporters include a number of nonprofits, as well as the cities of Albuquerque and Las Cruces, McKinley and Valencia Counties, the All-Pueblo Council of Governors, and the Navajo Nation.

New Mexicans deserve access to fair credit at reasonable prices. Please visit Think New Mexico’s website (www.thinknewmexico.org) to contact your Senator and State Representative to ask them to support Senate Bill 66 and limit annual small loan interest rates to 36%.

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