New attempt to reduce advances on NM loan interest rate ceiling

A truck heads east along historic Route 66 in Albuquerque in this 2017 photo, past a sign advertising a securities lending business. New Mexico lawmakers are considering lowering the current 175% state cap on small loan interest rates during this year’s 30-day legislative session. (AP Photo/Susan Montoya Bryan)

SANTA FE — It may seem like déjà vu at the Roadhouse, but a bill dealing with how New Mexico limits interest rates on storefront loans is on the way again.

A year after a similar measure died in a standoff between House and Senate members, a new proposal lowering the annual cap on interest rates on small loans — from 175% to 36% — has passed Saturday by its first House committee.

“It’s truly a financial epidemic,” said Rep. Susan Herrera, D-Embudo, who said more than 20 percent of residents have taken out such loans in about half of New Mexico’s counties.

She also said out-of-state companies have moved into New Mexico to take advantage of low-income residents who need quick access to cash.

However, just like last year, critics of the legislation argued that lowering the state cap on interest-rate loans could put businesses out of business and leave their employees unemployed.

They have argued in the past that such a policy change would push borrowers to use internet lenders, many of which are based in other countries and cannot be regulated.

Danielle Fagre Arlowe of the American Financial Services Association, a Washington DC-based group, said the bill would make it harder for people with bad credit to get loans.

“Low-income residents will likely find themselves in credit deserts if (this bill) passes,” she told members of the House Consumer Affairs and Public Affairs Committee.

But the committee ultimately voted 3-2 to approve the measure, with Democrats voting in favor and Republicans voting against.

This year’s legislation, House Bill 132, is sponsored by a bipartisan group of five lawmakers, including House Speaker Brian Egolf, D-Santa Fe. It would lower the state’s interest rate cap on loans showcase, but would also increase the maximum amount of these loans from $5,000 to $10,000.

In its original form, the bill also included a $180,000 credit for financial education efforts in New Mexico schools, but that was removed from the legislation Saturday at Herrera’s request.

Under current state law, proponents of the bill said storefront loan companies currently target the state’s Native American population and low-income areas.

Additionally, a December survey of Latinos in New Mexico found that 19% of adults had taken out a storefront loan during the COVID-19 pandemic.

“People say it helps – it doesn’t help,” said Leonard Gorman, executive director of the Navajo Nation Human Rights Commission, who described current interest rates on many small loans as “harmful” to those who have trouble repaying them.

New Mexico has a long history of regulating the lending industry.

A previous 36% cap on loan interest rates was abolished by the Legislature in the 1980s amid high inflation, according to research by Santa Fe-based Think New Mexico, which has is pushing for the lower rate cap to be reinstated.

After years of Roundhouse debate, lawmakers passed a 2017 bill that established the current 175% interest rate cap on small loans and banned so-called payday loans with terms of less than 120 days.

But critics have insisted that the 175% cap can leave low-income New Mexicans stuck in “debt traps,” while pointing out that the US armed forces have implemented an annual rate limit in 36% percentage for loans obtained by active duty military personnel.

The Roundhouse debate has caught the attention of many national businesses who have hired lobbyists to represent their interests.

During last year’s legislative session, a credit industry lobbyist said the industry employs about 1,300 people across New Mexico.

Additionally, small loan companies made $140,000 in campaign contributions to New Mexico candidates and political committees during the 2020 election cycle, according to a recent report by New Mexico Ethics Watch.

The bill to cap interest rates on loans is now before the House Judiciary Committee with less than three weeks remaining in this year’s 30-day legislative session.

About Brandon A. Hood

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