New Mexico poised to cap small loan interest rates

State would finally throw out 175% interest rates if legislation is signed by the governor

By: - February 16, 2022 5:03 pm

A Title Max in southwest Albuquerque (Photo by Marisa Demarco / Source NM)

New Mexico is ready to ban exorbitantly high interest rates on small loans that have drawn criticism from advocates in the state for over two decades.

The Senate on Tuesday night voted 19-8 in favor of House Bill 132 and the House of Representatives on Wednesday afternoon agreed to the Senate’s amendments. With that, the legislation goes to the governor’s desk.

Predatory lenders in New Mexico have been allowed to charge interest rates as high as 175% on small loans. If Gov. Michelle Lujan Grisham signs the bill, state law would cap interest rates on loans in the state to 36%.

Storefront lenders often leave borrowers in endless cycles of debt, experts say, and many of these companies are documented to be setting up shop and giving out more loans in areas of the state with large Native populations, further entrenching the communities in poverty.

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The measure is likely to be signed by Gov. Michelle Lujan Grisham. Her office issued a news release Wednesday afternoon applauding the Legislature for passing it.

“This legislation addresses an important issue that affects the most vulnerable New Mexicans in both rural and urban communities, which is why I included such action in my 2021 legislative priorities,” Lujan Grisham said. “I’m glad to see the Legislature reach a consensus on the measure, and I applaud the members for voting to protect New Mexico consumers.”

The governor’s signature would be a long-fought victory for Rep. Susan Herrera (D-Embudo), who has tried to pass the bill three times in the past but was thwarted by some Democratic lawmakers voting alongside Republicans in previous years to keep allowing interest rates that top out at 175%.

There are 550 small loan companies operating in New Mexico, Herrera said, with 89% of those being owned by out-of-state corporations. Of those, 78% had regulatory action taken against them by the federal Consumer Financial Protection Bureau, Herrera said. But those same companies continue to operate in the state regardless.

The bill contains a “hard-won compromise” reached in the House, said co-sponsor Sen. Katy Duhigg, which allows lenders to charge a 5% origination fee on loans of $500 and under. That builds in profitability for lenders and ensures that people who need access to this kind of credit will continue to have it, while also ending predatory practices that hurt New Mexican consumers and families, Duhigg said.

If passed, the legislation would go into effect in 2023. That’s because the Senate agreed to an amendment to extend the effective date by six months, introduced by Sen. Cliff Pirtle (R-Roswell).

The more predatory lenders’ entire business model is built on identifying states that have lax regulations on lending and that allow incredibly high interest rates, Duhigg said. Those companies might look elsewhere to do business, she said, but for lenders who are not predatory, they will have sufficient profitability that they can continue to operate here.

Shortly after news broke of the bill’s final passage, New Mexico Voice for Children posted a photo on Twitter of their first report on predatory lending in the state, written in January 2003.

“Deregulation of the financial industry has led to explosive growth in the predatory lending industry,” the group wrote at the time. “These lenders insidiously target low income and minority populations. Most of these firms are large out-of-state lenders that are reaping huge profits from vulnerable New Mexicans.”

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Austin Fisher
Austin Fisher

Austin Fisher is a journalist based in Santa Fe. He has worked for newspapers in New Mexico and his home state of Kansas, including the Topeka Capital-Journal, the Garden City Telegram, the Rio Grande SUN and the Santa Fe Reporter. Since starting a full-time career in reporting in 2015, he’s aimed to use journalism to lift up voices that typically go unheard in public debates around economic inequality, policing and environmental racism.