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Loan rate cap of 36% is needed in NM

All New Mexicans deserve access to fair loans. But right now, in the middle of a financial crisis, 595 storefront lenders across New Mexico are making loans with annual interest rates of 175% APR. At that interest rate, a family who borrows a storefront loan for just a few hundred dollars will end up paying hundreds, even thousands, of dollars in interest and fees.

Our triple-digit interest rate cap is one of the highest allowed anywhere in the country. Credit needs to be fair, safe, and equitable, but interest rates of 175% APR are none of those things.

Now, more than ever, New Mexico needs a meaningful interest rate cap of 36%, similar to a growing number of other states.

Triple-digit interest rate lenders prey on New Mexico’s hard-working families, seniors, and communities of color. They cluster in reservation border towns and prey upon Indigenous communities.

Sixty-four percent of storefront lenders are located within 15 miles of Indigenous lands in New Mexico. In Gallup, there is a storefront lender for every 500 people.

Often, lenders secure their unaffordable loans by the title to a family car. When car title borrowers find themselves unable to make triple-digit interest payments while also paying the rent and keeping the heat on, they often default. When that happens, the family car gets repossessed – as happened to 2,293 New Mexico families last year.

For so many of these families living in rural New Mexico, that car was their only means of getting to and from work, school and the nearest grocery store. Worse still, the family will still owe hundreds, even thousands of dollars, in interest and fees after they lose the car.

At 175%, borrowers frequently end up paying two, three, as much as six times the amount they originally borrowed.

Triple-digit interest rate loans are not a helpful or responsible form of credit. These high-cost loans frequently create a cycle of debt, where borrowers are forced to choose between basic living expenses, like rent and food, and keeping up with their loan payments.

For many borrowers of storefront loans, the sky high costs of these loans in New Mexico lead to defaults, destroyed credit, closed bank accounts and bankruptcy.

The storefront lending industry spends tens of thousands of dollars on the election campaigns of our state leaders. It sends high-paid lobbyists to Santa Fe to talk about how their “small businesses” stimulate local economies by providing access to credit. But that is not true and never has been.

At 175% APR, predatory lenders don’t provide access to credit, they push New Mexican families into crushing debt. Storefront lenders aren’t small businesses, and they aren’t helping our economy. In 2019, predatory lending was more than a $600 million industry in New Mexico.

More than 85% of those companies are large out-of-state corporations, many of whom do business at lower interest rates in other states.

New Mexicans overwhelmingly support putting a stop to triple-digit interest loans. In a recent poll, more than two out of every three New Mexicans surveyed supported a 36% rate cap on storefront loans.

Seventeen other states have enacted similar rate caps. Congress has also enacted a 36% APR cap on all loans made to active-duty military service members.

During this time of financial crisis for so many New Mexico families, New Mexico’s elected leaders need to stop predatory lenders from charging exploitative interest rates and draining scarce dollars out of our communities. We call upon the New Mexico Legislature to enact an all-inclusive 36% APR cap on storefront loans during the 2021 legislative session.

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