Debate could reignite on small loans - Albuquerque Journal

Debate could reignite on small loans

The Legislature may consider lowering small-loan interest rates, now capped at 175%, although a similar proposal died in the 2021 session. (Eddie Moore/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

SANTA FE – Attempts to lower New Mexico’s annual interest rate cap on small loans – from 175% to 36% – came up short at last year’s legislative session, but backers are planning to try again during the 30-day session that starts this month.

Gov. Michelle Lujan Grisham would have to add the issue to the session’s agenda in order for it to be considered, and a spokeswoman for the governor said there have been talks aimed at trying to reach a compromise in advance of the Jan. 18 start date.

However, it’s unclear whether such an agreement will be struck.

“I’m doing a head count now to see if I have the votes,” said Rep. Susan Herrera, D-Embudo. “It’s still up in the air.”

One area of compromise could involve lowering the maximum annual percentage rate cap for small loans, but by a smaller amount than some advocates prefer. Supporters say such action is needed to keep New Mexicans out of “debt traps.”

Sen. Bill Soules, D-Las Cruces, who sponsored last year’s bill that died after the House and Senate passed different versions of the legislation, said he’s open to a possible phased-in implementation of a lower interest rate cap.

But he said he’s keen to avoid a repeat of last year’s legislative session, in which the bill was amended in the House – with a higher rate cap for loans of $1,100 or less – amid concerns the proposal could make it impossible for some New Mexicans who need quick access to small amounts of cash to get loans.

“I’m not interested in starting on the Senate side at 36% and then having it go to the House and them change it to something I don’t think is reasonable,” Soules told the Journal.

New Mexico has had a colorful history with regulating the loan industry.

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

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

But critics have insisted the 175% cap is too high for low-income New Mexicans, while also pointing out the U.S. armed forces have implemented a 36% annual percentage rate limit for loans obtained by active-duty military members.

Lujan Grisham spokeswoman Nora Meyers Sackett said the Democratic governor supports action being taken to protect New Mexicans from “predatory lending,” and said the Governor’s Office has been involved in conversations aimed at finding a consensus. Lt. Gov. Howie Morales has played a prominent role in those discussions.

But she also said if no agreement is reached, the issue might not be added to the legislative session’s agenda.

“We hope to be able to include such legislation in the 30-day (session), but that will depend in some part on the parties involved being able to identify a compromise or solution that will allow the bill to move forward and through the Legislature successfully – and that would also ensure disagreements about it do not spill into the limited time we have, which will be necessary for other key items,” Sackett said.

Critics of the push to lower the state’s current interest rate cap on small loans have argued that such a policy shift could put many companies out of business and push borrowers to use internet lenders, many of which are based in other countries and cannot be regulated.

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