Copyright © 2022 Albuquerque Journal
SANTA FE – It might seem like deja vu at the Roundhouse, but a bill dealing with how New Mexico limits interest rates on storefront loans is once again on the move.
A year after a similar measure died amid a deadlock between House and Senate members, a new proposal lowering the annual interest rate cap on small loans – from 175% to 36% – passed its first assigned House committee on Saturday.
“This is really a financial epidemic,” said Rep. Susan Herrera, D-Embudo, who claimed that more than 20% of residents had taken out such loans in roughly half of New Mexico counties.
She also said out-of-state corporations have set up shop in New Mexico to take advantage of low-income residents who need quick access to cash.
However, just like last year, critics of the legislation have argued that lowering the state’s cap on interest rate loans could put companies out of business and leave their employees out of work.
They have argued in the past that such a policy shift would push borrowers to use internet lenders, many of which are based in other countries and cannot be regulated.
Danielle Fagre Arlowe with the American Financial Services Association, a Washington, D.C.-based group, said the bill would make it harder for those with poor credit scores to get loans.
“Lower-income residents will likely be left in credit deserts if (this bill) is passed,” she told members of the House Consumer and Public Affairs Committee.
But the committee ultimately voted 3-2 to approve the measure, with Democrats voting in favor and Republicans voting in opposition.
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 storefront loans but would also raise the maximum size of such loans from $5,000 to $10,000.
In its initial form, the bill also included a $180,000 appropriation for financial literacy efforts in New Mexico schools, but that was stripped out of the legislation Saturday at Herrera’s request.
Under the state’s current law, supporters of the bill said storefront loan companies currently target the state’s Native American population and low-income areas.
In addition, a survey of New Mexico Latinos conducted in December found 19% of adults had taken out a storefront loan during the COVID-19 pandemic.
“People say this is helping – it’s not helping,” said Leonard Gorman, the executive director of the Navajo Nation Human Rights Commission, who described current interest rates on many small loans as “hurtful” to those who struggle to repay them.
New Mexico has a long 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 can leave low-income New Mexicans stuck in “debt traps,” 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.
The Roundhouse debate has attracted the attention of many national companies that have hired lobbyists to represent their interests.
During last year’s legislative session, one lending industry lobbyist said the industry employs an estimated 1,300 people across New Mexico.
In addition, small loan companies gave $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 loan interest rate cap bill now advances to the House Judiciary Committee with less than three weeks left in this year’s 30-day legislative session.