The measure approved in the House Business and Industry Committee, via a 9-0 vote, would ban small loans with terms of less than 120 days and impose a 175 percent cap on loans issued by companies that are not federally insured.
It was described by backers as a politically digestible compromise that could resolve several years of heated debate at the Capitol.
“We do want to do something in terms of consumer protection, but we also want to be pro-business,” said Rep. Yvette Herrell, R-Alamogordo, one of the measure’s sponsors.
However, critics of the legislation, House Bill 347, said a 175 percent cap would be too high for low-income New Mexicans, who are often the ones seeking out loans.
They had been pushing a separate bill, House Bill 26, that calls for a 36 percent cap. That measure was tabled Friday, amid concerns it would drive companies out of business.
“Out in the real world, when you even suggest a 36 percent rate cap to most people they gasp in horror how high that is and you have to explain: ‘No, that’s really a good rate cap,;” said Lynne Canning with the Santa Fe Neighborhood Law Center.
She added roughly a dozen other states have already enacted laws with the lower loan interest rate cap.
Loan interest rates are currently not regulated by New Mexico law, with the exception of an effective 400 percent rate for payday loans, according to a legislative analysis. As a result, interest rates in the state are all over the map, with borrowers paying as much as 456 percent on title loans and 929 percent on unsecured installment loans, according to a report by the Attorney General’s Office.
With debate simmering at the Roundhouse, storefront lending companies have hired dozens of lobbyists and given big campaign contributions to legislators and state elected officials in recent years.
One Florida-based company, Consumer Lending Alliance, gave $24,950 to nearly 30 legislative candidates — both Democrats and Republicans — and political committees last year, according to a state campaign finance database.
New Mexicans’ use of services like check cashing and payday loans is higher than the national average, according to a 2016 survey by federal regulators. The percentage of New Mexico households using various types of alternative financial services, including payday loans and rent-to-own services, jumped from 22.5 percent in 2013 to 26.9 percent in 2015, the survey said. The national percentage was about 20 percent.
After Friday’s vote, House Bill 347 advanced to the House Judiciary Committee.