The House Judiciary Committee endorsed the bill on a 9-1 vote, advancing the legislation to the full House of Representatives with about a week remaining in the session.
It marks the most steam such legislation has had in years. Typically, any proposals to rein in storefront lending never find their way out of committee.
Some have blamed the influence of lobbyists and the lack of political will, but the legislation’s sponsors say they would rather not wait another year to address consumer concerns about steep rates and unscrupulous lending practices.
Rep. Patty Lundstrom, a Gallup Democrat who has been working on the issue for years, has said that taking no action would be the wrong thing to do.
“We need to make sure the consumer financial market works for everyday New Mexicans, not just the well-connected,” she said in a statement. “New Mexicans deserve access to loans with fair interest rates without hidden risks and outrageous fees.”
The legislation effectively eliminates payday loans by definition, bans small loans that have terms less than 120 days and requires certain reporting to state regulators. It also caps interest rates at 175 percent.
Some consumer advocates have pushed unsuccessfully for a 36 percent cap similar to what has been adopted in a dozen other states, but the higher rate has support from industry lobbyists who have voiced concerns about double-digit rates putting storefront lenders out of business.
Data from New Mexico regulation and licensing officials show interest rates on title loans currently range from an average of 238 percent to more than 450 percent. Installment loans can go much higher.
The industry has argued that small lenders offer one of the few options for low-income residents in New Mexico, where high poverty and unemployment rates are chronic.
Ona Porter, head of the nonprofit group Prosperity Works, said it’s admirable that the bill’s sponsors, consumer advocates and the industry have worked together to finally bring something to the floor for a vote.
“The many consumer protections included across all loan types are huge, but the 175 percent interest rate remains and it is predatory,” she said.
Of the more than 23,000 title loans reported in New Mexico in 2015, state figures show about two-thirds were renewed, refinanced or extended.
Consumer advocates have argued that significant interest rates make it difficult for the loans to be repaid along with the other fees, setting up borrowers for a cycle of debt.