Copyright © 2020 Albuquerque Journal
SANTA FE — The debate over New Mexico’s interest rate cap on storefront loans may not be over yet.
Three years after state lawmakers approved a bill capping small loan interest rates at 175%, a leading Santa Fe-based think tank is proposing that the cap be lowered significantly — to 36. % – and that financial literacy courses become a statewide graduation requirement for high school students.
Fred Nathan, executive director of Think New Mexico, said the proposed changes would allow state residents to better protect their personal finances.
“With the economic crisis caused by the COVID-19 pandemic, New Mexicans are more vulnerable than ever to predatory lenders, which increases the urgency of these reforms,” Nathan said in a statement.
However, the proposal could face difficulties in the 2021 legislative session, as recent proposals to lower the interest rate ceiling failed to gain traction in the Roundhouse.
Critics of such legislation have argued that such a policy change would cause some small lending stores to close, reduce state licensing revenue and leave cash-strapped New Mexicans with fewer options. .
Rep. Patricia Lundstrom, D-Gallup, one of the sponsors of the 2017 legislation, said lowering the maximum interest rate for small loans could push borrowers to use internet lenders, many of whom are based in other countries and cannot be regulated.
“If they’re talking about a 36% APR, I don’t think that works for brick-and-mortar businesses,” said Lundstrom, who is chair of the House Appropriations and Finance Committee.
However, consumer advocates and other proponents of lowering the state cap say storefront loan companies prey on the poor and trap people in a cycle of debt.
About 60% of small loan stores in the state are within 10 miles of tribal lands, where many residents live below the federal poverty level, according to the New Mexico Center on Law and Poverty.
And the Think New Mexico report says other lending options would still be available — such as credit unions — and small loan shops haven’t gone away in other states that have lowered their caps on rates. loan interest.
Additionally, the report found that New Mexico’s current cap of 175% is the third highest in the country — lower than Oklahoma and Mississippi — among the 45 states that have established a limit.
New Mexicans’ use of services such as check cashing and payday loans is also above the national average, according to a 2016 survey by federal regulators.
Meanwhile, the Think New Mexico report also details the state’s long history of lending laws.
New Mexico had a 36% annual limit on small loan interest rates for decades, but eliminated the cap in the 1980s amid rising inflation, the report said.
The 2017 legislation was designed as a compromise after years of subsequent debates on Capitol Hill over payday loans. The bill, which was signed into law by former Governor Susana Martinez, also banned so-called payday loans with terms of less than 120 days.
As debate simmered on the issue, storefront lending companies hired dozens of lobbyists and made major campaign contributions to New Mexico lawmakers and elected officials.
A Florida-based Consumer Lending Alliance donated $24,950 to nearly 30 legislative candidates — Democrats and Republicans — and political committees in 2016, according to a state campaign finance database.
The other installment of the Think New Mexico report discusses the need to make financial literacy courses a requirement for high school graduates.
More than 20 states nationwide have adopted such a requirement, according to the report, and many school districts in New Mexico already offer electives.
However, only about 11% of high school students in the state have taken any of the courses, which teach topics such as budgeting, saving and investing money, during the school year. 2019-2020, according to Think New Mexico.
New Mexico’s 60-day legislative session begins in January.