Copyright © 2020 Albuquerque Journal
SANTA FE – The debate about capping New Mexico interest rates on retail loans may not have ended.
Three years after state lawmakers passed bill capping small loan interest rates at 175%, a prominent Santa Fe think tank is proposing to lower the cap significantly – to 36% – and make financial education courses a requirement for graduation High school students nationwide.
Fred Nathan, executive director of Think New Mexico, said the proposed changes would allow citizens 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, making these reforms more urgent,” Nathan said in a statement.
However, the proposal could be put to the test during the 2021 legislature as recent proposals to lower the interest rate cap in the Roundhouse have not gained momentum.
Critics of such legislation have argued that such a policy change would put some small loan businesses out of business, reduce state license revenues, and leave fewer opportunities for insolvent New Mexicans.
Rep. Patricia Lundstrom, D-Gallup, one of the sponsors of the 2017 legislation, said lowering the maximum small loan interest rate could encourage borrowers to use internet lenders, many of which are based in other countries and cannot be regulated.
“When you talk about 36% APR, I think that doesn’t work for stores,” said Lundstrom, chair of the House Appropriations and Finance Committee.
However, consumer advocates and other proponents of lowering the national ceiling say that retail lending companies exploit the poor and keep people trapped in a debt cycle.
According to the New Mexico Center on Law and Poverty, approximately 60% of the state’s small loan transactions are located within 10 miles of tribal land, where many residents live below the federal poverty line.
And the Think New Mexico report argues that other credit options are still available – such as credit unions – and small loan deals have not gone in other states that have lowered their lending rate caps.
Additionally, the report found that New Mexico’s current ceiling of 175% is the third highest in the country – lower than just Oklahoma and Mississippi – among the 45 states that have a fixed limit.
Usage of services such as check cashing and payday loans by new Mexicans is also higher than the national average, according to a survey by federal regulators from 2016.
Meanwhile, the Think New Mexico report also details the state’s long history of credit laws.
New Mexico had a 36% annual limit on small lending rates for decades, but lifted the cap in the 1980s amid rising inflation, the report said.
The 2017 law was intended as a compromise after years of subsequent debate in the Capitol over payday loans. The law, which was signed by former governor Susana Martinez, also banned so-called payday loans with terms of less than 120 days.
While the debate on the subject simmered, retail lending companies hired dozens of lobbyists and donated large campaign donations to New Mexico lawmakers and elected officials.
A Florida-based company, Consumer Lending Alliance, donated $ 24,950 to nearly 30 legislative candidates – both Democrats and Republicans – and political committees in 2016, according to a state campaign funding database.
The other component of the Think New Mexico report addresses the need for financial literacy courses for high school graduates.
According to the report, more than 20 states nationwide have adopted such a requirement, and many New Mexico school districts are already offering such classes as electives.
However, according to Think New Mexico, in the 2019-20 school year only about 11% of the state’s high school students attended any of the classes teaching topics such as budgeting, saving, and investing.
The 60-day legislature in New Mexico begins in January.