Stop NM’s Debt Cycle, Limit High Yield Loans To 36%
Every day the people of New Mexico are caught in the cycle of high-interest consumer credit – in New Mexico that means an annual interest rate of up to 175% – and cannot escape. These installment loans and auto title loans are sometimes referred to as “payday loans” because the payments are tied to when the borrower is paid. There have been many attempts to cut exorbitant interest rates in New Mexico over the years, but these lenders have been allowed to continue operating at interest rates that are banned in many other states. It is time to put an end to such predatory lending practices. We encourage Governor Michelle Lujan Grisham and the New Mexico legislature to end these high-interest loans.
Here’s the scenario: a family has insufficient income to meet basic needs, or the family has unexpected expenses like a car repair and borrows a few hundred dollars from an expensive lender at 175% APR. It’s an option that has been heavily promoted that doesn’t offer credit checks and quick cash. When it comes time to pay off the loan, the family may not have the extra money to make the payment or may be forced to move money needed to pay other expenses to pay off the loan. Over time, the family may be encouraged to refinance the loan to reduce repayment difficulties – which leads to more debt and, ultimately, a debt trap if they are unable to repay the loan.
In New Mexico, we’re letting this cycle continue unabated with an interest rate cap of 175%. There are options for this predation. Credit unions across the state offer small loans to borrowers at a reasonable interest rate – well below 36% – often without credit checks. Almost a million New Mexicans are already members of a credit union, which makes this option easy and accessible. Local and county governments, schools, colleges, and businesses across the state are signing an alternative program, TrueConnect, that allows employees to take out small loans that are paid back over time as salary deductions, at an interest rate of between 20% and 25%. . Lowering interest rates does not mean that people are running out of options, but that the options on offer enable borrowers to repay the loans they took out.
Make no mistake: high-yielding lenders, 89% of whom are overseas corporations, pull money out of the pockets of hard-working New Mexicans who are just trying to make ends meet. Nobody wants to need a short term loan, and those who do shouldn’t be fresh meat for loan sharks hungry to turn someone else’s misfortune into murder.
Limiting interest rates from unreasonable highs has had widespread bipartisan support for decades. President George W. Bush signed the Military Lending Act in 2006, which caps interest rates for active service members and their spouses at 36%. States across the country, from New York to Nebraska, from Maryland to Montana, limit their lending rates to 36% or less. Over 80% of New Mexicans surveyed support an upper limit of 36% or less. This is the course we have proposed again, and it should be adopted.
We urge the governor and the legislature to pass laws protecting low-income New Mexicans without apology or delay.