New Mexico legislature weighs three bills to cap lending rates
LAS CRUCES – State lawmakers trying to lower the maximum interest rate for short-term loans are giving themselves multiple opportunities for success this session.
Representative Susan Herrera, D-Embudo, introduced two bills that would reduce the annual percentage rate from 175% to 36%. She said Tuesday, February 2, that she hoped both her bills would be shelved and that a Bill Soules-sponsored Senate bill D-Las Cruces would be the one that makes it to the governor’s office. But she said they must have a plan B, and maybe a plan C.
So, Herrera introduced both Bill 99, which cleared the Consumer and Public Affairs Committee on Tuesday, and Bill 149, which is a duplicate of Soules-sponsored Senate Bill 66.
“I understand that the lending industry is a very formidable adversary, and I think it behooves us to do whatever we can,” Herrera said. “I wish Senator Bill Soules all the luck in the world. If he takes it through the Senate, I will take his bill (to the House). But I’ve been here long enough to know that my team doesn’t always win.
“I’m going to keep (the House bills) and see what happens,” she said. “I hope the Senate bill wins, but if not, we have another plan.”
Opponents of the bill said the 175% rate, which was set in 2017, was never intended to be permanent. They said a comprehensive study requested in 2019 would soon be completed and any changes would have to wait until it is done. And short-term lenders have said they can’t survive on a 36% rate.
Industry lobbyist Jason Weaks said the APR is an annual interest rate, which doesn’t translate well into short-term loans meant to be paid off in weeks or months. He said companies would be forced out of state if the rate was capped at that level.
Tony Tanner, who owns loan businesses in Gallup and Farmington, argued the bill would leave low-income residents with no options when they need cash in an emergency.
“It will eliminate their choice because we will no longer be in business,” he said. “I hear people say it’s a victory. For the people who use these products, it’s far from won. It’s a choice they were made.
Danielle Arlow of the Financial Services Association said people with low credit scores would be denied the opportunity to get a loan. And even those with good credit will find it difficult to get small loans from banks.
Herrera said lawmakers chose 36% as a cap because that’s what the U.S. Department of Defense allows for loans to men and women serving in the military.
“I agree and I think New Mexico should do the same,” she said. “In New Mexico, it’s not a problem, it’s a financial epidemic.”
She said nearly 600,000 small loans were issued in New Mexico in 2019, with 85% of the money generated by the industry going out of state. And, the COVID-19 pandemic has only increased residents’ reliance on these loans, Herrera said.
Herrera said companies continued to operate in the state after suffering numerous violations, including for physically preventing people from leaving their homes in an effort to collect money owed.
“It’s not a business model that we should be promoting,” she said. “It hurts families. And, the industry won’t shut down if we have a 36% cap. “
Larry Horan, a lobbyist for the city of Las Cruces, said the city council passed a resolution supporting the bills. And, he noted, the city has adopted a program to help employees get loans that can be repaid through payroll deductions.
House Consumers and Public Affairs Committee representative Randall Pettigrew R-Lovington said he believed the state was violating a deal with the industry by moving forward with a cap tariff before the end of the study.
“We are potentially going to have an economic impact of $ 950 million on our state, and we don’t have all of the results that we have agreed have to be brought together,” he said.
HB 99 is the first of three bills to move forward, and it now goes to the House Judiciary Committee. HB 149 is awaiting its first hearing in the Chamber’s Committee on Trade and Economic Development. And SB 66 will first be heard by the Senate Committee on Taxation, Business and Transport.
Walter Rubel can be contacted at [email protected].