House passes bill to lower NM loan interest rate cap
SANTA FE — The State House passed legislation late Monday that would cap the interest rate on small loans in New Mexico at 36% — the same annual percentage allowed by the U.S. Department of Defense for active-duty military members.
The measure would also allow an additional 5% charge for loans of $500 or less, a levy intended to help compensate businesses for the additional risk incurred. It was added to the bill on Monday as an amendment sponsored by Representative Micaela Lara Cadena, a Democrat from Mesilla who described it as an attempt at compromise.
The amended version of the legislation won House approval in a 51-18 vote.
The vote could represent a breakthrough after a similar measure died last year in a deadlock between the House and Senate.
Rep. Susan Herrera, an Embudo Democrat who introduced the bill to the House on Monday, said the proposal would help New Mexicans who are exploited by out-of-state corporations.
“These stories are poignant,” she said.
The legislation, House Bill 132, is now heading to the state Senate, which backed a similar proposal last year.
The bill would lower the cap on the annual interest rate – from 175% to 36% – for those who take out small loans.
Critics of the legislation have argued that lowering the state interest rate cap for storefront loans could put businesses out of business and leave their employees unemployed.
They also say such a policy change would push borrowers to seek out unregulated lenders.
House Minority Whip Rod Montoya, a Republican from Farmington who opposed the bill, said it would have a host of unintended consequences, like causing needy people to pawn their property for money. silver. Lawmakers should trust New Mexicans to decide for themselves, he said, whether to accept the terms of a small loan.
“The way I see it,” Montoya said, “is that we don’t trust certain people. We think some people are too unsophisticated, too incapable of making their own decisions for their own families.
Eight Republicans joined nearly all Democrats in voting for the bill. Two Democrats voted against the bill. The lone independent in the chamber, Phelps Anderson of Roswell, was a co-sponsor of the bill and voted in favor of it.
Message from Lujan Grisham
Even before lawmakers got into debating the bill, it was at the center of a procedural skirmish.
Rep. Eliseo Alcon, D-Milan, introduced a motion to send the bill to the Standing Orders and Order of Business Committee, the panel that determines whether a proposal falls within what lawmakers can adopt during a 30-day session.
The bill, he pointed out, was not specifically authorized by the governor and had been amended to remove his appropriation, a change that warranted sending it back to committee for further review. Tax and expense invoices are automatically authorized in 30-day sessions.
The legislation initially provided an appropriation of $180,000 for financial literacy programs, but the proposed spending was deleted at a previous committee hearing.
“We have to follow the rules whether we like the bill or not,” Alcon said.
But after intense debate over whether the bill should be sent to committee, Alcon abruptly withdrew its motion to send it to committee and no vote was taken.
Later Monday, Governor Michelle Lujan Grisham formally authorized lawmakers to pass the bill.
years of debate
Proponents of the bill say out-of-state companies have moved into New Mexico to take advantage of low-income residents who need quick access to cash. Under current state law, they say, storefront loan companies target Native American residents of the state and low-income areas.
Additionally, a December survey of Latinos in New Mexico found that 19% of adults had taken out a storefront loan during the COVID-19 pandemic.
Herrera said the neighboring states of Colorado and Arizona already have a 36% cap like the one she is proposing. This is the same limit that is allowed for most consumer loans made to active duty military personnel under the Military Loans Act.
New Mexico has a long history of regulating the lending industry.
A previous 36% cap on loan interest rates was abolished by the Legislature in the 1980s amid high inflation, according to research by Santa Fe-based Think New Mexico, which has is pushing for the lower rate cap to be reinstated.
After years of Roundhouse debate, lawmakers passed a 2017 bill that established the current 175% interest rate cap on small loans and banned so-called payday loans with terms of less than 120 days.
But critics have insisted the 175% cap can leave low-income New Mexicans stuck in “debt traps.”
The Roundhouse debate has caught the attention of many national businesses who have hired lobbyists to represent their interests.
Small loan companies made $140,000 in campaign contributions to New Mexico candidates and political committees during the 2020 election cycle, according to a recent report by New Mexico Ethics Watch.
During last year’s legislative session, a credit industry lobbyist said the industry employs about 1,300 people across New Mexico.