By Nathalie Voit    

On Feb. 16, New Mexico legislators signed off on a bill aimed at discouraging so-called ‘predatory lending.’

House Bill 132, otherwise known as “Interest rates for certain loans,” would institute a 36% annual interest rate cap on small loans in the state. The maximum interest rate on storefront loans in New Mexico is currently 175%. The bill would also double the maximum size of small installment loans to $10,000, with repayment periods of up to 24 months.  

HB132 would prevent wage garnishment for defaulted loans and halt the accumulation of interest within 90 days after nonpayment. It would additionally improve transparency in the payday loan industry, such as by boosting disclosure requirements like amortization schedules for loan repayments to protect consumers, according to the Associated Press.  

HB132 was cleared by the New Mexico House of Representatives on Feb. 14 on a 51-18 vote after passing the House Judiciary Committee on Feb. 2. The legislation then moved up to the Senate, where it was approved 19-8. The bill won final approval in the state House Wednesday afternoon after legislators agreed to the Senate’s amendments, egged on by the bill’s primary sponsor Rep. Susan Herrera (D-Embudo). The bill now awaits Governor Michelle Lujan Grisham’s signature, who has until March 9 to approve or veto the legislation.  

The Democrat governor has already signaled her support for the measure, according to the Albuquerque Journal.  

“This legislation addresses an important issue that affects the most vulnerable New Mexicans in both rural and urban communities, which is why I included such action in my 2021 legislative priorities,” Lujan Grisham said shortly after Wednesday’s vote. “I’m glad to see the Legislature reach a consensus on the measure, and I applaud the members for voting to protect New Mexico consumers.”  

If enacted, the bill would go into effect in January 2023.  

The legislation arrived years after lawmakers attempted to pass similar measures in the state. In 2017, legislators established the current 175% small loan interest rate cap, abolished payday loans against future earnings, and banned loans with terms of less than 120 days, AP said.  

“I know the industry now says they can’t do loans at 36%. But they said the same thing, when the rate was established 175%,” Credit Union Association of New Mexico President Juan Fernandez said earlier this month, according to Source NM. “I don’t think that this is going to extinguish them from existence. Mind you, their profits might be lower, but I still think that they’re going to be able to remain in New Mexico. Their loans are going to be fairer, and it’s going to be a fair deal for consumers.”  

He said borrowers will still have access to loans smaller than $1,000 if the bill is enacted and that credit unions will be there to help consumers gain access to credit once the measure is signed into law.   

Additionally, most people who have taken out small loans would qualify for loans from credit unions around the state–who offer them at rates less than 30%, Fernandez said.   

However, critics of the bill point out the legislation’s unintended effects on consumers, particularly low-income households, who are the most financially vulnerable.    

“Rate caps do not make loans less expensive. Rate caps make loans less available, especially for loans less than say, $2,500,” Finance Professor at Mississippi State and Consumers’ Research Fellow Professor Tom Miller Jr. told the New Mexico House Judiciary Committee on Feb. 2.   

“Rate caps harm consumers who need access to credit,” Miller said. “For example, I’m currently studying what happened in Illinois after a 36% interest rate cap was imposed in 2021. According to data from a credit bureau, the number of loans made to deep subprime consumers fell by 47% in the following quarter. Where will they go for credit?”     

“After my home state of Montana imposed a rate cap, the number of new small-dollar installment loans fell to zero,” he added.    

According to Miller, after rate caps were implemented in Georgia and North Carolina, researchers from the Federal Reserve Bank of New York discovered more bounced checks, unpaid bills, and bankruptcy filings.     

“A rate cap will harm your constituents, especially those with low credit scores. I urge you to oppose a blanket 36% interest rate cap,” Miller told the committee, who proceeded to vote 7-5 for the bill regardless.