SANTA FE, N.M.–A bill has been introduced in the New Mexico Senate that caps interest rates at 36% annually on low-dollar loans.
Supporters argue that current law allows short-term loans to take advantage of the poor and send borrowers into a debt spiral. Similar bills have been introduced or enacted in a number of other states.
“Access to up to two triple-digit interest rate credit is like giving a starving person poisoned food. It doesn’t actually help them and it actually makes things a lot worse,” said bill co-sponsor Sen. Katy Duhigg (D-Albuquerque).
In New Mexico, rates are capped at a 175% annual percentage rate for loans of $5,000 or less. The measure would expand restrictions to $10,000 loans.
According to KRQE, senators opposed to the bill, mostly Republicans, argue that the 36% annual percentage rate would limit month-long loans to a mere 3%, driving some lenders out of business and cutting off credit options for low-income residents.
Republicans in the House and Senate have argued for more financial education for young people instead of hard and fast rules against high-interest rates, KRQE reported.
Sen. William Sharer argued that too many New Mexicans are unbanked and cannot rely on traditional lenders like credit unions, KRQE added.
CUs Can Fill Need, Says Official
Duhigg said that some credit unions and nonprofit organizations can fill the need for small-dollar, short-term loans, the report stated.
The bill passed the Senate largely along party lines in a 25-14 vote. It now heads to the House, where it’s expected to pass.
Democratic Rep. Susan Herrera of Embudo told KRQE aggressive lobbying from the storefront short-term loan industry had delayed the bill, adding that the industry makes a lot of campaign donations but that senators sworn in this year turned the tide.