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State needs to cap high-interest loans — now | My View

State needs to cap high-interest loans — now | My View
Written by Publishing Team

Every day in New Mexico, people find themselves trapped in the cycle of high-interest consumer loans — in New Mexico, that means annual interest of up to 175 percent — unable to escape.

These installment loans and auto title loans are sometimes called payday loans because the payments are tied to when the borrower pays.

In New Mexico, there have been numerous attempts over the years to reduce the exorbitant interest charged, but these lenders have been allowed to continue operating at rates that are prohibited in many other states. It is time to put an end to predatory lending practices. We encourage Governor Michelle Logan Grisham and the New Mexico Legislature to discontinue these high-interest loans.

Here’s the scenario: The family’s income is less than its basic necessities, or the family faces unexpected expenses, like repairing a car, and borrows a few hundred dollars from a high-cost lender at 175 percent annual interest. It’s an option they’ve seen heavily advertised, and they don’t promote any credit checks and quick cash.

When it is time to pay off the loan, the family does not have the extra money to pay or has to transfer money needed to pay other expenses to pay off the loan. Over time, the family may be encouraged to refinance the loan to ease the difficulty of repaying—leading to more debt and, eventually, falling into a debt trap when they are unable to repay the loan.

In New Mexico, we’re letting this cycle run unabated, with a maximum interest rate of 175 percent. There are options for this predation. Credit unions across the state offer small loans at a reasonable interest rate — well below 36 percent — to borrowers, often without a credit check. Nearly a million New Mexicans are already members of credit unions, which makes this option easy and accessible.

Municipal and county governments, schools, colleges and businesses across the state are signing up to an alternative program — TrueConnect — which allows employees to take small loans that are repaid over time as a deduction from payroll, with an interest rate of between 20 percent and 25 percent. Lowering interest rates does not mean that people will run out of options, but the options offered will allow borrowers to repay the loans they take.

Make no mistake: High-interest lenders, 89 percent of which are out-of-state companies, take money out of the pockets of hard-working New Mexicans just trying to make ends meet. No one wants to find themselves in need of a short-term loan, and those who do should not be fresh meat of borrowed sharks, thirsting for money from someone else’s misfortune.

Setting interest rates from unreasonably high levels has enjoyed broad bipartisan support for decades. President George W. Bush signed the Military Lending Act into law in 2006, which set 36 percent rates for active duty members of the military and their spouses.

States across the country, from New York to Nebraska, and Maryland to Montana, set their loan rates at 36 percent or less. More than 80 percent of New Mexicans surveyed support a cap rate of 36 percent or less. This is the rate we have suggested again, and it must be adopted.

We urge the Governor and the Legislature to pass legislation that protects low-income New Mexicans from predatory, high-interest lenders without excuse or delay.

Ona Porter, Massachusetts, is the CEO of Prosperity Works.

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