Stop NM’s debt cycle, cap high-interest loans at 36%

Stop NM's debt cycle, cap high-interest loans at 36%
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 an annual interest rate of 175% — unable to escape. These installment loans and auto title loans are sometimes called “payday loans” because the payments are tied to when the borrower repays. 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 they need for 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% annual interest. It’s an option they’ve seen being 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 the 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%. There are options for this predation. Credit unions across the state offer small loans at a reasonable interest rate — well below 36% — to borrowers, often without a credit check. Nearly a million New Mexicans are already members of a credit union, 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, at an interest rate of between 20% and 25%. Lowering interest rates does not mean that the options will run out, but the options offered will allow borrowers to repay the loans they take.

Make no mistake: high-interest lenders, 89% of which are out-of-state companies, take money out of the pockets of hard-working New Mexicans just trying to make ends meet. Nobody wants to find themselves in need of a short-term loan, and those who do should not be the fresh meat of borrowed sharks, hungry to kill from someone else’s misfortune.

Setting interest rates from unreasonably high has enjoyed broad bipartisan support for decades. President George W. Bush signed the Military Lending Act into law in 2006, which set rates at 36% for active duty members of the military and their spouses. States across the country, from New York to Nebraska, and from Maryland to Montana, set their loan rates at 36% or less. More than 80% of New Mexicans surveyed support a cap rate of 36% 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 protecting Mexican low-income people without excuse or delay.

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