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% – unable to escape it.
These installment loans and auto title loans are sometimes referred to as payday loans because the payments are tied to when the borrower is paid.
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 prohibited in many other states. It is high time to put an end to these predatory lending practices. We encourage Governor Michelle Lujan Grisham and the New Mexico legislature to stop these high interest loans.
Here’s the scenario: A family’s income is less than what it needs for basic necessities, or the family faces an unexpected expense, like a car repair, and borrows a few hundred dollars from a expensive lender at 175% annual interest. It’s an option they’ve seen heavily advertised, touting no credit checks and quick cash.
When the time comes to repay the loan, the family does not have the extra money to pay or is forced to transfer the money needed to pay for other expenses in order to make a payment on the loan. Over time, the family may be encouraged to refinance the loan to ease the difficulty of repaying, which leads to increased debt and ultimately a debt trap when they cannot repay the loan. .
In New Mexico, we are letting that cycle go on and on, with an interest rate cap of 175%. There are options to 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. Almost a million New Mexicans are already members of credit unions, which makes this option easy and accessible.
City and county governments, schools, colleges, and businesses across the state join an alternative program – TrueConnect – that allows employees to take out small loans that are repaid over time in the form of payroll deductions. pays, with an interest rate between 20 and 25%. Falling interest rates don’t mean people will run out of options, but the options offered will allow borrowers to repay the loans they take out.
Make no mistake: High-interest lenders, 89% of which are out-of-state companies, are taking money out of the pockets of hard-working New Mexicans who are just trying to make ends meet. No one wants to be in need of a short term loan, and those who do should not be fresh meat for loan sharks, eager to kill someone else’s misfortune.
Capping interest rates at unacceptable levels has enjoyed broad bipartisan support for decades. President George W. Bush enacted the Military Loans Act in 2006, which capped rates at 36% for active duty military personnel and their spouses.
States across the country, from New York to Nebraska, from Maryland to Montana, cap their loan rates at 36% or less. Over 80% of New Mexicans surveyed support a capitalization rate of 36% or less. This is the rate that we have proposed again, and it should be adopted.
We urge the governor and the legislature to pass legislation protecting low-income New Mexicans from predatory high-interest lenders without excuse or delay.
Ona Porter, MA, is CEO of Prosperity Works.