Restore 36 percent cap in lending bill
New Mexico has the opportunity — still — to crack down on predatory, short-term lenders, but the work of the House Judiciary Committee earlier this week has set the effort back.
That committee took legislation that set a top rate of 36 percent interest for short-term loans and raised the ceiling to 99 percent.
Yes, that’s lower than the current 175 percent interest cap lenders are allowed to charge on these short-term loans — one of the highest in the nation — but hardly in the spirit of the original legislation.
Senate Bill 66, sponsored by Sen. Bill Soules, D-Las Cruces, and backed by a number of nonprofits, including Think New Mexico, is designed to ensure all New Mexicans have access to affordable credit.
And such access needs to include a reasonable interest rate on loans, minus hidden fees designed to keep people paying and paying without denting the loan principle. Too often, people end up worse off than they were in the first place.
Individuals who seek short-term loans from storefront operators — most of which are out-of-state companies — are living paycheck to paycheck. They are short of cash and need a quick loan to buy food or pay rent or utilities. These smaller loans are necessary for many because their paychecks aren’t enough to cover every monthly expense.
In a more just world, people short of cash could find fair, convenient loans. In fact, our credit unions offer them, and more should be done to educate people about what alternatives are available.
Still, when you’re short of money and there’s a payday lender around the corner, stopping by the strip mall to get a loan to help buy groceries can seem more convenient. It’s no accident many of these lenders are in poor neighborhoods or a short drive from tribal communities. Convenience makes them hard to resist.
What happens after the loans are delivered, though, often increases financial woes. These loans are designed to be difficult to pay off, so that rather than paying back the original sum, people get stuck trying to keep up with interest or hidden fees. They can’t catch up.
With time running out in the session, Speaker Brian Egolf needs to marshal his forces in the House of Representatives to restore a fair — and still profitable — interest rate of 36 percent on short-term loans. There has been talk of payday lenders leaving the state if they can’t make exorbitant profits. Considering a 36 percent interest cap is profitable in more than 30 states, we think these businesses will survive.
What’s more, 36 percent is the top limit the U.S. military allows its members to be charged. Uncle Sam decided it wouldn’t allow lenders to prey on its men and women in uniform who are short of cash.
New Mexicans deserve no less from their Legislature.
We have seen how proficient Egolf can be at fixing flawed legislation and lining up votes. This is his chance to deliver once again for the people who need the most support from their elected officials.
The legislation, already passed in the Senate, can be repaired on the floor of the House and in conference committee. Get to it. Deliver for working New Mexicans.