New Mexico needs to cap high-interest loans — now

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

These installment loans and car title loans are sometimes called payday loans because payments are linked to when the borrower gets paid.

In New Mexico, there have been many attempts over the years to curtail the exorbitant interest charged, but these lenders have been permitted to continue to operate at rates prohibited in many other states. It is well past time to put an end to such predatory lending practices. We are encouraging Gov. Michelle Lujan Grisham and the New Mexico Legislature to stop these high-interest loans.

Here’s the scenario: A family’s income falls short of what they need for basic necessities, or the family encounters an unexpected expense, like a car repair, and borrows a few hundred dollars from a high-cost lender at 175 percent annual interest. It’s an option they have seen advertised heavily, touting no credit checks and fast cash.

When the time comes to make a payment on the loan, the family doesn’t have the extra money to pay or is forced to shift money needed to pay other expenses to make a payment on the loan. Over time, the family may be encouraged to refinance the loan to ease the difficulty of repayment — resulting in more debt and, ultimately, a debt trap when they cannot repay the loan.

In New Mexico, we’re letting that cycle play out, unabated, with an interest rate cap of 175 percent. There are options to this predation. Credit unions across the state offer small loans at a reasonable interest rate — well under 36 percent — to borrowers, often without a credit check. Almost a million New Mexicans already are members of credit unions, making this option easy and accessible.

Municipal and county governments, schools, colleges and companies across the state are signing onto an alternative program — TrueConnect — which allows employees to take small loans that are paid back over time as payroll deductions, with an interest rate between 20 percent and 25 percent. Lowering interest rates doesn’t mean people will run out of options, but that 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, are taking money out of the pockets of hardworking New Mexicans who are just trying to make ends meet. No one wants to find themselves in need of a short-term loan, and those who do shouldn’t be fresh meat for loan sharks, hungry to make a killing off of someone else’s misfortune.

Capping interest rates from unconscionable highs has had broad bipartisan support for decades. President George W. Bush signed the Military Lending Act into law in 2006, which capped rates at 36 percent for activeduty members of the military and their spouses.

States across the country, from New York to Nebraska, from Maryland to Montana, cap their loan rates at 36 percent or less. Over 80 percent of New Mexicans surveyed support a cap rate of 36 percent or less. This is the rate we have again proposed, 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.