Lending bills’ rates range from 36% to 175%

Currently, some loans cost 929%

Storefront lending is under the microscope again at the Legislature, with one proposal to cap interest rates at 36 percent and another at 175 percent.

Supporters of the higher limit say it would provide uniformity and consumer protection without driving out needed lenders who couldn’t afford to operate under the 36 percent cap, as proposed in HB 26.

However, the bills with the higher limit, HB 347 and SB 388, would eliminate payday and title loans.

They would give borrowers 120 days to repay their loans, according to Hal Stratton, an attorney and lobbyist for Security Finance, a consumer lender in the state. Now, repayment requirements vary widely.

In addition to payday and title loans, the bills call for the elimination of single-payment, minimum-payment and balloon loans, and provide that all consumer loans under $5,000 be repaid in substantially equal installments.

The efforts are part of a decades-long battle between consumer advocates, who say shortterm, high-interest and high-fee loans keep borrowers in poverty, and the lenders who maintain they offer an important service by extending credit to those with nowhere else to turn for emergency cash.

Interest rates in New Mexico are not regulated by statute, with the limited exception of an effective 400 percent rate for payday loans, according to a legislative analysis. As a result, interest rates in the state are all over the map, with borrowers paying as much as 456 percent on title loans and 929 percent on unsecured installment loans, according to a report by the Attorney General’s Office.

Rep. Patricia Roybal Caballero, an Albuquerque Democrat sponsoring the 36 percent cap, told The Associated Press that predatory lending practices have taken on more urgency as state officials look for ways to jump-start the sluggish economy while helping working families. She sees the proposed cap as one part of the state’s fight against poverty.

Stratton says his clients can’t stay in business at the proposed 36 percent rate limit and will leave the state if lawmakers approve that level. There are about 650 licensed small loan companies in New Mexico, Stratton said.

But Ona Porter, head of the nonprofit Prosperity Works, said legislation proposed by the industry “is smoke and mirrors to cover really bad practices,” among storefront lenders.

“We absolutely won’t support it,” Porter said.

Her organization is supporting the 36 percent cap. About 30 states have banned auto title loans, and a dozen of them have capped rates at 36 percent or less, according to The Associated Press.

Stratton said most loan companies have left those states, leaving few options for people who need money but do not have strong credit.

The two bills calling for a 175 percent cap would:

Regulate, standardize and cap the cost of consumer loans of $5,000 or less, with the exception of tax refund anticipation loans.

Cap delinquency charges to 10 percent of the payment amount and limit insufficient-fund fees.

Require that all installment loans, regardless of amount, be reported to credit bureaus, so borrowers can establish or rebuild their credit.

Create a financial literacy fund to educate consumers by imposing a fee for each new original small loan license and each annual renewal.

SB 388 and HB 26 are pending in committees, while a hearing on HB 347 is scheduled for Monday in the Business and Industry Committee.