Storefront Lending Caps Up For Debate At Roundhouse
Small, fast loans often lead to a cycle of ever-deepening debt, according to the Consumer Financial Protection Bureau. Lawmakers in New Mexico are considering whether to regulate the industry here further during the 2021 legislative session. Senate Bill 66 would cap the rates and fees so that they're in line with national averages with the aim of helping people in jeopardy avoid a pit of debt they can't climb out of. KUNM caught up with reporter Jeff Proctor to talk about the effort.
JEFF PROCTOR: Essentially what we're talking about here are what folks used to think of as payday loans and title loans. In other words, you could walk into a storefront with a paystub or the title to your vehicle and get a loan at an incredibly high interest rate because you needed cash right now. So that has existed in New Mexico for decades and decades. The industry often refers to these as installment loans—you pay them back in installments, and the interest compounds over time.
The situation we're in now is that payday loans really don't exist in New Mexico anymore, but these small-dollar installment loans do. There has been a long history of a lack of regulatory framework for this industry in New Mexico. We used to have what was called a usury statute in the state, which set caps on all different types of loans. And when I say caps, I mean, above a certain interest rate, you weren't allowed to charge. So that cap went away some decades ago. That's problematic in a place like this, because of course, we deal with issues of lack of access to the American dream and generational poverty.
So anyway fast forward to the late kinda 2000s, there began to be an effort among some legislators and the attorney general at the time, Gary King, to start regulating this industry. There had been all kinds of horror stories, it essentially went nowhere, as the industry, which, of course, makes tons of money, paid a bunch of lobbyists and showered campaign cash all over both sides of the aisle. In 2017, the Legislature passed what it called a compromise that did cap the interest rate annually at 175 percent.
KUNM: Now, you know, we're in the midst of COVID which has devastating effects on the economy. Does that increase the likelihood of the legislation passing or capping it at 35 or 36 percent?
PROCTOR: Some legislators feel a sense of urgency now, given the economic devastation that the coronavirus pandemic has wrought. And just quickly in case we didn't put a fine enough point on it for listeners, there is a bill that's been pre-filed that would cap the rate at 36 percent. There's an important distinction with this year's bill—it's not just the interest rate that could be a maximum of 36 percent for the year. It also includes all of the fees, and it's an all-in 36 percent.
And then the other bit of sort of hope comes from the little bit of landscape shift that we've seen in the Legislature. Previously, we've seen some blockage of reform efforts in this sector, from some of the more conservative Democrats in both chambers. And, of course, a handful of them were bounced out by more progressive-leaning candidates. The last bit is that the day our story ran, the governor included this issue on her list of legislative priorities.
KUNM: From your reporting, you know, you found that a majority of these storefront lenders are in low-income areas heavily Native and Latino. That seems to keep the cycle of this generational poverty located in specific places. Tell me why did you all point that out in your reporting?
PROCTOR: At least in Santa Fe County, we found on the South side where you've got a much higher prevalence of non-white communities and a much higher prevalence of folks living in much, much lower tax brackets—and this is according to Census data, it's not something we just made up—you see a huge prevalence of these stores. And if you go up to the Plaza or the Downtown area, you couldn't find one with a GPS locator.
Your New Mexico Government is a collaboration between KUNM, New Mexico PBS, and the Santa Fe Reporter. Funding for our coverage comes from the New Mexico Local News Fund, the Kellogg Foundation and KUNM listeners like you, with support for public media provided by the Thornburg Foundation.