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New Mexico becomes latest state to cap small loan interest rates at 36%

speedy loan store.jpg
Chris Potter
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ccPixs.com via Flickr, CC BY 2.0
Interest rates on small loans from storefront lenders in New Mexico are capped at 36% as of Jan. 1, 2023, down considerably from the previous rate cap of 175% that advocates said trapped borrowers with low incomes in a cycle of debt.

New Mexicans in financial trouble who take out small loans from storefront lenders are now less likely to get trapped in a cycle of debt. A law passed last year went into effect on Jan. 1, drastically reducing the amount of interest these lenders can charge.

The state previously capped small loan interest rates at 175%. For a $500 loan, a borrower could have to pay as much as $875 in interest. For people with low incomes and few other places to turn, that could mean not being able to pay the loan back, and stacking up fees to extend the due date or borrow even more.

That’s no longer allowed to happen in New Mexico, where the rate is now capped at 36%.

That figure is actually a return to the rate the state had from the mid-1950’s until the 1980’s, according to Fred Nathan, executive director of Think New Mexico, who spoke with KUNM’s Your New Mexico Government podcast last year.

“That interest rate seemed to strike a good balance and was very workable,” he told host Kaveh Mowahed.

Think New Mexico advocated for the end to what it calls “predatory lending” that targets economically vulnerable communities.

The storefront loan industry lobbied hard against the new rule that was signed by the governor last March, saying the businesses would leave the state, creating job loss, and residents with bad credit and no bank would be left without options to access cash in a pinch.

Nathan told KUNM that is not what has happened in the states that have already done this.

“About half of them leave and the others stay and have a business model that works at 36%,” he said. “In addition, we’ve got 145 credit union branches spread out all over the state. They’re already making small loans.”

He added that credit union interest is capped at an even lower federal rate of 28%.

According to the Center for Responsible Lending, 18 other states and Washington D.C. have enacted a rate cap on annual interest of 36% or less, a level which the organization calls “the most effective reform.”

Nash Jones (they/them) is a general assignment reporter in the KUNM newsroom and the local host of NPR's All Things Considered (weekdays on KUNM, 5-7 p.m. MT). You can reach them at nashjones@kunm.org or on Twitter @nashjonesradio.
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