Think Tank: Cap Storefront Loan Rates During Special Session

Mar 24, 2021

Storefront lenders offering payday loans or title loans are a quick way to get money for people who are often in dire straits financially. And it can be a slippery slope when the interest rate on these loans can be as high as 175 percent in New Mexico. Around the country, other states have passed laws to make those rates lower. But a bill that would have capped that rate at 36 percent here didn’t make it through the legislative session. KUNM’s Khalil Ekulona spoke to Fred Nathan, a proponent of the bill and the executive director of Think New Mexico.

FRED NATHAN: We were very disappointed. The good news is we got it through the Senate at 36 percent by a 25-to-14 vote. And we really just had that one committee, the House Judiciary, where we got tripped up, and they amended the bill to make it 99 percent, which would still be one of the highest rates in the country. That's really where things got off the rails.

KUNM: Many people who get storefront loans are in financial trouble. They're living paycheck-to-paycheck. What type of effect does the 175 percent interest rate have on the state's economy?

 

NATHAN: It has many negative effects. The first thing to understand is that the state of New Mexico has 561 of these storefront predatory lending shops. Just to put that in context for your listeners, McDonald's only has 90 stores in New Mexico.

 

And out of 561 stores, 85 of them export their profits out of state. And on top of that, think about what would happen if we could bring these rates down to 36 percent. As you point out, these folks live paycheck-to-paycheck. They're gonna spend that money immediately. And those savings could be spent on local businesses like restaurants that are struggling right now. So it's sort of a double whammy for New Mexico's economy to have these very, very high interest rates that strip wealth out of our communities.

 

KUNM: What else are we missing out on? What other types of vehicles could be used to assist people who are in financial straits?

 

NATHAN: So we have 147 credit union branches in New Mexico, and they're already making small loans to New Mexicans very profitably, below 36 percent. So, one of the arguments that the predatory lending industry used with the legislators with great effect is they said, 'Well, if this 36 percent bill were to become law, we would lose all these jobs, because this industry would leave the state.'

 

But if they did leave the state, they would just essentially create more jobs at credit unions, which are nonprofit banks, essentially, that focus on low- and middle-income folks, and that would be a good thing for our economy. We're already serving nearly half the state about 900,000 New Mexicans belong to credit unions.

 

KUNM: And a previous conversation you and I had about this, you called capping these interest rates "low hanging fruit" for lawmakers and said it would boost the economy and help fight poverty. Why do you think it didn't happen?

 

NATHAN: Well, the other side has an army of lobbyists. And I've been doing this kind of work for three decades now. I've never seen a bill with this many lobbyists working it.

 

Only about 15 percent of the bills that get introduced each year, make it to the governor's desk. And many of those bills are technical, cleanup bills. It's very difficult to try to pass a landmark bill. But I'm still confident we can do it, and I'm hopeful that the governor will put this on her call for the upcoming special session.

 

We know if we can get this bill to the House floor that we have a majority of people there that will vote for it. Where this ran into trouble was in the House Judiciary Committee.

 

This issue which affects so many low income New Mexicans who are in during a brutal economic tsunami right now, and who are desperate for access to affordable credit. I would think that this issue to most New Mexicans would seem at least as urgent as the cannabis bill. And so that's why I'm optimistic that Gov. Michelle Lujan Grisham will see the urgency of this and I'm optimistic that she will put it on the agenda. 

 

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