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The big fish that New Mexico let get away


Commentary: The New Mexico legislature is once again considering modifying statutory interest rate caps on loans that are not secured by real estate. Many may not know that 41 years ago our legislature passed laws eliminating all caps on loans that were not secured by real estate in an attempt to reel in a big fish. This is that story.

The U.S. experienced very high inflation from 1979 through 1981. In each of those years, annual inflation was over 10%. Credit card companies couldn’t make any money because state laws limited the interest rate that could be charged on credit card debt. New Mexico had a fairly typical usury statute (NMSA 56-8-11(1978)) which limited interest rates on unsecured loans to 12% and 10% on loans secured by personal property, such as a car loan.

Credit card companies began to lobby state legislatures around the country with the carrot that if a state would drop its interest rate cap for credit card loans, that the company would give serious consideration to setting up a national credit card HQ in that state. Two of the first states to bite were New Mexico and South Dakota. On July 1, 1981, the New Mexico legislature repealed NMSA 56-8-1 and replaced it with statutes that removed all interest rate caps on credit card loans (NMSA 56-8-11.1 to 56-8-11.3 (1978)).

After the removal of interest rate caps, Citicorp came calling. It said that it wanted to set up a regional credit card processing center in Albuquerque and would be hiring about 1000 people. Just one problem: Before Citicorp could do business in N.M., it had to obtain an in-state banking charter from the N.M. legislature. In response to the Citicorp application, the New Mexico Banker’s Association fought tooth and nail to keep Citi out of the state, alleging that Citi’s presence would destroy local banking in N.M. In 1984, the N.M. legislature, which three years before had passed legislation removing interest rate caps to attract credit card companies to the state, denied Citicorp a banking license. Citicorp then took most of its credit card business to Sioux Falls, South Dakota.

After the legislature rebuffed Citicorp, the state ended up with the worst of both worlds. It lost all the economic development which Citicorp would have brought to the state and now had no interest rate cap on most loans. This attracted predatory lenders to the state. Perhaps worst of all, the rest of the country saw how shabbily Citicorp had been treated and decided that N.M. was simply not open for business.

And how is Sioux Falls, South Dakota doing with Citicorp? Very well, thank you. Citicorp is one of the top ten employers in the city with an estimated workforce of 1000 to 1500 ,and In 2019, it built a 72 million dollar office campus. Other financial institutions with major credit card operations followed Citi to Sioux Falls including Wells Fargo, Capital One and First Premier. Sioux Falls is a booming financial center.

That’s the sad story of how N.M. lost the big fish, and what could have been.