LAS CRUCES - State legislators attempting to lower the maximum interest rate for short-term loans are giving themselves multiple opportunities for success this session.
Rep. Susan Herrera, D-Embudo, has introduced two bills that would lower the annual percentage rate (APR) from 175 percent to 36 percent. She said Tuesday, Feb. 2, that she hopes both of her bills are set aside, and a Senate bill sponsored by Bill Soules, D-Las Cruces, is the one to reach the governor’s desk. But she said they need to have a Plan B, and perhaps a Plan C.
And so, Herrera has introduced both House Bill 99, which cleared the Consumer and Public Affairs Committee on Tuesday, and House Bill 149, which is a duplicate of Senate Bill 66, sponsored by Soules.
“I understand well that the loan industry is a very formidable opponent, and I think it’s incumbent on us to do everything we can,” Herrera said. “I wish Sen. Bill Soules all the luck in the world. If he gets it through the Senate, I will carry his bill (in the House). But I’ve been around here long enough to know that my side doesn’t always win.”
“I’ll hold (the House bills) and see what happens,” she said. “I hope the Senate bill wins, but if not, we have another plan.”
Opponents of the bill said the 175 percent rate, which was set in 2017, was never intended to be permanent. They said a comprehensive study called for in 2019 will be completed soon, and any changes should wait until that is done. And, short-term lenders said they can’t survive with a 36 percent rate.
Industry lobbyist Jason Weaks said APR is an annual interest rate, which does not translate well to short-term loans that are intended to be paid off in a few weeks or months. He said businesses would be forced to leave the state if the rate is capped at that level.
Tony Tanner, who owns lending businesses in Gallup and Farmington, argued that the bill will leave low-income residents without any options when they need cash in an emergency.
“It will eliminate their choice because we will no longer be in business,” he said “I hear people saying that this is a win. For people who utilize these products, it’s far from a win. It’s a choice taken from them.”
Danielle Arlow of the Financial Services Association said those with low credit scores would be cut off from the ability to get a loan. And, even those with good credit will have a hard time getting small-dollar loans from banks.
Herrera said legislators choose 36 percent as the cap because that’s what the U.S. Department of Defense allows for loans made to men and women serving in the military.
“I agree, and think New Mexico should do the same,” she said. “In New Mexico, this isn’t a problem, it’s a financial epidemic.”
She said nearly 600,000 small loans were issued in New Mexico in 2019, with 85 percent of the money generated by the industry going out of state. And, the COVID-19 pandemic has only increase residents’ reliance on these loans, Herrera said.
Herrera said companies continue to operate in the state after having numerous violations filed against them, including for physically preventing people from leaving their homes in an effort to collect money due.
“This is not a business model we should encourage,” she said. “It’s harming families. And, the industry won’t shut down if we have a cap at 36 percent.”
Larry Horan, a lobbyist for the City of Las Cruces, said the city council there passed a resolution in support of the bills. And, he noted, the city has adopted a program to help employees secure loans that can be paid off through payroll deductions.
House Consumer and Public Affairs Committee member Rep. Randall Pettigrew, R-Lovington, said he thought the state was violating an agreement with the industry by moving forward with a rate cap before the study is completed.
“We are potentially going to have a $950 million economic impact on our state, and we don’t have all the results that we agreed needed to be gathered,” he said.
HB 99 is the first of the three bills to advance, and now goes to the House Judiciary Committee. HB 149 is awaiting its first hearing in the House Commerce and Economic Development Committee. And SB 66 will be heard first in the Senate Taxation, Business and Transportation Committee.