SANTA FE — The state House of Representatives adopted legislation Monday night that would cap the interest rate on small loans in New Mexico at 36%, the same annual percentage rate allowed by the U.S. Department of Defense for members of the military on active duty.
The measure would also allow an additional 5% fee for loans of $500 or less, a fee intended to help compensate businesses for the additional risk involved. It was added to the bill Monday as an amendment sponsored by Rep. Micaela Lara Cadena, D-Mesilla, who described it as an attempted compromise.
The amended version of the legislation passed the House on a 51-18 vote.
The vote may represent a breakthrough after a similar measure died last year amid a deadlock between the House and Senate.
Rep. Susan Herrera, an Embudo Democrat who introduced the bill in the House on Monday, said the proposal would help New Mexicans who are taken advantage of by out-of-state corporations.
“These stories are heartbreaking,” he said.
The legislation, House Bill 132, now heads to the state Senate, which supported a similar proposal last year.
The bill would lower the annual interest rate cap, from 175% to 36%, for those who take out small loans.
Critics of the legislation have argued that lowering the state’s interest rate cap on business loans could bankrupt businesses and put their employees out of work.
They also say such a policy change would push borrowers to seek unregulated lenders.
House Minority Whip Rod Montoya, a Farmington Republican who opposed the bill, said it would have a number of unintended consequences, including leading people in need to pawn their assets for cash. Lawmakers should trust New Mexicans to decide for themselves, he said, whether to accept the terms of a small loan.
“The way I see this,” Montoya said, “is that we don’t trust certain people. We believe that certain people are too unsophisticated, too incapable of making their own decisions for their own families.”
Eight Republicans joined nearly all Democrats in voting for the bill. Two Democrats voted against the bill. The only independent camera, Phelps Anderson of Roswell was a co-sponsor of the bill and voted in favor.
Message from Lujan Grisham
Even before lawmakers dove into debate over the bill, it was at the center of a procedural skirmish.
Rep. Eliseo Alcon, a Democrat from Milan, has filed a motion to send the bill to the House Rules and Agenda Committee, the panel that determines whether a proposal falls within the scope of what lawmakers can address in a 30-day session.
The bill, he noted, was not specifically authorized by the governor and had been amended to remove his appropriation, a change that warranted sending it back to committee for another review. Tax and expense invoices are automatically allowed in 30-day sessions.
The legislation initially included an allocation of $180,000 for financial education programs, but the proposed spending was eliminated during an earlier committee hearing.
“We need to follow the rules whether we like the bill or not,” Alcon said.
But after intense debate over whether the bill should go to committee, Alcon abruptly withdrew its motion to send it to committee and it did not come up for a vote.
Later Monday, Gov. Michelle Lujan Grisham formally gave the go-ahead for lawmakers to take up the bill.
years of debate
Supporters of the bill say out-of-state corporations have moved into New Mexico to take advantage of low-income residents who need quick access to cash. Under current state law, they say, commercial loan companies target Native American residents and low-income areas of the state.
Additionally, a December survey of Latinos in New Mexico found that 19% of adults had obtained a loan from a store during the COVID-19 pandemic.
Herrera said neighboring states Colorado and Arizona already have a 36% cap like the one she is proposing. It’s the same limit allowed for most consumer loans to active duty military members under the Military Loan Act.
New Mexico has a long history of regulating the lending industry.
The Legislature abolished an earlier cap of 36% on loan interest rates in the 1980s amid high inflation, according to research by Santa Fe-based Think New Mexico, which has pushed for it to be lifted. reset the lower rate cap.
After years of debate in the Round House, lawmakers passed a 2017 bill that set the current small loan interest rate cap at 175% and banned so-called payday loans with terms of less than 120 days.
But critics have insisted the 175% cap could leave low-income New Mexicans trapped in “debt traps.”
The Roundhouse debate has drawn the attention of many national businesses that have hired lobbyists to represent their interests.
Small lending companies gave $140,000 in campaign contributions to New Mexico political candidates and caucuses during the 2020 election cycle, according to a recent report by New Mexico Ethics Watch.
During last year’s legislative session, a loan industry lobbyist said the industry employs about 1,300 people throughout New Mexico.