SANTA FE — The state House late Monday adopted legislation that would cap the interest rate on small loans in New Mexico at 36 percent — the same annual percentage allowed by the U.S. Department of Defense for active-duty members of the military.
The measure would also allow an additional 5 percent charge for loans of $500 or less, a fee intended to help compensate the companies for the extra risk involved. It was added to the bill Monday as an amendment sponsored by Rep. Micaela Lara Cadena, a Mesilla Democrat who described it as an attempt at compromise.
The amended version of the legislation won House approval 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 presented the bill on the House floor Monday, said the proposal would help New Mexicans who are taken advantage of by out-of-state corporations.
“These stories are harrowing,” she 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 percent to 36 percent — for those who take out small loans.
Critics of the legislation have argued that lowering the state’s interest rate cap for storefront loans could put companies out of business and leave their employees out of work.
They also say such a policy shift would push borrowers to seek out unregulated lenders.
House Minority Whip Rod Montoya, a Farmington Republican who opposed the bill, said it would have a host of unintended consequences, such as leading people in need to pawn their goods to come up with cash. Lawmakers should trust New Mexicans to decide for themselves, he said, whether to agree to the terms of a small loan.
“The way I see this,” Montoya said, “is we don’t trust certain people. We believe certain people are too unsophisticated, too unable to make their own decisions for their own families.”
Eight Republicans joined almost every Democrat in voting in favor of the bill. Two Democrats voted against the bill. The chamber’s lone independent, Phelps Anderson of Roswell, was a co-sponsor of the bill and voted in favor of it.
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Even before lawmakers plunged into debate on the bill, it was at the center of a procedural skirmish.
Rep. Eliseo Alcon, D-Milan, made a motion to send the bill to the House Rules and Order of Business Committee, the panel that determines whether a proposal falls within the scope of what lawmakers may take up in a 30-day session.
The bill, he pointed out, wasn’t specifically authorized by the governor and had been amended to remove its appropriation, a change that warranted sending it back to the committee for another review. Tax and spending bills are automatically permitted in 30-day sessions.
The legislation initially included a $180,000 appropriation for financial literacy programs, but the proposed spending was removed during a previous 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 his motion to send it to committee and no vote was taken.
Gov. Michelle Lujan Grisham later Monday formally conveyed authorization for lawmakers to take up the bill.
Years of debate
Supporters of the bill say out-of-state corporations have set up shop in New Mexico to take advantage of low-income residents who need quick access to cash. Under the state’s current law, they say, storefront loan companies target the state’s Native American residents and low-income areas.
In addition, a survey of New Mexico Latinos conducted in December found 19 percent of adults had taken out a storefront loan during the COVID-19 pandemic.
Herrera said the neighboring states of Colorado and Arizona already have a 36-percent cap like the one she’s proposing. It’s the same limit allow for most consumer loans to active-duty members of the military under the Military Lending Act.
New Mexico has a long history with regulating the loan industry.
A previous 36-percent cap on loan interest rates was abolished by the Legislature in the 1980s amid high inflation, according to research done by the Santa Fe-based Think New Mexico, which has pushed for the lower rate cap to be reinstated.
After years of debate at the Roundhouse, lawmakers passed a 2017 bill that established the current 175-percent small loan interest rate cap and banned so-called payday loans with terms of less than 120 days.
But critics have insisted the 175-percent cap can leave low-income New Mexicans stuck in “debt traps.”
The Roundhouse debate has attracted the attention of many national companies that have hired lobbyists to represent their interests.
Small loan companies gave $140,000 in campaign contributions to New Mexico candidates and political committees during the 2020 election cycle, according to a recent report by New Mexico Ethics Watch.
During last year’s legislative session, one lending industry lobbyist said the industry employs an estimated 1,300 people across New Mexico.