Commentary: ALBUQUERQUE, NM – This week, the New Mexico Financial Institutions Division (FID) released highly anticipated regulations on a law which imposed a 175% interest rate cap on small loans. In addition to capping small-dollar loan APR, the law (HB 347) which passed during the 2017 New Mexico legislative session, ensures that borrowers have the right to clear information about loan total costs, allows borrowers to develop credit history via payments made on small-dollar loans, and stipulates that all such loans have an initial maturity of 120 days and cannot be subject to a repayment plan smaller than four payments of loan principal and interest.
HB 347 and the proposed regulations signal progress for fair loan terms and a more inclusive economy for all New Mexicans by eliminating short term payday loans and enacting the first statutory rate cap on installment loans. But, while HB 347 is progress towards ensuring that all New Mexicans have access to fair credit, regardless of income level, the 175% APR cap required by HB 347 remains unfair, unnecessarily high, and will result in serious financial hardship to countless New Mexicans.
“The proposed regulations are a first step in giving all New Mexicans access to fair credit, but we still have a long way to go. In the past, storefront lending in the state was largely unregulated, and hardworking people were forced to borrow at interest rates as high as 1500% APR, forcing them into in a never-ending cycle of high-cost debt,” said Christopher Sanchez, supervising attorney for Fair Lending at the New Mexico Center on Law and Poverty. “All New Mexicans deserve a chance to more fully participate in our state’s economy. We hope to see additional regulations that would improve disclosures and language regarding loan renewals so that all borrowers can understand the terms of their loans.”
Storefront loans have aggressively targeted low-income families and individuals, with sometimes quadruple-digit interest rates or arbitrary fees and no regard for a family or individual’s ability to repay.
"Coupled with high interest rates and unaffordable payments, predatory loans prevent New Mexican families from building assets and saving for a strong financial future. These kind of unscrupulous lending practices only serve to trap people, rather than liberate them from cycles of poverty and debt,” said Ona Porter, President & CEO of Prosperity Works. "Enforcing regulation and compliance is a critical step in protecting our families."
The implementation and enforcement of HB 347, via regulation and compliance examinations by the FID, aims to finally allow all New Mexicans to more fully and fairly participate in New Mexico’s economy. The momentum surrounding this issue was recently accelerated when New Mexico Senators Tom Udall and Martin Heinrich cosponsored the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act to crack down on some of the worst abuses of the payday lending industry and protect consumers from deceptive and predatory lending practices.
The regulations released early this week are the first round of proposed regulations. Before FID releases the second round, the department will be accepting public comment, including at a public rule hearing on April 3 in Santa Fe.
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The New Mexico Center on Law and Poverty is dedicated to advancing economic and social justice through education, advocacy, and litigation. We work with low-income New Mexicans to improve living conditions, increase opportunities, and protect the rights of people living in poverty.
Prosperity Works is focused on removing systemic barriers that keep New Mexican families in cycles of struggle. We design, test, and implement high impact strategies that enable New Mexicans to build assets, understand finance, and free themselves from poverty.