Small, high-cost loans are trapping New Mexicans every year at average interest rates of over 300%. These loans, such as payday, car title, and high-cost installment loans, are not a quick financial fix – instead, they quickly mire families in debt, leading to other financial harms such as bankruptcy. Most New Mexico families end up paying more in interest than they originally borrowed.
According to the New Mexico Department of Regulation and Licensing, in 2012, New Mexicans paid nearly $100 million in excessive interest payments for loans above 175% annual interest. This leaves struggling families with less money to pay their most basic expenses like rent, food and utilities. A recent study found that just one type of high-cost loans (payday loans) stifled the state economy and cost the state jobs. Borrowers trapped in high-cost debt send their dollars to out-of-state companies and spend less in the real economy, hurting local business.
The solution is SJR 20, sponsored by Senator Michael Sanchez, Representative Gail Chasey , and Senator Peter Wirth to let the people decide the appropriate ceiling for the costs of these loans in New Mexico.
SJR 20 simply allows New Mexicans to vote on a constitutional amendment to set a 36% annual interest rate cap.
A constitutional interest rate limit of 36% is the most effective, most efficient way to end the debt trap. In fact, the U.S. Department of Defense found that 300% APR loans to soldiers undermined military readiness. As a result, Congress enacted and President George W. Bush signed into law a 36% rate cap for payday and car title loans in order to keep military families from falling into spiraling debt cycle. These protections do not reach the triple digit interest rate installment loans made to military members in our state.
New Mexico legislators have gone back and forth on the issue of small loan rate caps for years and the result: currently there is no cap at all. New Mexico is one of only a dozen states that provides for no caps on any small loan product.
However, voters overwhelmingly want a cap. A January 2014 poll found that 86% of New Mexico voters favor a 36% Constitutional rate cap. This allows New Mexicans to align the state constitution with their values
It's time to let the people decide this issue.