Governor Michelle Lujan Grisham and members of the New Mexico State Legislature have caught some fire for choosing not to blindly follow some other states, and instead to work with stakeholders to study how major changes to the small-dollar lending system could impact New Mexico’s consumers. Detractors went so far as to say that a lack of leadership is the reason our policymakers haven’t quickly fallen in line to make sweeping changes impacting every consumer in the state. Considering the current economic climate and mounting evidence the changes have failed to help consumers as intended in other states, I applaud these pragmatic policymakers for taking the time to make sure they get it right.
At odds is a proposal to cap interest rates on consumer loans at 36%. Earlier this year, the state Senate passed a bill supporting the measure, but the state House did not concur and instead sent back a revamped proposal. Since then, the governor has been working with legislators in the House and the Senate as well as industry stakeholders to study the issue and work towards a compromise.
The decisions being made right now, as families deal with the health and economic impacts of the COVID crisis, will be some of the most important made in generations. They will affect people across our state and around the world for years. With that in mind, we simply can’t afford to get this one wrong.
It’s helpful to know that other states have adopted a 36% rate cap. Even if the measure was working as intended in other states, that would not be reason enough to adopt it here. After all, one size does not fit all. It is the duty of our policymakers to determine whether reforms to policy are good for our state before making decisions.
In states that instituted the aforementioned cap borrowers are still taking out loans above the threshold, but now they are being forced to use lenders that are less reliable and often less scrupulous than those they used before the caps were introduced – particularly impacted are consumers with subprime credit scores and minorities.
When I hear this, I can’t help but think of communities like Albuquerque’s International District, which is often and insensitively referred to as the “war zone.” Before the pandemic, approximately half of the neighborhood’s residents were below the federal poverty level – meaning one out of every two residents was living in poverty. Language, education, and employment barriers are key components of a cycle of disenfranchisement that has long prohibited those who call the International District home from participating in job creation and higher education perpetuating the cycle of poverty. Losing access to credit could be devastating for many in this community – and other diversity-rich communities across our state.
Racial and socioeconomic inequities have existed – and held us back – for far too long. Studies have shown there is tremendous economic potential for the people of New Mexico and their communities if we remove barriers so that all families and their children have opportunities to thrive. Specifically, our state can realize a $93 billion gain in economic output by 2050 if we close some of the racial gaps that exist in areas like health and education. The key to that will be making sure all communities have equal access to financial resources. Financial safety nets and hand-UPS are the hallmarks of a strong democratic civilization.
Looking forward to the next session, policymakers should continue to tackle the hard issues with a collaborative approach that ensures the best solution for New Mexicans. I encourage our leaders to find collaborative ways to protect consumers while making it easier – and not harder – for our community’s most vulnerable members to have financial resources at their disposal.