SANTA FE, N.M. (AP) — New Mexico House legislators have approved legislation aimed at discouraging predatory lending by lowering the state cap on annual interest rates for storefront loans.
Democratic state Rep. Susan Herrera of Embudo is sponsoring the bill that would lower the maximum interest rate on storefront loans to 36%. The bill would also double the maximum size of small installment loans to $10,000, with repayment periods of up to two years.
The bill won House approval on a 51-18 vote Monday night and moved to the Senate for consideration.
Supporters have said restrictions are needed to ensure borrowers don’t fall into vicious cycles of debt that contribute to poverty in New Mexico.
“This is an important step to improve financial stability for our neighbors who are struggling to make ends meet,” Herrera said in a statement.
The bill also prohibits the garnishing of wages for nonpayment of loans and halts the accrual of interest within 90 days after nonpayment.
It bolsters disclosure requirements such as amortization schedules for loan repayment that are aimed at protecting consumers.
Similar legislative initiatives have failed repeatedly in recent years.
Opponents of the bill warned that it could undermine access to small, emergency loans for people without access to traditional lines of credit from banks or credit unions.
“I think there’s a danger for us … whenever we are here as lawmakers and we try to set the rates for the consumer instead of allowing the consumer and the lender to set those rates themselves,” said Rep. T. Ryan Lane, a Republican from Aztec.
New Mexico lawmakers in 2017 eliminated payday loans against future earnings and capped interest rates on small loans by storefront lenders at 175%.
The state’s small loan industry provided about 224,000 loans worth $420 million in 2020, the most recent year with statistics on record, according to the state financial institutions division.