Small, quick loans often lead to an ever-deeper debt cycle, according to the Consumer Financial Protection Bureau. New Mexico lawmakers plan to further regulate the industry here during the 2021 legislative session. Senate Bill 66 cap rates and fees to meet national averages in an effort to help people at risk avoid a chasm of debt they can’t get out of. KUNM sat down with reporter Jeff Proctor to talk about the effort.
JEFF PROCTOR: Basically what we’re talking about here is what people thought of as payday loans and title loans. In other words, you could walk into a storefront with a pay stub or your vehicle title and get a loan at an insanely high interest rate because you needed the money right now. So it’s been around in New Mexico for decades and decades. The industry often calls them installment loans: you pay them off in installments and the interest builds up over time.
The situation we’re in right now is that payday loans don’t really exist in New Mexico anymore, but these little dollar installment loans do. There has been a long history of no regulatory framework for this industry in New Mexico. We used to have what was called a usury in the state law, which set limits on all types of loans. And when I say caps, I mean, above a certain interest rate, you weren’t allowed to charge. This ceiling therefore disappeared a few decades ago. It’s problematic in a place like this, because of course we face issues of lack of access to the American Dream and generational poverty.
So anyway, until the late 2000s, there was an effort by some lawmakers and then Attorney General Gary King to start regulating this industry. There had been all kinds of horror stories, it basically came to naught because the industry, which of course makes tons of money, paid a bunch of lobbyists and poured in money. campaign money on both sides of the aisle. In 2017, the Legislature passed what it called a compromise capping the annual interest rate at 175%.
KUNM: Now you know we’re in the midst of COVID which is having devastating effects on the economy. Does this increase the likelihood of legislation being passed or capped at 35% or 36%?
ATTORNEY: Some lawmakers now feel a sense of urgency, given the economic devastation caused by the coronavirus pandemic. And just quickly, in case we haven’t gotten a good enough point on this for listeners, there is a bill that has been pre-tabled that would cap the rate at 36%. There is an important distinction with this year’s bill: it is not just the interest rate that could be at most 36% for the year. It also includes all fees, and that’s a total of 36%.
And then the other kind of hope comes from the small change in landscape that we have seen in the Legislature. Previously, we have seen a certain blockage of reform efforts in this sector, on the part of some of the more conservative Democrats in both houses. And, of course, a handful of them were rejected by more progressive candidates. The final point is that the day our story was published, the governor included this issue in his list of legislative priorities.
KUNM: From your reports, you know, you’ve discovered that a majority of these storefront lenders are in low-income areas that are heavily indigenous and Latino. This seems to keep the cycle of this generational poverty localized in specific places. Tell me why did you all point this out in your report?
ATTORNEY: At least in Santa Fe County, we found the south side where you have a much higher prevalence of non-white communities and a much higher prevalence of people living in much, much lower tax brackets – and it’s according to census data, it’s not something we just made up – you see a huge prevalence of these stores. And if you walk up to the Plaza or downtown, you won’t find one with a GPS locator.
Your government of New Mexico is a collaboration between KUNM, New Mexico PBS, and the Santa Fe Reporter. Funding for our coverage comes from the New Mexico Local News Fund, the Kellogg Foundation, and KUNM listeners like you, with public media support provided by the Thornburg Foundation.