Senate passes bill to cap rates on small loans
By WALTER RUBEL/ Southern New Mexico Journalism Collaborative
LAS CRUCES, N.M. — Legislation to set a 36 percent annual percentage rate cap on small loans passed the New Mexico Senate on a 25–14 vote Tuesday, March 2, following a debate in which both supporters and opponents of the bill claimed to be on the side of the poor.
“Predatory loans harm families and push people into poverty,” said Sen. Bill Soules, D-Las Cruces, sponsor of Senate Bill 66. “They prey on people on the margins and they weaken the foundations of strong communities.”
“You don’t understand how the world really works,” Sen. George Muñoz, D-Gallup, shot back.
“People need to realize what happens in the real world when you run out of money,” said Muñoz, who owns a construction company. “You’ve got your paycheck. You may not have made your utility bill. You may need your copay to go into the emergency room. These are the realities of life. So where are they going to go?
“The bank ain’t going to make you a loan for under $5,000,” Muñoz said. “The credit unions won’t make you a loan. So where are they going to get these loans?”
Sen. Cliff Pirtle, R-Roswell, offered his own answer to that question. “These people are going to find loans somewhere, and there are going to be a lot of broken thumbs,” he predicted.
Soules responded that the 36 percent rate is in place in other states, and is required when lending to members of the military regardless of what state they are in. And those moves have not been accompanied by a rash of suspicious thumb injuries.
This year’s bill follows legislation in 2017 that eliminated payday loans by requiring a term of at least 120 days and set the APR at 175 percent. During committee hearings on the bill, opponents said the 175 percent rate was never intended to be permanent. They called for lawmakers to wait for the completion of a study expected later this year before finalizing rates.
Soules said he couldn’t wait. He said a lot of the calls he has received on the bill are from people who think 36 percent is still too high.
There was a lot of discussion during the debate about the difference between APR, which is an annual rate that includes both interest and fees, and simple interest. Any statement that the interest rate has been at 175 percent and would be lowered to 36 percent is not accurate, said Senate Minority Leader Greg Baca, R-Rio Rancho.
“APR includes all fees associated with the loan. On a larger loan, that doesn’t make much difference,” he said. But on small loans the fees and interest combined would not be enough to stay in business.
“If a lender cannot make money originating these smaller loans, they simply will not make the loans,” Baca said.
Sen. Gerald Ortiz y Pino, D-Albuquerque, disputed that. He said credit unions have stepped forward to offer their services and said the claims that companies will go out of business should not be believed.
“We’re told they could not possibly survive with a 36 percent cap, and yet 42 states have caps, and many of them are at 36 percent. The median is 31 percent,” he said “This is baloney that we’re being sold here on the floor when we’re told this will leave poor people without any access to obtaining loans. If 41 other states with caps can do it, New Mexico can do it.”
The bill passed with one Republican vote coming from Sen. Gregg Schmedes, R-Tijeras. “This is not the type of lending I want to see flourishing in the state,” he said.
Soules said he is confident as the bill now moves to the House.
“I think it’s got pretty good support,” he said. “We got one Republican vote for it, and that’s always helpful.”
He said that if passed, this bill, along with the one in 2017, would finally resolve a problem that has plagued New Mexico for years.
Walter Rubel can be reached at firstname.lastname@example.org