New Mexico Passes a Law Eliminating the Worst of the Worst Predatory Loans
Effective January 1, 2018, lenders in New Mexico cannot charge more than 175 percent APR with any small loan, including title loans. Although this rate is still far from a fair rate, this new law makes illegal the worst of the worst loans. Some lenders in New Mexico had been lending at 500 + percent APR, even over 1000 percent APR.
Many national predatory lenders have targeted New Mexico with their most predatory loan products. These lenders see New Mexico as a desirable location because of its historically lax regulatory environment. They exploit the significant percentage of New Mexicans who live below the poverty line, or who form the working poor, living paycheck to paycheck. Many New Mexicans cannot absorb an unexpected medical expense, an unexpected auto repair bill or an unexpected change in living situation. As a result, 20 percent of New Mexicans have had to take out a payday loan or title loan at some point in their lives. And many New Mexicans find themselves stuck on a treadmill of debt, never able to fully pay back these predatory loans.
National predatory lending enterprises control almost all the small lenders located in New Mexico. These enterprises structure themselves to mask that their New Mexico stores are owned or controlled by out-of-state entities, setting up nominal New Mexico corporations and adopting a new name for the stores located in New Mexico. But the money extracted from New Mexicans is sucked out of New Mexico on a monthly basis. The New Mexicans employed to staff these enterprises’ New Mexico stores are generally poorly paid and receive little or no benefits. Predatory lending does not provide real opportunity for New Mexicans, nor does it generate wealth here. Just the opposite.
In addition to mandating some limit to what lenders can charge, the new law has other features that, although very modest, offer some consumer protections. The new law restricts the fees that a lender can tack onto a loan. Under the new law, lenders must report individual loan history to credit reporting agencies, allowing consumers to build their credit so they can escape the debt trap that often results from payday loans or title loans.
But make no mistake. 175 percent APR is still grossly unfair and shameful. Many states have adopted laws that limit the APR on small loans to 36 percent. The federal government has made it unlawful to lend to any active service member at any rate above 36 percent APR. But New Mexico’s law allows nearly five times that limit.
For many years, the New Mexico Legislature has considered bills that would lower the allowable APR for small loans to 36 percent. But these bills do not pass. In New Mexico, this issue is not a partisan issue. Many Democrats have taken large amounts of money from the payday lending industry and have worked behind the scenes to prevent a fair rate cap in New Mexico. During the recent session when the new law was passed, only one brave legislator – Daymon Ely – stuck to his guns in demanding a fair rate cap, voting against the predatory 175 percent APR rate cap. Every other Democrat caved to the pressure exerted by the payday lending industry.
Consumer advocates continue to push for a fair rate. Maybe one day the Legislature will listen and pass effective protection for New Mexico consumers. But for that to ever happen, they will need to hear from the people, with their voice registering louder than the money spent by the payday lending industry. Make your voice heard!