Senate passes bill to cap small loan rates
LAS CRUCES – Legislation to set a 36% annual percentage rate cap on small loans was passed by the New Mexico Senate by 25 to 14 votes on Tuesday, March 2, following debate in which supporters and opponents of the bill claimed to be on the side of the poor.
“Predatory loans hurt families and push people into poverty,” said Senator Bill Soules, D-Las Cruces, sponsor of Senate Bill 66. “They attack marginalized people and weaken the foundations of strong communities.”
“You don’t understand how the world really works,” retorted Senator George Muñoz, D-Gallup.
“People have to understand what happens in the real world when you run out of money,” said Muñoz, who owns a construction company. “You have your salary. You may not have issued your utility bill. You may need your co-payment to get to the emergency room. These are the realities of life. So where are they going to go?
“The bank is not going to give you a loan for less than $ 5,000,” Muñoz said. “Credit unions won’t give you a loan. So where do they go to get these loans? “
Senator Cliff Pirtle, R-Roswell, offered his own answer to this 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% rate is in place in other states and is required for loans to members of the military, regardless of the state they are in. And these measures were not accompanied by a rash of suspicious thumb injuries.
This year’s bill follows on from 2017 legislation that eliminated payday loans by requiring a term of at least 120 days and setting the APR at 175%. During committee hearings on the bill, opponents said the 175% rate was never intended to be permanent. They called on lawmakers to wait for the completion of a study expected later this year before finalizing tariffs.
Soules said he couldn’t wait. He said most of the calls he had received regarding the bill were from people who think 36% is still too high.
There has been a lot of talk during the debate about the difference between the APR, which is an annual rate that includes both interest and fees, and straightforward interest. Any statement that the interest rate has been 175 percent and will be cut to 36 percent is not accurate, said Senatorial Minority Leader Greg Baca, R-Rio Rancho.
“The APR includes all costs associated with the loan. On a bigger loan, it doesn’t make much of a difference, ”he said. But on small loans, the combined fees and interest would not be enough to stay in business.
“If a lender can’t make money with these small loans, they just won’t make the loans,” Baca said.
Senator Gerald Ortiz y Pino, D-Albuquerque, disputed this. He said credit unions have stepped forward to offer their services and said claims that companies go bankrupt should not be believed.
“We’re told they couldn’t survive on a 36% cap, yet 42 states have caps, and a lot of them are at 36%. The median is 31 percent, ”he said. “We are being sold out here on the ground as stupidity when we are told that it will leave the poor with no access to getting loans.” If 41 other states with caps can do it, New Mexico can. “
The bill was passed with a Republican voice coming from Senator Gregg Schmedes, R-Tijeras. “This is not the type of loan that I want to see thrive in the state,” he said.
Soules said he was confident as the bill now goes through the House.
“I think he has pretty good support,” he said. “We got a Republican vote for it, and it still helps.”
He said if passed, this bill, along with the 2017 bill, would finally solve a problem that has plagued New Mexico for years.