I recently participated in an effort by a veterans’ group to lower the maximum allowable interest rate for small loans in New Mexico from 175% to 36%. Our position was that since federal law prohibits loans to active duty military members in excess of 36%, the same interest rate cap should apply to military veterans and indeed to every New Mexico resident. Neighboring states like Colorado and Arizona had already adopted the 36% interest cap.
It was clear from the evidence presented in the House Labor, Veterans and Military Affairs Committee that these loans targeted the poorest citizens in our state, putting them in a “debt trap” where they would be forced to remain in debt for years while they paid the old loans with new extended loans with higher payments from the same lender.
The interest paid on these loans was staggering, and have been labeled by reformers as predatory, with one former employee of a storefront lender testifying that he had to quit his job because he realized that he was ruining people’s lives.
I learned that this battle has been going on for years in New Mexico. The powerful lobbyists from the industry have been successful in fighting back reform efforts through both Republican and Democratic administrations. They argue that the borrowers are high-risk and can’t get loans anywhere else, and that the storefront lenders employ many people and might leave the state if the cap is enacted and take the jobs with them. Both arguments were shredded in the committee hearings, with the president of the Credit Union Association of NM testifying that his members would make such loans at less than 36%.
