SANTA FE, N.M. (AP) — A bill capping interest rates at 36% annually for low-dollar loans cleared the New Mexico Senate on Tuesday.
Supporters argue that current law allows short-term loans to take advantage of the poor and send borrowers into a debt spiral.
“Access to up to two triple-digit interest rate credit is like giving a starving person poisoned food. It doesn’t actually help them and it actually makes things a lot worse,” said bill co-sponsor Sen. Katy Duhigg, D-Albuquerque.
Rates are capped at a 175% annual percentage rate for loans of $5,000 or less. The measure would expand restrictions to $10,000 loans.
Senators opposed to the bill, mostly Republicans, argue that the 36% annual percentage rate would limit month-long loans to a mere 3%, driving some lenders out of business and cutting off credit options for low-income residents.
Republicans in the House and Senate have argued for more financial education for young people instead of hard and fast rules against high interest rates.
Sen. William Sharer argued that too many New Mexicans are unbanked and cannot rely on traditional lenders like credit unions.
Duhigg said that some credit unions and nonprofit organizations can fill the need for small-dollar, short-term loans.
The bill passed the Senate largely along party lines in a 25-14 vote. It now heads to the House, where it’s expected to pass.
Democratic Rep. Susan Herrera of Embudo was jubilant as she listened to the Senate vote from her office in the Roundhouse. “I don’t know how many people in both the Senate and the House have tried to carry this legislation and lost but this is the year it will pass,” she said.
Herrera said that aggressive lobbying from the storefront short-term loan industry had delayed the bill, adding that the industry makes a lot of campaign donations but that senators sworn in this year turned the tide.
Jason Weeks, a lobbyist representing affected loan businesses, did not immediately respond to requests for comment before and after the vote.