ARLINGTON, Va. (January 4, 2024)—Data from the New Mexico Regulation and Licensing Department (NMRLD) collected and analyzed by the Online Lenders Alliance shows that within the first year of House Bill 132 going into effect—which enacted a 36 percent APR cap on loans up to $10,000 in the state—the number of small loan company licenses decreased by 50 percent. On March 31, 2022, before the rate cap was implemented, the NMRLD had 531 current licenses for small loan companies; as of October 1, 2023, that number had dropped to 266. This finding follows the results of a survey of former users of alternative credit products who have been impacted by the misguided law and have experienced a number of adverse effects.
“Every available piece of data and history shows that rate caps do not reduce the cost of credit, they only make it less available; New Mexico has sadly become the latest proof point of this,” said Andrew Duke, Chief Executive Officer of the Online Lenders Alliance. “One year after New Mexico’s rate cap took effect, the roughly 225,000 New Mexicans who rely on small dollar loans every year have far fewer credit options to address their financial needs.
“Data from the consumers who are most affected by this law shows the real-world impact on their finances including late bill payments, skipping urgent appointments or vital expenses, or pawning valuables. One year after this legislation went into effect, it’s clear that its proponents’ claims were hollow and the consumers who rely on access to alternative credit are demonstrably worse off,” Duke continued.
In November, OLA released the results of a survey of New Mexico consumers who had previously used the credit products no longer in the market due to the rate cap. That survey found that most former short-term, small-dollar loan users struggled with paying their bills since the rate cap took effect. A majority of borrowers indicated they were unable to access credit at some point following the rate cap. And when unable to access credit, consumers said they were left with poor alternatives, including late bill payments, skipping urgent appointments or vital expenses, or pawning valuables. Lastly, the vast majority of borrowers want the option to return to their previous lender, demonstrating support for the loan options available before the rate cap forced them out of the market.
The data from New Mexico mirrors data from Illinois, another state that recently implemented a rate cap. Between March 1, 2021, right before the state’s rate cap took effect, and March 1, 2023, the number of lender licenses in Illinois’ small dollar loan marketplace dropped by nearly 60 percent. Other studies conducted in Illinois determined that the state’s interest rate cap decreased the number of loans to subprime borrowers by 38 percent.