The New Mexico House of Representatives passed HB.132 – a bill that will eliminate access to credit for hundreds of thousands of New Mexicans by implementing a 36% annual percentage rate cap on small-dollar consumer loans. Online Lenders Alliance Executive Director Andrew Duke issued the following statement on the legislation:
“Rate caps, like those in this bill, harm consumers by restricting credit and eliminating financial options for those who need them, plain and simple. Those who use these loans do so because they are the best available option for their unique needs and circumstances, whether those are cost, speed, ease of use, or access.
“If a 36% APR cap is implemented, credit options will decline, leaving many consumers, especially those with working class incomes and lower credit scores, with arguably more expensive alternatives like late bill payments or overdrafts. Proponents of this bill argue that other institutions, namely credit unions, will step up and meet the demand for these types of credit products. However, this claim is wholly unsupported by the data. A few facts to keep in mind:
- A survey of borrowers found that a third of those who borrow from alternative lenders in New Mexico already have accounts at credit unions. If credit unions could provide small-dollar loans to nonprime consumers after the rate cap, then they could do so now.
- Federal credit unions in New Mexico can provide Payday Alternative Loans (PALs), which is a unique credit union small-dollar loan. PALs can charge a 28% APR along with a $20 application fee. Depending on the duration and size of the loan, many PALs would likely violate the 36% all-in APR limit that passed in HB.132.
- Even with an APR that exceeds 36%, federal credit unions in New Mexico only provided 14,500 PALs in 2020, far below the 488,000 people who are underbanked in the state or the 400,000 New Mexico consumers who take small dollar loans each year, 95 percent of which exceed 36% APR.
“Lawmakers need to consider the impact that this legislation would have on their constituents who rely on credit to meet their financial needs-especially as the cost just about everything is going up and household budgets are being stretched to the limit. This rate cap will not lower the cost of credit; it will only lower the availability of credit.”
