New Mexicans in financial trouble who take out small loans from storefront lenders are now less likely to get trapped in a cycle of debt. A went into effect on Jan. 1, drastically reducing the amount of interest these lenders can charge.
The state previously capped small loan interest rates at 175%. For a $500 loan, a borrower could have to pay as much as $875 in interest. For people with low incomes and few other places to turn, that could mean not being able to pay the loan back, and stacking up fees to extend the due date or borrow even more.
That鈥檚 no longer allowed to happen in New Mexico, where the rate is now capped at 36%.
That figure is actually a return to the rate the state had from the mid-1950鈥檚 until the 1980鈥檚, according to Fred Nathan, executive director of Think New Mexico, who spoke with 九色网鈥檚 Your New Mexico Government podcast last year.
鈥淭hat interest rate seemed to strike a good balance and was very workable,鈥� he told host Kaveh Mowahed.
Think New Mexico advocated for the end to what it calls that targets economically vulnerable communities.
The storefront loan industry lobbied hard against the new rule that , saying the businesses would leave the state, creating job loss, and residents with bad credit and no bank would be left without options to access cash in a pinch.
Nathan told 九色网 that is not what has happened in the states that have already done this.
鈥淎bout half of them leave and the others stay and have a business model that works at 36%,鈥� he said. 鈥淚n addition, we鈥檝e got 145 credit union branches spread out all over the state. They鈥檙e already making small loans.鈥�
He added that credit union interest is capped at an even lower federal rate of 28%.
According to , 18 other states and Washington D.C. have enacted a rate cap on annual interest of 36% or less, a level which the organization calls 鈥渢he most effective reform.鈥�
