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SANTA FE — Legislation that would sharply lower New Mexico’s interest rate cap for in-store lenders could move quickly in the Senate after winning bipartisan support in a late-night vote in the House of Representatives – a breakthrough, supporters say, will bring the bill closer than ever to adoption.
In a bid to crack down on what some call “predatory” lending, the proposal would lower the annual interest rate cap on small loans to 36%, bringing the limit in line with what federal law allows for active-duty workers. The state now allows an interest rate of 175% per year.
A similar measure to lower the cap died last year amid a deadlock between the House and Senate over where the cap should be set.
But it was the House of Representatives, not the Senate, that refused to approve an interest rate of just 36% on all small loans during the 2021 debate.
In a reversal this year, the House of Representatives voted 51-18 late Monday to cap the interest rate at 36%. The bill, House Bill 132, was amended to also allow a one-time 5% fee – similar to a processing fee – on loans of $500 or less.
Democratic Sens. Katy Duhigg of Albuquerque and William Soules of Las Cruces — longtime supporters of the legislation — said they support the amended version of the bill.
“I think the legislation passed by the House of Representatives strikes a good balance to ensure that we end predatory lending in New Mexico without restricting access to funds that many in our state depend on,” he said Duhigg the Journal.
In an interview, Soules said the legislation is similar to that passed by his chamber last year, increasing the likelihood it will finally reach the governor’s desk this year.
“This helps New Mexicans and keeps money in our communities,” Soules said.
He added: “This is further than we’ve come before.”
The vote in the House of Representatives took place around 11:30 p.m. Monday after a three-hour debate on the retail lending industry.
Eight Republicans joined nearly all Democrats to vote for the bill, in addition to supporting Rep. Phelps Anderson, a Roswell independent and co-sponsor of the bill. Two Democrats cast “no” votes.
The bipartisan support came after Rep. Micaela Lara Cadena, D-Mesilla, received approval for changes to allow an additional 5% fee for loans of $500 or less and to impose reporting requirements on credit unions when they offer small loans that similar to those available in retail stores.
Rep. Susan Herrera, an Embudo Democrat who introduced the bill Monday in the House of Representatives, said the proposal would help New Mexicans who are being taken advantage of by non-state corporations.
“These stories are harrowing,” she said.
Critics of the legislation said it could put companies out of business, put their employees out of work and pressure borrowers to turn to unregulated lenders.
House Minority Whip Rod Montoya, a Farmington Republican who opposed the law, said it would have a host of unintended consequences, such as making people in need pawn their goods to get cash.
“The way I see it,” Montoya said, “is that we don’t trust certain people. We believe that certain people are too low key and unable to make their own decisions for their own families.”
But supporters are optimistic the bill will get the votes it needs before the Feb. 17 session ends to land on Gov. Michelle Lujan Grisham’s desk.
“The major bipartisan vote in the House of Representatives is a turning point in the fight to end predatory lending in New Mexico,” said Kristina Fisher, deputy director of the bipartisan group Think New Mexico, in a written statement.
The 5 percent fee proposal being developed by the House of Representatives “is a reasonable compromise,” she said, “and we will not oppose it.”
‘Observe the rules’
Even before lawmakers dived into Monday’s debate over the bill, it was at the center of a procedural dispute.
MP Eliseo Alcon, D-Milan, tabled a motion to send the bill to the House Rules and Order of Business Committee, the body that decides whether a proposal falls within the scope of what lawmakers have a 30-day period session can take up.
He noted that the bill had not been specifically approved by the governor and amended to reverse his appropriation, an amendment that warranted sending it back to the committee for reconsideration. Tax and expense invoices are automatically allowed in 30-day sessions.
The legislation originally proposed a $180,000 allocation for financial literacy programs, but the proposed spending was scrapped during a previous committee hearing.
“We have to play by the rules whether we like the law or not,” Alcon said.
But after intense debate over whether the bill should go to committee, Alcon abruptly withdrew its motion to refer it to committee, and no vote took place.
Lujan Grisham later on Monday formally gave lawmakers the go-ahead to include the bill.
How to regulate the lending industry has been a long-standing debate in New Mexico.
A previous 36% cap on lending rates was removed by the legislature in the 1980s in the face of high inflation, according to research from Think New Mexico, which has pushed for the reintroduction of the lower interest rate cap.
After years of debate in the Roundhouse, lawmakers passed legislation in 2017 that fixed the current 175% interest rate cap on small loans and banned so-called payday loans with terms of less than 120 days.
The Roundhouse debate has drawn the attention of many national corporations, who have hired lobbyists to represent their interests.
According to a recent report by New Mexico Ethics Watch, microcredit companies made $140,000 in campaign contributions to New Mexico candidates and political committees during the 2020 election cycle.