Harmful interest rate cap bill heads to Senate

HB 132 is one of the worst bills in the New Mexico Legislature this session. It sets the Legislature up with the power to place arbitrary caps on interest rates. The Rio Grande Foundation has previously written about it here.

As noted HERE, Speaker Egolf engaged in numerous questionable tactics in order to get the bill introduced and through the House Judiciary Committee.

On the merits, well-off legislators and others MAY not find a high-interest-rate loan attractive, but unlike many working class and poor people they have collateral available.

This legislation is being heard on Saturday, January 28, 2022, in the Senate Health and Public Affairs Committee on the afternoon of Wednesday, Feb. 9.

Every Citizen of New Mexico Deserves Access to Some Form of Credit

Unexpected expenses and financial challenges are a part of life. When an unplanned medical bill or home repair pops up, small dollar loans can be a lifesaver. For many families, these loans provide a critical lifeline. 

New Mexico Legislators Must Protect Access to Credit for New Mexico Workers and Families

The COVID-19 pandemic (and the Governor’s response to it) hit New Mexico hard. Thousands of businesses closed forever, and many of our fellow citizens are struggling to pay bills.

Now, some state politicians in Sante Fe could make things worse by placing an arbitrary cap on interest rates on small dollar loans.  If passed it would make it harder – sometimes even impossible – for low-income New Mexicans to access the credit options they need.

Consumer credit rate caps will drive responsible loan providers out of the market, and will deny tens of thousands of New Mexicans with less than perfect credit access to the only form of credit they may have.

As we work to recover from the pandemic, it’s essential that all New Mexicans have access to resources like credit to survive and thrive.

Forces That Causes Changes In Interest Rates

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2 Replies to “Harmful interest rate cap bill heads to Senate”

  1. It is time for the government if New Mexico to step up to the plate and actually do something positive for those of its citizens who are less fortunate. I recognize these are risky loans, but interest rates of 175% are beyond the beyond, and contribute to the cycle of poverty.

    Take 175% simple interest with no compounding. In its most simple terms, an interest rate of approximately 1/2% per day is charged against the principle resulting in a linear expansion of the total amount due. For example, on a $1000 loan, $5 of interest is charged every day until the loan is paid off. If the loan is outstanding for a year, and paid off in a lump sum, $750 in interest would be added to the principle for a total amount due of $1750. That is a lot of money for a person earning minimum wage.

    Now let’s take that 175% interest rate and compound and credit it every day. This results in an exponential increase in the amount of money due to repay the loan. On day one an interest rate of 1/2%, or $5 is charged and credited to the account. On day two, the interest on the compounded amount is $5.025, and on day three it is $5.050, increasing exponentially every day the loan is outstanding. If the loan is outstanding for a year, and paid off in a lump sum, in the range or $2500 to $3000 in interest would be added to the principle for a total amount due of $3500 to $4000. How can representatives of the state government continue to allow this to happen to those with the least ability to repay?

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