Payday loans tough to regulate in New Mexico

The quick cash industry is one that stands as a thorn in the side of many a politician. There are few legislators that want to see their constituents borrowing money at upwards of 400% per year. Then again, the pro-business Republicans control many state legislatures, and they are mostly hands-off when it comes to lending regulations. Ideally, legislators want to see businesses do well and their constituents be happy. It’s a tough line to walk, and these days, the businesses usually win.

New Mexico is one example of a state that continually tries to fight the payday lending industry, which is still largely unregulated in the Land of Enchantment. A 1955 law once held usurious lending in check, as that law capped loans of $150-300 at 12% per year, a rate that would send most cash advance lenders scurrying elsewhere. That law was repealed in 1981, not because legislators thought high interest lending was a good idea, but because inflation had caused interest rates for all types of lending to increase to levels that were above those regulated by the existing law. Lawmakers in New Mexico were rightly worried that a law that capped interest on loans of more than $1000 at 10% per year might make it impossible for mortgage companies to offer loans in the state. At that time, mortgage rates were averaging about 12-15% nationwide. The law was repealed, and has never been replaced by any comparable legislation.

Fast forward 25 years, and New Mexico now has a booming payday loan industry and a steady supply of low-income clients. In Gallup, one of the poorer cities in the western United States, there is a quick cash store for every 500 residents, which would strike any reasonable person as overkill. Unfortunately, every attempt made to limit the fees charged by such lenders during the last decade has been soundly defeated by the legislature, many of whose members receive contributions from the lending industry.

A new set of regulations may go into effect soon, however. They aren’t particularly strong; the regulations would limit fees to $15.50 per $100 borrowed, a “limit” of some 403% per year. Consumers would have the opportunity to renew a loan a maximum of two times by paying the $15.50/$100 fee again, and lenders would be unable to lend a customer more than 25% of their gross income.

After a second renewal, customers who are unable to repay would be allowed up to 130 days with no additional interest to repay their debt. These regulations would not affect car title lending which is considered a different type of lending product.

Compared to other states, New Mexico’s proposed regulations are rather weak. Some states have put tight restrictions on lending, as Oregon has recently done. New Mexico would serve its citizens well by considering similar legislation.

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