What should be a straightforward new law to help the most impoverished residents of New Mexico isn’t on the Legislature’s agenda.
Storefront lenders who charge a whopping annual interest rate of 175 percent are instead maintaining their profit margins with the help of state government.
The oppressive interest rate is legal in New Mexico because the state House of Representatives and Democratic Gov. Michelle Lujan Grisham haven’t exerted enough political muscle to lower it.
Legislators since Jan. 3 have been filing bills for their upcoming 30-day session. No one has offered a proposal to reduce the 175 percent interest rate.
Most state senators aren’t to blame. The Senate approved a bill last year to cut the rate to 36 percent — still ridiculously high but an improvement.
Gutless or greedy House members then capitulated to lobbyists and lawyers for the lending industry.
A bloc in the House rewrote the bill to establish a mix of 99 percent and 36 percent interest rates for installment loans taken out by people desperate for cash.
No meetings were held to resolve differences between the Senate and House bills. Storefront lenders coveted a stalemate. It kept the 175 percent rate on the books, immoral but legal.
At Lujan Grisham’s request, Lt. Gov. Howie Morales has met with lawmakers and industry representatives in hopes of working out a compromise.
“I’m disappointed that there hasn’t been an agreement,” Morales told me Tuesday. “But I’m also encouraged by the discussions that have taken place.”
I’m not. Storefront lenders have no incentive to lower the interest rate during informal discussions. Politicians must do it through force of law.
The Democrat-controlled House of Representatives has been more worried about alienating moneyed lobbyists than protecting the public. Nothing will change unless Lujan Grisham announces she wants a bill eliminating predatory lending practices.
She isn’t taking a stand. Her press secretary sent me this windy statement Tuesday: “We certainly support the effort, as we did in 2021, and would like to be able to secure a successful path forward for addressing the issue — but in a session sure to have a weighty agenda to be addressed in just 30 days, we are not willing to compromise the importance of the matter by adding it to the agenda without a good-faith consensus between stakeholders that will result in substantive action and protections for New Mexicans.”
That’s a dense way of saying Lujan Grisham will allow the lending industry to continue charging 175 percent interest until it shocks everyone by accepting a pay cut.
The governor isn’t bashful about pushing legislators down one path or another when she wants to. Lujan Grisham favored legalization of recreational cannabis, and she called a special legislative session to get her way. Now she’s asking lawmakers to approve a minimum raise of 7 percent for school employees.
Yet she hopes an industry profiting from obscene interest rates will change its business practices based on informal conversations.
“The governor cannot leave this decision up to opponents of the bill for 36 percent rates,” said Fred Nathan, who heads Think New Mexico, a nonprofit public policy organization. “If she doesn’t believe it is acceptable for low-income New Mexicans to continue paying 175 percent interest rates on small loans, then she needs to give the reform bill a message and make it a part of her legislative agenda.”
Sen. Bill Soules, D-Las Cruces, sponsored the reform bill last year. Now he’s waiting for the House to act first on cutting the interest rate.
“I’m not interested in having my name on a bill that they’re going to change to 60 percent or 99 percent or something worse,” Soules said.
His idea is for House members to initiate the bill, then have the Senate clean it up.
Rep. Susan Herrera, D-Embudo, carried the reform bill in the House last year. But she later joined with other House members to add a 99 percent interest rate to the proposal.
Herrera didn’t respond to requests for comment on whether the House, where Democrats have a 45-24-1 advantage, is willing to revisit the issue.
Many storefront lenders are part of national companies. The money they collect through exorbitant interest rates flows out of the state.
Downtrodden residents of New Mexico are pawns sacrificed to create wealth elsewhere.
Instead of staunching the bleeding and ending the exploitation, most legislative Republicans and some Democrats say the best approach is hands off. Let free markets work.
They ignore the fact that a score of other state legislatures have capped most interest rates at 36 percent or less to protect people from financial predators.
As for free markets, credit unions in New Mexico have stepped up to offer lower rates. The problem is not-for-profit credit unions are outnumbered by aggressive storefront operations with sizable marketing budgets.
The existing system favors businesses that will bleed a customer until he’s broke, then take away his car for missing payments.
New Mexico legislators often talk about the need to teach financial literacy in schools. House members are living proof a refresher course at the Capitol is in order.