A few months after a new annual 175 percent cap on small-loan interest rates in New Mexico went into effect, Mayor Alan Webber is proposing a short-term loan program to help municipal workers avoid payday lending businesses viewed as predatory by consumer advocates.
Webber’s proposal, his first piece of formal legislation, would allow city employees to take out “emergency short-term small loans” and pay them back over a year’s time through direct paycheck deductions, according to a city fiscal analysis.
This would preclude or at least discourage employees’ use of storefront lenders, who, the analysis states, “charge often exorbitant rates that can result in a debt trap that is difficult to overcome.” Such a program might also mitigate workers’ financial distress that could otherwise impact retention.
If the city indeed takes up Webber’s initiative, it would join at least seven counties and a few other local governments in New Mexico that make short-term loans available to employees, a group that has grown in recent months.
A proposal was made earlier this year at the Legislature that would have allowed state employees to partake in an employee loan program, though it did not survive the 30-day session focused on the state budget.
Webber said the prescribed 175 percent ceiling — approved by legislators and signed by Gov. Susana Martinez last year — “is hardly a cap.”
Indeed, advocates had hoped for a statewide interest rate cap almost five times lower, decrying the practices of storefront lending companies that they say target the poor and too often send working individuals into a spiral of insurmountable debt.
“Payday lending is often the quicksand of personal finance,” Webber said. “You never escape it.”
The counties of Bernalillo, Catron, Doña Ana, McKinley, Rio Arriba, Socorro and Taos have either implemented or are in the process of implementing an employee loan program, according to the New Mexico Association of Counties.
Susan D. Mayes, the association’s communications director, said she has scheduled presentations about the benefits of an employee loan program endorsed by the association with several more counties. She added Santa Fe County was not yet among them.
“It’s an alternative for those people who have little or no credit or bad credit who live paycheck to paycheck, and when an unexpected emergency arises, they need cash quickly,” Mayes said. “Where are they gonna go? Right now it’s predatory lenders or payday loans.”
A December news release by TrueConnect, the California-based employee loan provider working with New Mexico counties, stated 20 percent of Doña Ana County employees used the program in its first 10 months.
Santa Fe Public Schools takes part in the TrueConnect program as well, offering employees loans up to $3,000.
Mayes said TrueConnect offers free credit counseling to program participants.
“There’s no cost to this for the county,” Mayes said. “All they do is set up a payroll deduction.”
Although the state’s new 175 percent rate for small loans is far higher than the 36 percent advocates had pushed for, Prosperity Works, an Albuquerque consumer advocacy group, estimated the new state law would save state residents some $500 million over the next two years.
Ona Porter, the group’s president, said advocates will continue their campaign for a lower cap in future sessions of the Legislature. In the meantime, each new employee program “is major pushback on the predatory industry narrative that no one can loan to — quote-unquote — ‘these people’ for less than we can,” she said.
Webber, speaking last week about his resolution, which would issue a request for proposals, said he sought to close the gap for city workers.
“I would like it if we could step into the breach and make it possible for people not to fall into the clutches of that kind of a lending situation,” Webber said.
The city Finance Committee unanimously approved the resolution Monday.
Contact Tripp Stelnicki at 505-428-7626 or firstname.lastname@example.org.