New Mexico's new rate cap on loans up to $10,000 had a major impact on lending businesses and consumers, reducing consumer credit options.
A new House Bill recently went into effect in New Mexico that capped the maximum rates lenders could apply to loans up to $10,000.
After this bill took effect, the New Mexico Regulation and Licensing Department (NMRLD) collected data about the impact this bill had on lending businesses in New Mexico. This data was then analyzed by the Online Lenders Alliance (OLA), showing that this bill had a large impact on small loan businesses and consumers.
Overall the OLA then found that this new data from New Mexico indicates that rate caps lower consumer credit options considerably.
What is House Bill 132?
House Bill 132 enacted a 36% annual percentage rate (APR) cap on loans with loan amounts up to $10,000 in the state of New Mexico. This means that loans in New Mexico, with loan amounts up to $10,000, can no longer charge an APR that is higher than the rate cap of 36%.
Small Loan Companies Decreased by 50%
According to NMRLD information, on March 31, 2022, before the bill went into effect, there were 531 licensed small loan companies in New Mexico. As of October 1, 2023, after the bill went into effect, this number dropped down to 266, decreasing the overall number of small loan companies available to residents in New Mexico by 50%.
This means that residents of New Mexico have 50% less small loan credit options within a year after this rate cap went into effect in their state.
The Chief Executive Officer of the Online Lenders Alliance, Andrew Duke, had the following to say:
“Every available piece of data and history shows that rate caps do not reduce the cost of credit, they only make it less available; New Mexico has sadly become the latest proof point of this.”
Borrowers who use small loan companies are looking to borrow a smaller amount of money for a short amount of time. These loans are often taken out to help avoid making late bill payments, avoid forgoing essential expenses, or pawning personal valuables when finances are tight. With 50% less small loan options in New Mexico, small loan users have a lot less options to turn to when they need financial help.
The Impact on Consumers
On November 2023, the Online Lenders Alliance (OLA) published a New Mexico Consumer Survey outlining the impact these changes had on borrowers that no longer had access to these short-term financial solutions.
The survey found that many former small loan borrowers now struggled to pay bills, access credit, and avoid alternative options for emergency financing like selling personal valuables. The survey also found that most former borrowers expressed a desire to return to their former lender and the financing options they previously had before the rate cap bill reduced the number of available lenders.
