SANTA FE, N.M. — New Mexico is moving forward with an overhaul of the storefront lending marketplace that will cap interest rates at an annual 175 percent starting Jan. 1, while state regulators said Wednesday they will need several more months to write companion regulations that bolster consumer protections and enforcement.
The state currently places no limit on interest charges for short-term loans that cater to borrowers primarily of low incomes, who may use personal automobile titles or future tax returns as collateral.
Legislation approved earlier this year by the Democrat-led Legislature and GOP Gov. Susana Martinez contained a variety of consumer protections designed to discourage predatory lending practices.
Limits on fees and interest for loans are combined with requirements giving borrowers at least 120 days to repay in at least four installments — effectively eliminating payday loans tied to the next paycheck.
Consumer advocates on Wednesday warned a panel of lawmakers that delays in the adoption of detailed companion regulations could forestall provision for handling consumer complaints, funding financial literacy programs, and credit reporting requirements to help borrowers eventually qualify for lower-interest loans.
“There are large portions of this law that will require development in regulations in order to be effectively implemented,” said Lindsay Cutler of the New Mexico Center on Law and Poverty.
New Mexico Financial Institutions Division Director Christopher Moya said it will likely take until March or April to draft regulations for public review and comment.
Moya and colleagues said the regulations have been delayed because of the unexpected workload associated with the collapse of a nonprofit trust for the disabled, Desert State Life Management, and the state’s responsibility as a receiver for the nonprofit company embroiled in embezzlement allegations.
He assured lawmakers that the interest-rate cap and other guidelines in the law would still apply starting Jan. 1 and be enforced by state examiners.
At the start of the current year, there were 527 store locations offering small, short-term loans across the state of New Mexico and 100 other online outlets.
Charles Horton, president of the installment loan provider FastBucks, said he and his competitors have been consolidating operations and closing stores in New Mexico in anticipation of the interest rate cap.
He said traditional installment lenders in New Mexico already have proven they can make money while charging between 120 percent and 175 percent interest, but fewer borrowers will qualify under the new interest-rate cap.
“There’s a percentage of the population that likely will not be able to get a loan,” he said.
Consumer advocate Ona Porter, president of the nonprofit Prosperity Works, estimated that the interest cap will save New Mexico consumers about $500 million over the next two years.
Unsatisfied with the 175 percent interest cap, she has been promoting several new small-loan alternatives with moderate interest rates for people with little or no credit history. One is offered as an employee benefit, paid back through paycheck withdrawals.
The store-front lending industry has defended triple-digit interest rates as a way to ensure borrowing options for low-income residents in New Mexico, where high poverty and unemployment rates are chronic.