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New Mexico Cracks Down on Payday Loans and Other Short-Term Loans

For many consumers, payday loans have become a fast and easy way to manage short-term financial emergencies. Unfortunately, many of those same consumers find themselves in a financial spiral after taking out payday loans. In response, lawmakers are now making a push to rein in payday loans. In New Mexico, the House Business and Industry Committee recently capped interest rates on certain installment loans at 175 percent and effectively placed a ban on small loans with terms less than 120 days.

The House Judiciary Committee later endorsed the bill, which advanced it to the full House of Representatives. While consumer advocates have lobbied for such legislation for a number of years, this is the first time that a bill placing limits on payday loans has gained such steam. In the past, any proposals regarding an effort to rein in payday loans and title loans never made their way out of committee.

According to data released by regulation and licensing officials in New Mexico, interest rates on title loans, payday loans, and installment loans can range up to more than 450 percent. In 2015, more than 23,000 title loans were reported issued in New Mexico. Of that number, approximately two-thirds were refinanced, renewed, or extended. Consumer advocates point out that capping interest rates on short-term loans at 175 percent still makes it difficult for such loans to be repaid and leaves consumers vulnerable to a cycle of debt.