Once a person has taken out a loan from a storefront lender in New Mexico, interest rates up to 175% can quickly spiral out of control. Because they target lower-income people who don’t have bank accounts, these storefront outfits are often referred to as “predatory lenders.” A 2020 Think New Mexico report describes New Mexico as “saturated”: In New Mexico there is a small loan store for every 3,819 residents, according to the report. By comparison, there is one McDonald’s restaurant for every 23,298 New Mexicans.
As lawmakers attempt to cap interest rates at 36% this session, they might keep in mind a new New Mexico Ethics Watch report that took a look at the industry’s lobbying efforts. It’s a report that quantifies some of the spending but also gets across just how much we can’t know about the influence peddling that goes on at the Roundhouse, bringing up an issue New Mexico In Depth has reported on repeatedly over the years: lobbying disclosure.
New Mexico In Depth has looked at contributions by the small lending industry before. For instance, in 2015 the small lending industry gave contributions to seven members of a 10-member legislative committee that blocked legislation to cap interest rates at 36%. The NM Ethics Watch report provides an in-depth look at the size of campaign contributions from the industry as a whole and their lobbyists.
As it turns out, the industry gives big bucks.
They found contributions during the 2020 election cycle totaled $140,650, with $88,950 to candidates and $51,700 to political action committees.
That may be small compared to the oil and gas industry, which has an outsized footprint in New Mexico, but it’s not chump change either.
But even more striking is that nine prominent contract lobbyists employed by the industry gave $133,370 to legislative candidates, almost as much as the industry gave directly.
These lobbyists represent numerous clients, not just storefront lenders, but they are well-known figures who have long established relationships with lawmakers.
Of the $133,370 reported by the lobbyists, NM Ethics Watch couldn’t break out how much was spent on behalf of the small lending industry, because New Mexico allows lobbyists to simply report that they contributed money on their own behalf.
The state also doesn’t require that lobbyists report how much they are paid by their clients. The magnitude of spending by the small lending industry to influence how lawmakers vote can’t be known without disclosure of the amounts they pay to lobbyists.
The governor didn’t include lobbying reform as one of her legislative priorities this year, so several bills that would require more reporting about lobbying won’t be heard this session.
Meanwhile, the high-interest lending to low-income New Mexicans who find themselves cash poor continues.
More from the Think New Mexico’s report: In 2012, research by Pew Charitable Trusts found nearly half of borrowers from such storefront lenders had incomes less than $25,000. From the NM Center on Law and Poverty, 60% storefronts are within 10 miles of a Pueblo or tribal reservation. There are 549 storefronts, the report states. A survey by the FDIC shows 11.5% of New Mexico households are “unbanked,” i.e. without a checking or savings account, making the state an ideal location for storefront lenders. And Wallethub in 2019 found New Mexico had the third highest number of unbanked households behind Mississippi and Louisiana. Those are the same two states New Mexico routinely competes with for the most households living in poverty.
How does New Mexico compare with other states? It’s allowable interest rates are some of the highest in the nation.
High interest rates aren’t new. New Mexico In Depth wrote about the bind people find themselves in back in 2015, looking at how one small loan quickly mushroomed far beyond the sum of money borrowed. As the deadline to pay the loan off neared, the borrower was forced to take out another loan to pay the original amount and the interest owed on it, creating a new principal amount. And then they did that again and again as repayment came due, increasing how much they owed and with it the interest on what they had borrowed. The hole this person found themselves in was deep.
Waves of reform efforts led to some changes in 2017, with capped interest rates at a still astronomical rate of 175%. Reformers have continued pressing.
In 2021, a bill passed the Senate that would have capped interest at 36%. But it floundered after representatives in the House amended the cap to 99% on small loans under $1,100. The measure never made it to the governor’s desk.
This year, legislation to cap interest rates at 36% is moving. House Bill 132 passed the House Consumer and Public Affairs, its first committee hearing, on a vote of 3 to 2 Saturday. But with just a little more than two weeks left in the session, it faces an uphill battle to finish.