Storefront lenders howled when the New Mexico Legislature finally outlawed their 175% annual interest rates.
The lenders claimed they鈥檇 provided a public service. Mostly they saddled desperate customers with crushing debt.
The smokescreens from industry lobbyists didn鈥檛 survive in a land of pink-and-orange sunrises. Storefront lenders across New Mexico are still in business 13 months after lawmakers capped rates for small loans at 36%.
The lower figure still sounds oppressive, but at least the years of state politicians abetting predatory lenders are over. Or are they?
A new threat to consumers has emerged with House Bill 59, sponsored by Democratic Reps. Tara Lujan of 疯客直播 Fe and Micaela Cadena of Las Cruces. Lujan says the proposal is about good government. She describes it as a means to regulate tech businesses that enable workers to receive earned wages before payday.
鈥淓verything鈥檚 at the tip of your fingertips. You can do it online,鈥 Lujan said.
Her bill, the Earned Wage Access Services Act, claims these financial tech companies are not subject to the state law on lending rates. The bill says early payment of wages shall not be considered 鈥渁 loan or other form of credit or debt.鈥
But New Mexico鈥檚 legal definition of loans is broad. Critics of Cadena鈥檚 and Lujan鈥檚 bill say the measure is designed to let certain companies sidestep the cap.
鈥淲hat they鈥檙e proposing walks like a loan and quacks like a loan. It is a loan,鈥 said Fred Nathan, executive director of Think New Mexico, a policy organization that was instrumental in ending the 175% interest rates charged by storefront lenders.
The National Consumer Law Center also opposes Lujan鈥檚 bill, saying it鈥檚 a version of old payday lending schemes that trapped consumers in debt.
鈥淗B 59 would exempt fintech payday loans from New Mexico鈥檚 lending laws and interest rate limits,鈥 the law center stated in a letter opposing the measure. 鈥淚t offers a fee limit that would still result in triple-digit annual percentage rates and mounting fees.鈥
Cadena did not respond to requests for an interview about the bill. Lujan told me their proposal is smart public policy because it regulates an industry that otherwise is left to do as it pleases.
Nathan believes the representative is misinformed. He said New Mexico鈥檚 36% cap on loans applies to the tech companies that charge fees for processing advances ahead of payday.
That debate is in full fury in the nation鈥檚 capital. The attorney general of Washington, D.C., in November sued EarnIn, an app-based lender, claiming it marketed illegal, high-interest loans to more than 20,000 consumers.
鈥淭he Office of the Attorney General alleges that EarnIn violated District law by falsely claiming its so-called 鈥榚arned wage advance鈥 product is not a loan and can be accessed instantly with no mandatory fees and no interest, the prosecutor, Brian Schwalb, said in a statement.
Other complaints have surfaced in states where consumers signed up for access services to obtain paychecks earlier than the normal cycle. 鈥淭hey have charged fees that are the equivalent of 300% annual percentage rates or more,鈥 Nathan said.
He and his staff at Think New Mexico said Lujan鈥檚 HB 59 contains loopholes that would hurt consumers.
鈥淚t does not include any limits on the cost of borrowing,鈥 Nathan said. 鈥淲hile there is a $7.50 cap per transaction, the definitions section explicitly excludes 鈥榲oluntary tips, gratuities and donations鈥 from the calculation of fees, even though companies that utilize tips collect them 73% of the time.鈥
Cadena and Lujan are scheduled to present their bill for the first time Friday afternoon before the House Commerce and Economic Development Committee.
Lujan said she was inspired to co-sponsor the bill by a Nevada lawmaker she met at a convention of legislators in Oregon. Lujan did not know the bill that led to Nevada鈥檚 law on early delivery of wages was based on model legislation from ALEC 鈥 the American Legislative Exchange Council.
ALEC is an organization that boasts of its commitment to free markets and limited government. Storefront lenders also hailed free markets when they said their 175% interest rates were essential to serving people who otherwise could not obtain credit.
Lujan said her interest is in providing a regulated system for people facing an emergency to obtain their wages early.
鈥淚n New Mexico, 70% or more don鈥檛 have savings,鈥 she said.
Even so, Lujan said, this bill is not her priority. She is sponsoring a dozen other measures, none of which have met heavy resistance so far.
Lujan and Cadena have put their names on a bill that again threatens to let out-of-state corporations exploit low-income people.
Theirs is a Trojan horse. It should not ride again.