Sharer, Neville and Muñoz vote against bill capping APR for small loans at 36%
AZTEC — Short-term, high-interest loans tend to target the poor and Sen. William Sharer, R-Farmington, says that these lenders are needed because some people are not able to get other financial assistance for necessities.
A bill sponsored by Sen. William Soules, D-Las Cruces, and Sen. Katy Duhigg D-Albuquerque, would cap the annual percentage rate for these loans at 36%. The bill passed the Senate on March 2 on a 25-14 vote. Sharer was among the 14 senators who voted against the bill.
The bill is Senate Bill 66, or Permitted Percentage Rates for Loans.
Bill proponents say that these high interest rates target low-income people and worsen the problem. Additionally, New Mexico would not be the first state to enact such a measure.
Duhigg compared the short-term, low-dollar loans with high interest rates to giving a starving person poisoned food.
"It doesn't actually help them and it actually makes things a lot worse," she said.
Currently, lenders cannot charge more than 175% APR on a loan. According to the fiscal impact report, a four-month loan with an APR of 175% would have a 57.5% interest rate assuming no other fees were charged. In contrast, if the maximum APR was capped at 36%, that loan would have an interest rate of 11.8%.
Sharer argued that capping the interest rate at 36% would lead to these lenders closing and low-income people with low credit scores or no credit score would not have access to loans.
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He argued that a 36% APR would translate to a 3% per month interest rate. The loans in question are short-term and the terms are usually just a few months. Additionally, Sharer said that the short-term loans have a higher rate of default.
“Obviously this bill is intended to eliminate lenders that loan on less than a year,” Sharer said.
Sen. Steve Neville, R-Farmington, also opposed the bill, though he said 36% is a very high cost. He expressed concerns that it could impact pawn shops as well.
"I have real concerns that we're actually going to be hurting the people we're trying to help if we pass this bill as it's written," Neville said.
Sharer also said he believes the bill is well-intentioned but could hurt the very people it is intended to help.
Sen. George Muñoz, D-Gallup, broke party lines and voted against the bill. He expressed similar concerns to Neville and Sharer. Muñoz also represents a portion of San Juan County.
"What really gets me at the end of the day is that people don't really understand what happens in a person's life," he said.
Sen. Jacob Candelaria, D-Albuquerque, argued that these lending companies do not offer loans to everyone regardless of credit. He said he was unable to get such a loan when he had a low credit score.
Candelaria said there is a problem with poverty in New Mexico.
“Far too many New Mexicans live right at the cusp of financial disaster," he said.
Meanwhile, Sen. Gerald Ortiz y Pino, D-Albuquerque, said opponents' arguments were baloney.
“This is a simple human rights bill," he said.
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at firstname.lastname@example.org.
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