Testimony of NTU State Affairs Director Jess Ward to the New Mexico House Judiciary Committee:
The Honorable Chair Chasey and New Mexico House Judiciary Members,
I am testifying in my capacity as Director of State Affairs for National Taxpayers Union – the oldest taxpayer advocacy organization in the country. I hope you will consider opposing HB 132, legislation that would place an interest rate cap of 36 percent on personal loans and would institute restrictions on the ability of small banking institutions to partner with third-party loan servicers and credit unions.
While proponents of the cap aim to end predatory lending, the implementation of the proposed change in law will actually prevent consumers with poor credit scores from accessing credit products during a period of financial need. The unintended consequences of this legislation will be far worse than any erroneously anticipated gains and will disproportionately impact minorities who suffer from low credit scores.
Currently, consumers with credit woes, cash shortages and underbanking are able to access credit through the free market, a development in lending markets that should be viewed positively, not labeled as predacious. If the goal of HB 132 is to increase financial stability among New Mexicans, limiting the ability for small banks to partner with third party lenders in an effort to improve credit scores defies logic.
Contrary to the belief of those who support HB 132, traditional installment loans, offered by smaller lending institutions, are a safe and transparent method for consumers attempting to create positive credit histories. While larger lending institutions require borrowers to have an established credit foundation, partnerships among smaller institutions allow for those institutions to provide financial services to clients who pose a greater borrowing risk.
The proposal before you will harm New Mexico’s most vulnerable population during a time when they are already grappling with the economic downturn created by the COVID-19 pandemic. Ending predatory loans is a laudable goal; however, HB 132 is a misguided legislative initiative that ultimately hurts the population it is striving to protect. If enacted, the 36 percent rate cap and restrictions placed on personal loans will effectively punish those less fortunate and prevent them from establishing credit. As such, I respectfully ask you to reject this proposal.
Thank you for your time and consideration.