New Mexico bill offers affordable short-term loans to state employees

Inside Subprime: January 5, 2017

By Alex Huntsberger

Proposed legislation in New Mexico would allow state government employees to take out short-term personal loans repaid via their paychecks. The legislation is designed to combat the scourge of predatory payday and title lenders in the state.

Annual interest rates for these loans would be capped at 30 percent and payments would be capped at 12 percent of a qualified worker’s gross wages. The loans would also have a maximum repayment term of one year, and the bill stipulates that the borrower’s credit score will not be considered as a part of the loan application.

According to the text of the bill, these loans would not be issued by the state; they would instead be issued by “qualified lenders” who would agree to the arrangement. In return for issuing the loan, the lender would be virtually assured repayment via the payroll deductions made by the New Mexico state government.

The bill was proposed by New Mexico state senator Bill Tallman, a Democrat. As reported by the Associated Press, Tallman stated that this legislation “is designed to ensure state employees can borrow modest amounts of money without resorting to high-interest loans from storefront lenders.” If passed, this new program would affect roughly 20,000 people across the state.

Should the bill become law, the state government will be joining a number of local government entities in the New Mexico that already offer short-term loans to their employees. Santa Fe Public Schools and the City of Las Cruces provide loans to their workers through a program called TrueConnect. Employees of Santa Fe Public Schools, for instance, can currently access loans between $1,000 and $3,000 through the TrueConnect program.

This is not the first time in recent years that New Mexico has taken action to kneecap predatory bad credit lenders active in their state. In April of last year, Governor Susana Martinez signed a bill into law that basically banned payday lending in the state. It prohibited loans shorter than 120 days and capped all interest rates at 175 percent annually.

Data from New Mexico officials found that title loans in the state at the time of the bill’s passage carried an average interest rate ranging from 238 percent to above 450 percent.

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