For years, the state of New Mexico has struggled to contain predatory lenders – those who keep New Mexico’s poor, uneducated and financially desperate on a treadmill of debt with fees, rollovers unlimited and interest rates that have reached 1,500%.
And while most recently the 2017 NM Legislature capped interest rates at 175% and required borrowers to be given at least 120 days to repay in at least four installments, complaints against unscrupulous lenders continue. . The Financial Institutions Division of the Department of Regulation and Licensing received four against small licensed lenders in the first half of 2018.
So it’s encouraging that technology and the free market are joining New Mexico’s attorneys general, courts, and lawmakers in offering people who need a small, short-term loan an option other than usury.
US Bank, the fifth largest bank in the country, is rolling out Simple Loan to its depositors. It will charge $12 for every $100 borrowed — up to $1,000 — if borrowers repay using autopay from their US savings or bank checking accounts. This increases to $15 for every $100 borrowed when paying manually, i.e. by check. And that means someone who borrows $300 will end up paying $336 over three months if the repayment amount is automatically deducted from a US bank account.
For years the banks didn’t care about these loans to fix my car or until payday because the interest they earn doesn’t pay for the time spent by the loan officer. But now mobile phone apps and online banking have allowed banks to offer them while still making money.
An added benefit is that these short-term loans could offer consumers a way to build credit. While US Bank will require borrowers to have an established credit history, it works with rating agencies to consider loans in building loan records.
No doubt New Mexico will have to continue to watch the credit industry for bad actors preying on people who just need a small loan to cover emergency expenses or keep the lights on. until pay day. But US Bank shows that with today’s technology, it is possible for the market to offer small-dollar short-term loans at reasonable rates to the general public, and thus prevent more people from fall into a cycle of debt.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned because it represents the opinion of the newspaper rather than that of the editors.