Small-dollar loans are crucial for the American consumer. Whether they’re looking to fund a car repair, purchase an appliance or pay for a much-needed vacation, millions of Americans rely on traditional installment loans each year. 

That’s the argument that Paul Gasser makes in the Las Cruces Sun News, referring to New Mexico’s proposed Senate Bill 66 (SB 66), an anti-consumer rate cap bill that would force businesses to shutter and consumers into the waiting arms of the very types of predatory lenders the governor and legislature claim to be targeting. 

Gasser notes that traditional installment lenders fill a much-needed financial resource, particularly for the more than 40 percent of New Mexicans who don’t necessarily qualify for other forms of credit. The headline writers at the Sun Times, however, miss the mark referring to “high-interest” loans, because focusing only on the Annual Percentage Rate (APR) in relation to small dollar loans simply doesn’t work.  

For small-dollar loans, the quality, affordability, and soundness of the loan is best judged by its length and monthly amount owed, and not its interest rate. APRs are a function of time and the loan term, rather than a measure of the dollar cost of a loan.   

For example, say you borrow $100 today and are charged $1 in interest: 

• If you pay back the loan in one year, the APR is 1%  
• If you pay back the loan in one month, the APR is 12%  
• If you pay back the loan tomorrow, the APR is 365%  
• If you pay back the loan in an hour, the APR is 8760%  

Same dollar in interest, vastly different APRs. Traditional installment lenders work with the customer so they understand the terms, are not borrowing more than they need or can financially afford. These are the businesses that will be harmed by SB 66. And if traditional installment lenders can’t offer New Mexican consumers small-dollar loans, who will those customers turn to?  The very same predatory lenders policymakers claim to want to hinder.     

New Mexico’s governor and legislature are already under a microscope for a series of proposals in the midst of a pandemic and a state-wide economic downturn that is forcing long-time residents to flee and New Mexico businesses to fold.  The proposals – including SB 66 – if passed would lower New Mexico’s economic standing from 48th in the country to the very bottom. These policies have New Mexico headed in the wrong direction, and the only kicks folks will get with SB 66 won’t be enjoyable.   

Interest rate caps are bad policy at any time. To restrict access to New Mexicans’ ability to access safe, responsible credit and to harm legitimate businesses at a time like is just plain wrong.