The Southwest Public Policy Institute (SPPI) has published its latest policy investigation and report titled "No Loan for You! Why the war on specialized emergency loans hurts New Mexico." The report discusses the unintended consequences of the recent law passed in New Mexico, which capped the annual interest rate on small loans at 36%, down from 175%.
The investigation centers on the real-world experience of a well-qualified borrower (with a credit score in excess of 750) who attempted to obtain a small-dollar loan from U.S. Bank, Bank of America, and Wells Fargo in the Albuquerque-metro area but was denied access to a loan by all three banks despite having an excellent financial history. There is a distinct lack of consumer-friendliness inherent in the small-dollar loan products offered by big banks.
Many unbanked and underbanked Americans do not have a bank account or rely on nonbank financial services due to factors such as high fees or a lack of trust in banks. SPPI argues that alternative financial services (AFS) such as payday loans can provide necessary funds for emergency situations that would not be covered by traditional loans.
Furthermore, the “predatory lending” accusations lodged against specialized emergency lenders highlight the importance of transparency and personal relationships provided by those same lenders. Interest rate caps have decreased access to credit for subprime borrowers and have not benefited members of the military and their families.
The Southwest Public Policy Institute implores policymakers to focus on fostering competition in financial services and creating clear, consistently enforced standards rather than implementing regulations based on virtue signaling or ideology. The goal should be to increase choice and protect consumers in a healthy marketplace.
The full report can be accessed on the Institute's website.
https://southwestpolicy.com/report-no-loan-for-you/
