The introduction of House Bill 130 by Representative Patricia Roybal Caballero (D-Albuquerque) seeks to establish the Public Bank of New Mexico, ostensibly to address gaps in credit availability created by the departure of small-dollar lenders. Meanwhile, House Bill 59, introduced by Representative Tara L. Lujan (D-Santa Fe County), proposes new regulations on Earned Wage Access (EWA) services. Both bills share a common flaw: they attempt to layer government intervention over an artificial credit crisis created by House Bill 132, the 2022 legislation that capped consumer loan interest rates at 36%.
Rather than solving New Mexico’s credit challenges, these bills represent a misguided approach that compounds the damage caused by HB 132. They reflect a troubling pattern of government overreach, where policies create problems and introduce new regulations or institutions as ineffective solutions.
The Manufactured Crisis: A Legacy of Price Controls
HB 132’s interest rate cap effectively eliminated small-dollar lenders who served high-risk borrowers, creating a vacuum in New Mexico’s credit market. This has had profound consequences:
- Reduced Credit Access: High-risk borrowers, unable to qualify for traditional bank loans, were left without viable options for emergencies or financial management.
- Unintended Market Distortions: With fewer formal credit avenues, consumers may now turn to informal or unregulated lending sources, increasing financial risks.
- Economic Harm: Local economies reliant on diverse financial services have suffered as community-based financial institutions have been unable to fill the gap.
Instead of addressing the root issue—the interest rate cap—proponents of HB 130 and HB 59 advocate for solutions that distract from the real problem and deepen the economic challenges.
The Risks of a Public Bank
Proponents of HB 130 claim that a public bank will fill the void left by the exit of small-dollar lenders. However, this proposal introduces significant risks:
- Taxpayer Exposure: With an initial $110 million investment, the public bank’s financial losses would ultimately fall on taxpayers. Political interference could exacerbate these risks by prioritizing public benefit over sound lending practices.
- Market Disruption: A state-backed entity could crowd out community banks and credit unions, which have long supported local economies. This undermines competition and innovation, harming consumers in the long run.
- Inefficiency and Bureaucracy: Government-operated institutions are prone to inefficiency and politically driven decisions. The public bank’s governance structure, heavily influenced by political appointees, increases the likelihood of mismanagement.
The Bigger Picture: The Danger of Reactive Policies
The recurring theme across HB 130 and HB 59 is an overreliance on government intervention to address problems caused by earlier regulatory failures. Both bills sidestep the core issue: the credit market distortion created by HB 132’s interest rate cap.
HB 130’s public bank would introduce new inefficiencies and risks without addressing the lack of credit access. HB 59’s EWA regulations are a superficial fix that fails to restore the diversity and functionality of New Mexico’s financial ecosystem.
A Forced Gamble: Why a Public Bank Is Riskier Than Advocates Admit
Alliance for Local Economic Prosperity’s Angela Merkert claims that a public bank is “no gamble” and ignores the structural flaws inherent in government-run financial institutions. Unlike private banks, which rely on rigorous risk analysis to ensure loan repayment, a public bank is constrained by its public mission to lend broadly, often prioritizing political agendas over sound financial principles. This mandated lending, combined with political interference, makes a public bank’s loan portfolio inherently riskier, increasing the likelihood of defaults and insolvency. Taxpayers would ultimately bear the burden of financial failures, making a public bank a forced gamble rather than a prudent investment.
While Merkert cites the Bank of North Dakota as a success story, this comparison overlooks public banks’ unique risks and inefficiencies in other contexts. A New Mexico public bank would distort the credit market, crowd out private financial institutions, and undermine competition. Instead of gambling taxpayer money on an unproven and high-risk institution, New Mexico should foster a competitive, market-driven financial system that empowers private banks and credit unions to innovate and serve diverse community needs.
Lessons from “No Loan For You!”
The Southwest Public Policy Institute’s research reports “No Loan For You!” and “No Loan For You, Too!” provide critical insights into the unintended consequences of New Mexico’s 36% interest rate cap on consumer loans. These studies reveal how House Bill 132 disrupted the state’s credit market, reducing access to essential financial services for high-risk borrowers. House Bill 130, which proposes the establishment of the Public Bank of New Mexico, ignores the findings of these reports and risks compounding the damage caused by HB 132.
- Credit Market Distortions:
- “No Loan For You!” documents how the departure of small-dollar lenders has left a significant void in New Mexico’s financial landscape. HB 130 assumes a public bank can fill this void, but the gap was manufactured by government policy, not market failure.
- Introducing a public bank would not reverse the damage but instead distort the market further, crowding out private financial institutions and reducing competition.
- The Impact on Vulnerable Populations:
- Both reports highlight how high-risk borrowers, who once relied on small-dollar loans, are now left with no viable alternatives. HB 130 fails to address this specific population effectively. A government-operated bank would be politically incentivized to engage in risky lending practices, jeopardizing financial stability rather than creating sustainable solutions.
- Policy Solutions That Work:
- The reports argue for reversing the 36% rate cap to restore access to credit. Instead of creating a new state-run entity, the legislature should prioritize policies that reintroduce small-dollar lenders into the market, fostering competition and innovation.
The Real Solution: Reversing the Rate Cap
If New Mexico genuinely wants to restore credit access and support its most vulnerable populations, the solution lies in reversing HB 132’s restrictive interest rate cap. This would:
- Reinvigorate the Credit Market: Allow small-dollar lenders to re-enter and compete, providing diverse options for consumers.
- Promote Financial Inclusion: Ensure that high-risk borrowers can access regulated, transparent credit products.
- Support Local Economies: Empower community-based financial institutions to thrive without fear of being crowded out by government-backed entities.
Market-Driven Reform
HB 130 and HB 59 represent flawed responses to an artificially created credit crisis. Instead of layering more government intervention onto an already distorted market, New Mexico should focus on undoing the harm caused by HB 132. The state can foster competition, innovation, and financial inclusivity by allowing market forces to dictate credit availability. Letting the free market, not bureaucratic experiments, lead the way is the only sustainable path to economic growth and stability.