In response to Fred Nathan’s (July 30) op-ed praising New Mexico’s efforts to end predatory lending, I must assert that the celebratory tone is premature and misguided.

Two significant studies conducted by the Southwest Public Policy Institute — “No Loan For You!” published in March 2023 and “No Loan For You, Too!” published in June 2023 — reveal the disconcerting reality that Nathan overlooks: the so-called alternatives to specialized emergency loans he champions are largely theoretical.

The conclusion of both studies is crystal clear. The loans offered by U.S. Bank, Bank of America, Wells Fargo, and local and regional credit unions only exist on paper. Despite Nathan’s assertions, the traditional banking sector is ill-prepared, ill-equipped, and shackled by overbearing federal regulations. This regulatory landscape impedes the administration of programs like PAL (Payday Alternative Loans), essentially nullifying short-term small-dollar loans from traditional banking institutions.

Nathan’s view, while seemingly noble, highlights a fundamental misunderstanding of the financial sector. His argument implies the soft bigotry of low expectations, suggesting that low-income individuals are incapable of managing their own finances and must be protected. However, the free market reflects something entirely different: consumers desire access to specialized emergency credit. If the demand didn’t exist, neither would the product.

The beauty of the free market lies in its flexibility and responsiveness to consumer needs. It thrives when unencumbered, fostering competition that leads to greater transparency, affordability, and product quality. By imposing a one-size-fits-all regulation, we are stifling the potential for innovation and limiting the choices available to consumers.

SPPI’s studies are more than just a critique of existing policies. By emulating the consumer experience and attempting to access the very loans Nathan extols, they have definitively proven that these alternative short-term small-dollar loan products are mere figments in the practical marketplace. Instead of commending the state’s cap on interest rates, we should recognize that this approach has essentially driven many legitimate lenders out of the market.

The notion that the law is a triumph for local economic development, as Nathan suggests, loses its luster when we consider that the very people it was designed to help are still left without reasonable access to emergency funds. Instead of paving the way for accessible and fair lending, the law appears to have created a mirage of assistance that vanishes upon closer inspection.

In Albuquerque, New Mexico’s largest city, “a third of the households … do little or no mainstream banking, substantially higher than the national average.” Over 30% of Albuquerque households fit the Federal Deposit Insurance Corporation’s definition of unbanked or underbanked. They are not members of credit unions, they do not have access to checking accounts at traditional banks. If one of the requirements for access to a short-term small-dollar specialized emergency loan from U.S. Bank, Bank of America, and Wells Fargo is a 12-month direct deposit history within that bank, 30% of Albuquerque households are disqualified.

The reduction in access to credit is claimed to be a step in the right direction, but if it leaves a void that traditional banks and credit unions cannot fill, have we truly made progress?

This should stand as a sobering reminder that good intentions do not always translate into effective policy. As we consider the implications of the new interest rate cap, let’s not overlook the very real challenges that remain. It’s time to take a closer look at the traditional banking sector’s limitations and seek comprehensive solutions that genuinely serve all New Mexicans, not just those who fit neatly within the narrow confines of existing financial systems.

What is the solution then? We should advocate for opening the marketplace to more participants, allowing for more competition, and encouraging the development of products that can truly meet the needs of those seeking short-term financial assistance. Rather than perpetuating a system that patronizes and limits the choices of those it intends to help, let us strive for policies that genuinely empower consumers.

It is vital to recognize that while Nathan’s intentions are commendable, his theoretical perspective falls short of capturing the complex reality of the financial landscape. Embracing the free market and encouraging competition is the true path toward financial accessibility and empowerment for all.

Originally published at on August 13, 2023.

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