Storefront loans (also widely known as “payday loans” or “short-term loans”) are notoriously predatory in nature. So much so that the New Mexico legislature took the extraordinary step of capping interest rates, demanding a minimum number of payments and extending the repayment period for this type of loan.
Whereas before, lenders charged upwards of 400-500 percent annual interest on the original loan amount, new limits prevent anything over 175 percent. Lenders previously kept people in a cycle of debt lasting years by forcing them to take out new loans – with new terms and fees – every time the loan became due, often within as little as one-to-two weeks. Now, the minimum loan term is 120 days. Loans prior to the passage of the law were typically due in one lump sum after only a few weeks, but new loans must have the total loan amount divided into at least four payments.
These rules and regulations were passed to protect New Mexico consumers, typically the “working poor” who are more likely to need such short-term services offered to those with no credit or bad credit. People with higher disposable income often have other means available for emergency financial needs, such as credit cards, bank loans or acquaintance loans.
Though the regulations, effective January 1 of this year, make a big difference on paper, the impact of a storefront loan can still be debilitating for someone who lives paycheck to paycheck. Having to come up with the full loan amount, plus 175 percent interest, within 120 days, can be nearly impossible. That impossibility drives people to seek out new loans with different lenders, and can still trap debtors in a seemingly unending cycle of debt.
If you find yourself struggling financially, particularly to cover credit card, medical, auto or mortgage debt, it might be time to consider a bankruptcy filing. A Chapter 7 or Chapter 13 bankruptcy would discharge some or all of your debt, allowing you to get a fresh financial start.