The New Mexico legislature is once again considering changing statutory interest rate caps on loans that are not secured by real estate. Many may not know that 41 years ago our legislature passed laws eliminating all caps on unsecured loans by real estate in an effort to bring in a big fish. It is this story.
The United States experienced very high inflation from 1979 to 1981. In each of those years, annual inflation was above 10%. Credit card companies couldn’t make money because state laws limited the interest rate that could be charged on credit card debt. New Mexico had a fairly typical usury law (NMSA 56-8-11 (1978)) that limited interest rates on unsecured loans to 12% and 10% on property-secured loans personal, such as a car loan.
Credit card companies began lobbying state legislatures across the country with the carrot that if a state lowered its interest rate cap for credit card loans, the companies would seriously consider creating a national credit card headquarters in this state. Two of the first states to bite were New Mexico and South Dakota. On July 1, 1981, the New Mexico Legislature repealed NMSA 56-8-11 and replaced it with laws removing all interest rate caps.
on credit card loans (NMSA 56-8-11.1 to 56-8-11.3 (1978)).
After interest rate caps were removed, Citicorp came calling. He said he wants to create a regional credit card processing center in Albuquerque and hire about 1,000 people. Just one problem: Before Citicorp could do business in New Mexico, it had to obtain a banking charter in the state of the legislature. In response to Citicorp’s request, the New Mexico Banker’s Association fought tooth and nail to keep Citi out of state, alleging that Citi’s presence would destroy local banks in New Mexico.
In 1984, the legislature, which three years earlier had passed legislation removing interest rate caps to attract credit card companies to the state, denied Citicorp a banking license. Citicorp then moved most of its credit card business to Sioux Falls, SD
After the Legislature pushed back on Citicorp, the state was left with the worst of both worlds. He lost all the economic development that Citicorp could have brought to the state and no longer had an interest rate cap on most loans. This attracted predatory lenders to the state. Perhaps worst of all, the rest of the country saw how poorly Citicorp had been treated and decided that New Mexico just wasn’t open for business.
And how is Sioux Falls doing with Citicorp? Very well thank you. Citicorp is a top 10 employer in the city with an estimated workforce of 1,000 to 1,500. In 2019, it built a $72 million office campus. Other financial institutions with large credit card operations followed Citi to Sioux Falls, including Wells Fargo, Capital One and First Premier. Sioux Falls is a booming financial center.
It’s the sad story of how New Mexico lost the big fish, and what might have been.
Charles Sullivan writes from Albuquerque.
