The Southwest Public Policy Institute (SPPI) has reported that overregulation in New Mexico's credit market has resulted in unlicensed payday advances by Positive Outcomes, Inc. Employees have been driven into exploitation due to a lack of legal credit options, according to the institute's announcement on its website.
A study highlighted by the Rio Grande Foundation examined the effects of Illinois’s implementation of a strict 36% Annual Percentage Rate (APR) cap on small-dollar consumer loans. Conducted by professors from Mississippi College and Mississippi State University in collaboration with the Federal Reserve, the research compared lending trends in Illinois, which has the cap, to neighboring Missouri, which does not. The study found that loan originations among subprime borrowers fell by approximately 44% following the cap’s enactment, while overall lending decreased by about 8%.
According to survey responses from affected borrowers, only 11% reported improved financial well-being after the cap took effect, while around 40% said their situation had worsened. The researchers concluded that although loan amounts increased by 40% for subprime borrowers, access to emergency credit significantly diminished, leaving many unable to obtain funds when needed.
Thomas Miller, the study’s lead author and a representative of the Rio Grande Foundation, testified before the U.S. Senate Banking Committee in 2021. He said: "An interest rate cap does not make loans less expensive; it makes loans less available." These findings highlight how restrictive APR caps like New Mexico’s 36% cap can sharply reduce legal emergency lending for subprime consumers and unintentionally push vulnerable borrowers toward riskier alternatives.
The SPPI is a data-focused, nonpartisan research and educational nonprofit based in Rio Rancho, New Mexico. It also has offices in Arizona and Texas. Committed to advancing free enterprise, personal responsibility, and limited government, SPPI works to shape public policy in key areas such as education, criminal justice, and economic development throughout the American Southwest.
