While forty-eight states are following the federal government’s advice on the classification of non-bank financial services as “critical infrastructure” during the coronavirus pandemic, New Mexico is one of two states in which the Governor has declined to do so.
On April 6, Governor Lujan Grisham, through the New Mexico Financial Institutions Division, issued an Emergency Public Health Order, clarifying that “Licensed Small Loan Companies” were not considered to be “essential business” and directing them to “reduce the in-person workforce at each… location by 100 percent”. This highly unusual decision is likely to cause great hardship in New Mexico.
What it means in effect, is that traditional installment lenders are not only prevented from offering emergency credit, but they are also effectively prohibited from servicing loans that already exist. This will have significant unintended consequences for a population hard-hit by job and income loss caused by COVID-19.
Because of this order, many tens of thousands of the hardest-hit New Mexicans will be unable to work with their lenders to take advantage of credit deferments, extensions, modifications and other mitigation strategies. Without the opportunity to work with lenders to minimize the effect of circumstances that are no fault of their own, New Mexicans will end up defaulting on loans when other options would otherwise be available. This will have a direct effect on their financial futures, making all past efforts to build positive credit histories through diligent repayment, worthless.
They will also have nowhere to turn for credit, as they try and bridge the gap between their last paycheck and government assistance at some point in the future. There is also a danger is that this policy achieves the opposite of its intention, and forces needy borrowers into the arms of payday lenders operating illegally in the state since single-payment loans were banned a couple of years ago.
The Emergency Order is even more inexplicable when one considers there is no such prohibition for banks. Bank customers can take advantage of credit and mitigation services, while customers of non-bank lenders cannot.
This must surely be one of the greatest injustices to come out of the Coronavirus response.