Need a $200 loan? Thanks to rate caps, you're mostly out of luck.

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In New Mexico, an interest rate cap on specialized emergency loans went into effect in January. Since then, big-bank promoters have endorsed the small-dollar short-term loan products offered by U.S. Bank, Bank of America, Wells Fargo, Huntington Bank, and others as alternatives. Recently, those same activists have thrown in support for the credit unions. The problem is that these loans from credit unions and big banks generally only exist on paper. How do I know? I tried applying for them. And it's not just me. Others have reproduced the same results.

In March, my organization, the Southwest Public Policy Institute, conducted a study where the consumer experience was examined and tested for big-bank small-dollar financial products. Recently, a follow-up study was completed taking the same model and applying it to credit unions and in states other than New Mexico. The results were disappointing.

Short-term, small-dollar loans have traditionally been offered by small-loan companies; banks and credit unions have steadfastly refused to provide these products to consumers. But the list of companies engaged in short-term, small-dollar lending is shrinking rapidly as regulation targeting these lenders increases. The New Mexico Regulation and Licensing Department reported that the number of active licenses for small-loan companies decreased from 452 in June 2022 to 351 in March 2023, representing a 22% loss in lenders; this decrease comes in the aftermath of New Mexico passing legislation targeting these borrowers and their specific lending product, but notably not targeting banks or credit unions' preferred short-term, small-dollar "loan product": overdrafts, which attract a much higher annual percentage rate.

In lieu of a loan from a specialized emergency lender, Pew Charitable Trusts has implied that banks are stepping up. But of the three banks with branches in New Mexico currently "offering" the small-dollar loan product, none approved me for a loan. Of the 15 credit unions we tested over three weeks in New Mexico, only two returned anything favorable — and one of those was just a conditional approval. That's an 86% denial rate. Combined with the bank denials, my personal approval rate is 8%.

I also suffered a substantial decrease in my credit score from all of the hard inquiries. It was over 800 before I started this experiment. Now it's at 706. With an average credit score of 682, many New Mexicans would rapidly fall into the subprime category if they experienced the same credit score reduction; of course, many are already in that territory and banks and credit unions are hardly likely to lend to them if they will not lend to me.

The only exception to the rule was a credit union, which offered me the loan I was seeking at a rate of 17%, with repayment to occur in three installments over 90 days.

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However, I was also the exception to the rule: I'm not categorized as unbanked or underbanked, and I had been a member of the credit union for over a year. That established relationship set me apart.

In Albuquerque, "a third of the households … do little or no mainstream banking, substantially higher than the national average." Even if those households open bank or credit union accounts today, it is unlikely that they would get the kind of loan I got until their account had been open for at least six months, and likely more like twelve months.

The reality is that the introduction of short-term, small-dollar lending regulation like that in New Mexico — an interest rate cap — is decreasing choice in consumer credit. Since Americans have depleted their COVID savings and inflation is still up, access to greater credit and liquidity choices is more important now than ever.

But don't worry: Pew's research suggests borrowers "choose other options such as asking friends, negotiating with debtors, or cutting expenses."

Since the loan applicants who participated in our experiment were unsuccessful in applying for most of those theoretical small-dollar short-term loans, I guess they'll have to resort to just "asking friends."