New Mexico changes small dollar loan requirements, caps interest rates at 36%

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On March 1, the Governor of New Mexico signed HB 132, which amends certain provisions related to the state’s requirements for dollar loans. Among other things, the bill makes several changes to the New Mexico Bank Installment Loan Act of 1959 (BILA) and the New Mexico Small Loans Act (SLA) of 1955 by increasing the amount maximum installment loan of $10,000 and providing that: (i) “no lender shall make a loan under this [BILA] to a borrower who is also indebted to that lender under the [SLA] unless the loan made under the [SLA] is paid and released when the loan is granted”; (ii) only federally insured depository institutions may provide a loan under BILA with an original stated maturity of less than one hundred and twenty days; (iii) a lender that is not a federally insured deposit-taking institution may not make a loan under BILA “unless the loan is repayable in a minimum of four substantially equal installments of principal and interest”; and (iv) lenders, except federally insured depository institutions, may not lend with an annual percentage rate of charge (APR) greater than 36% (a specific increase in the APR is permitted if the prime interest rate exceeds 10% for three consecutive months). When calculating the APR, a lender must include finance charges as defined in Rule Z” for any ancillary product or service sold or any fees charged as part of or in conjunction with the credit extension, any premium or credit insurance charges and any single premium charges for credit insurance or any charges related to the insurance Excluded from the calculation are charges paid to public officials in connection with the granting of credit, including lien registration fees, and fees on a loan of $500 or less, provided that the fees do not exceed 5% of the total loan principal and are not imposed on a borrower more than once during the course of a period of twelve months.

The law also expands the scope of the SLA’s existing anti-avoidance provisions to specify that a person cannot make small dollar loans in the amount of $10,000 or less without first obtaining a license from the director. The Amendments also expand the scope of the anti-evasion provisions to include (i) “causing, offering, aiding or causing a debtor to obtain a loan at a higher rate of interest.” . . by any method, including mail, telephone, Internet, or other electronic means, whether or not the individual has a physical location within the State”; and (ii) “a person purporting to act as an agent, service provider or in another capacity for another entity which is exempt from the [SLA]provided that the person meets certain specific criteria, such as “the person owns, acquires or retains, directly or indirectly, the predominant economic interest in the loan” or “all the circumstances indicate that the person and the operation are structured to evade the demands of the [SLA].” Under the law, a violation of any provision of the ALC that constitutes either an unfair or deceptive trade practice or an unreasonable trade practice is subject to prosecution under the Unfair Practices Act.

The Act also makes various changes to the book and record requirements of licensees to facilitate reviews and investigations by the Director of the Financial Institutions Division of the Department of Regulation and Licensing. Failure to comply may result in the suspension of a license. In addition, the law provides numerous modified license reporting requirements regarding loan products offered by a licensee, average repayment terms, and “the number of borrowers who have extended, renewed, refinanced, or renewed their loans before or at the same time as the payment of their loans”. loan balance in full, or took out a new loan within thirty days of repaying that loan,” among others. The law also outlines credit reporting requirements, advertising restrictions, and requirements for issuing and repaying small dollar loans, including specific limitations on post-judgment fees and interest.

The law comes into force on January 1, 2023.

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