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F I S C A L I M P A C T R E P O R T

SPONSOR HJC

DATE TYPED 03/15/05 HB 65HJCS/aHCTC

SHORT TITLE Payday Loan Regulation

SB

ANALYST McSherry

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI

$270.0

$270.0 Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

House Bill 64 relates to Senate Bill 200, the Consumer Loan Act.

SOURCES OF INFORMATION

LFC Files

Economic Development(ED)

Department of Labor (DOL)

Regulations and Licensing Department (RLD)

SUMMARY

Synopsis of Senate Corporations and Transportation Committee Amendments

The first amendment increases the proposed cap on payday loans from $1,000 dollars to $1,500

dollars.

The second amendment provides that a provision under “requirement for payday loans” would

require a licensee to permit the renewal, refinancing or extension of the payday loan should the

payee have paid an amount equal to or greater than 20 percent or the original principal balance

at, or prior to, maturity.

The third amendment provides that, under the proposed “permitted charges” section, the pro-

posed aggregate interest is capped at one hundred percent of the original loan balance.

The fourth amendment provides that the proposed cap of the total aggregate amount of principal

and interest received by the licensee would include principal and interest paid by a consumer

pursuant to a court order following a default.

House Bill 65/HJCS/aHCTC -- Page 2

Synopsis of Substitute Bill

House Bill 65 amends the Small Loan Act of 1955. The amended act would require that all

loans made under the Small Loan Act use the simple interest method calculation for interest

computation. Pre-computed loans would no longer be allowed under the Small Loan Act. The

amendment would create five new sections addressing payday type loans: payday loan require-

ments, permitted charges, prohibited acts, data collection and additional required disclosures.

HB 65 sets new dollar regulations for most fund transactions involved in the payday loans.

Lines of credits in excess of two thousand five hundred dollars ($2,500) would not need to be

secured by real estate. Fees would be increased for payday lenders: the original license fee

would increase from five hundred dollars ($500) to seven hundred and fifty dollars ($750); the

renewal license fee would increase from five hundred dollars ($500) to seven hundred and fifty

dollars ($750) and the annual examination fee would increase from two hundred dollars ($200)

to four hundred dollars ($400).

The 1

st

new section would set limitations for small loan licensees who make payday type loans

and would allow a consumer the right to rescind the payday loan transaction. The section would

require the lender to allow a consumer to make partial payments in any amount on the payday

loan and would limit payday loans made to a maximum of one thousand dollars ($1,500). Con-

sumer protections such as requiring a check written by a consumer for a payday loan to be made

payable to the order of the licensee, requiring a receipt detailing the payment transaction and re-

quiring the licensee to provide a copy of the payday loan agreement in English or Spanish, prior

to the consummation of the loan to all parties involved in the payday loan are all included in HB

65’s proposed amendments. The bill also proposes the requirement that the licensee will have

available a consumer information brochure in English and Spanish as determined by the director.

The 2

nd

new section would address permitted charges for small loan licensees who make payday

type loans. It would limit the amount of interest that a licensee can collect on a payday loan to

two times the original principal balance. If the aggregate limit were to be reached, the licensee

would have to terminate the payday loan agreement and consider the loan to have been paid in

full. The licensee would not be able to collect on the original principal balance once the aggre-

gate limit is reached. The section would limit the charge for a check with insufficient funds to

$15.00 even if the check has been re-deposited and returned more than once.

The 3

rd

new section would prohibit certain practices when a small loan licensee makes payday

type loans. Prohibited practices specifically addressed are: licensee use of the criminal process

to collect on a payday loan, altering checks in payday transactions, breaking from regulations set

in the Small Loan Act or participating in any other fraudulent activity, accepting collateral other

than a consumer’s checks, licensee assessment of a fee to cash a check representing the proceeds

of a payday loan, including certain provisions in the payday loan agreements, making the loan

contingent upon another purchase, portraying payday loans deceptively and licensee issuance of

more than one payday loan to a consumer at a time.

The 4th new section would require a small loan licensee that issues payday loans to file an an-

nual report with the Financial Institutions Division for data collection purposes.

The 5

th

new section would require licensees to disclose information above the required consumer

signature in at least 10 point type stating:

House Bill 65/HJCS/aHCTC -- Page 3

“A payday loan is not intended to meet long-term financial needs. You should use a payday

loan only to meet short-term cash needs. You will be required to pay additional interest if

you renew the payday loan rather than pay the debt in full when due. A payday loan is a

high-interest loan. You should consider what other lower-cost loans are available to you.

The aggregate amount of principal and interest you pay on your payday loan is capped at

two times the amount of the original principal borrowed. At no time will you pay an

amount greater than two times the original principal amount of the loan.”

Significant Issues

According to the Economic Development Department, payday lenders have received negative

publicity about charging predatory amounts to financially disadvantaged clients and for charging

extremely high interest rates and fees for their loans.

If enacted, the total aggregate amount of interest on payday loans would be limited to one hun-

dred percent of the original loan balance, and would include principal interest paid by a con-

sumer pursuant to court order following a default and . The consumer would also be provided

the right to rescind a payday loan by returning the full amount advanced on the first day of busi-

ness following the execution of the agreement.

PERFORMANCE IMPLICATIONS

No performance measure implications were noted by any agencies, however RLD would be the

agency responsible for administration of the amended statute should it pass and performance

could be affected.

FISCAL IMPLICATIONS

House Bill 65 does not include an appropriation.

According to RLD Financial Institutions and Securities Division, the enactment of the bill would

generate additional revenue for FY06 with the proposed increases in original and renewal license

fees from $500.00 dollars to $750.00 dollars and the increase in examination fees from $200.00

dollars to $400.00 dollars.

The following revenue estimate was predicted by RLD, based on the increased amount of the

license and examination fees and not the total revenue generated.

Small Loan Company License Renewals estimated at 600 $150.0

Examinations estimated at 600 $120.0

Total $270.0

(numbers in thousands)

With increased fees and restrictions on the industry, it is possible that the number of licenses re-

newed would be reduced and that revenues would not be as great as the prediction calculated by

RLD. The estimate uses historic information, based during a time without the increased fees and

examination costs, and without the industry regulations that are proposed.

House Bill 65/HJCS/aHCTC -- Page 4

Fewer lenders maintaining licenses with the Department would cause lost revenue, however the

Department contends that NM is one of the states with the lowest cost for licensing small loan

lenders and that there would likely not be a decrease in the number of licensees due to the pro-

posed increase in fees.

ADMINISTRATIVE IMPLICATIONS

The Regulations and Licensing Department would be responsible for the administration of the

amended licensing requirements and oversight.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 65 relates to SB 200, the Consumer Loan Act.

OTHER SUBSTANTIVE ISSUES

This proposed changes to the Small Loan Act address payday type lending and offer additional

consumer protections. RLD cites that the bill will result in additional regulatory burden and in-

creased costs to the small loan companies that issue payday loans.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The Department of Labor asserts that borrowers will continue to pay exorbitant interest rates on

pay day loans should HB 65 not be enacted

Payday loans would remain readily available to consumers without additional disclosures, re-

newal restrictions, maximum loan amount, or other restrictions which would be imposed by en-

actment of this bill. According to RLD, consumers would not benefit from the additional con-

sumer protections regarding payday loans which would be provided for should HB 65 be en-

acted.

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