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

SPONSOR

Sanchez, B

ORIGINAL DATE

LAST UPDATED

1/26/07

2/14/07 HB

SHORT TITLE

Payday Loan Interest Limits

SB

393/aSJC

ANALYST

C.Sanchez

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-

Rec

Fund

Affected

Total NFI See section

on fiscal

implication

s.

See section

on fiscal

implications.

See section

on fiscal

implications.

General

Fund

SOURCES OF INFORMATION

LFC Files

Responses Received From

Regulation and Licensing Department (RLD)

Administrative Office Of The Courts (AOC)

Attorney General (AG)

SUMMARY

Synopsis of SJC Amendment

The Senate Judiciary Committee amendment makes technical changes and clarifies sections in

the original bill.

Synopsis of Original Bill

Senate Bill 393 amends, repeals and enacts provisions of the New Mexico Small Loan Act, 58-

15-1 et seq., (“the Act") as affecting small loans in the amount of $2,500.00 not exempted by the

Act. Small loans not exempted by the Act would be limited to charging interest no greater than

36% APR. Interest on a renewal of a small loan not exempted by the Act would be limited to

10% APR. Finally, title loans, where a security interest is given as collateral, are banned.

SB 393 amends and enacts provisions within the New Mexico Small Loan Act or 1955.

Section 1 adds the following definitions to the Small Loan Act (NMSA 1978, § 58-15-1 et seq):

“annual percentage rate," “consumer," “consumer loan," and “interest."

Senate Bill 393/aSJC – Page

2

Section 2 adds an entirely new section to the Small Loan Act, which limits costs and fees. This

section limits the interest that can be charged on any small loan currently allowed under the

Small Loan Act to an effective APR of 36%. After the maturity of the loan, interest is limited to

an effective APR of 10%.

Section 3 adds an entirely new section to the Small Loan Act. This section adds general

prohibitions when making a small loan. Most notably, this section disallows using the title of a

motor vehicle as security (i.e. this sections bans title loans.)

Section 4 provides for the following remedies and penalties:

a.

a violation of Sections 2 and 3, except as a result of computation error, renders the

consumer loan agreement void, and the licensee has no right to collect, receive or

retain any principal, interest or other charges with respect to the loan.

b.

A violation of Sections 2 and 3, except as a result of computation error, is an unfair

and deceptive practice under the Unfair Practices Act.

c.

A person violating Sections 2 and 3, except as a result of computation error, is liable

to the consumer for actual, consequential and punitive damages plus statutory

damages of $1,000 for each violation, plus costs and attorney fees.

d.

A consumer may sue for injunctive and other equitable relief to stop Section 2 and 3

violations from happening.

e.

A consumer may bring a class action suit to enforce Section 2 and 3 provisions.

f.

An arbitration provision of a note or other contract evidencing a consumer loan is not

enforceable.

g.

A licensee that knowingly violates the provisions of this section is guilty of a

misdemeanor.

h.

A consumer is not required to waive administrative remedies or other applicable law

prior to pursuing remedies set forth in this section.

i.

Remedies and penalties provided in this section are in addition to and do not preclude

any remedy otherwise available under state law, including any award for

consequential and punitive damages.

Section 5 adds an entirely new section to the Small Loan Act. This section requires that certain

disclosures be made to the consumer prior to making a loan both orally and in writing.

Section 6 adds an entirely new section to the Small Loan Act. This section exempts federal and

state financial intuitions. Moreover, this section allows current pawn transactions and the

interest rate allowed currently for pawn transactions.

Section 7 sets out the effective date of the bill as being July 1, 2007.

FISCAL IMPLICATIONS

None noted for FY07. In the future the Financial Institutions Division may need to hire more

examiners to monitor for compliance with the bill. It is difficult to determine what effect the

new provisions of the bill will have regarding the number of small loan licensees.

There will be a minimal administrative cost for statewide update, distribution and documentation

of statutory changes. Any additional fiscal impact on the judiciary would be proportional to the

Senate Bill 393/aSJC – Page

3

enforcement of this law and actions commenced as a result of violations of this law. New laws,

amendments to existing laws and new hearings have the potential to increase caseloads in the

courts, thus requiring additional resources to handle the increase.

SIGNIFICANT ISSUES

This bill proposes substantial consumer protection measures to limit payday loans to 36%

interest and to prohibit car title loans. This is modeled after federal legislation to protect the

military from many indebtedness problems that have arisen from payday lenders. This bill

extents those same protections to all New Mexico borrowers.

PERFORMANCE IMPLICATIONS

This could affect the Financial Institutions Division’s performance measure of examination

turnaround in 30 days.

The courts are participating in performance-based budgeting. This bill may have an impact on

the measures of the district courts in the following areas

•

Cases disposed of as a percent of cases filed

•

Percent change in case filings by case type

ADMINISTRATIVE IMPLICATIONS

There may be an administrative impact o the courts and the financial institutions division as the

result of an increase in caseload and/or in the amount of time necessary to dispose of cases.

CONFLICT

S.B. 393 is in conflict with H.B. 92. Specifically, the conflict lies on the allowable interest rates

for both a new payday loan and a renewed payday loan. Moreover, H.B. 92 is limited to payday

loans whereas S.B. 393 applies to all small loans currently allowed under the Small Loan Act.

OTHER SUBSTANTIVE ISSUES

In New Mexico payday lenders typically charge customers annual interest rates of 390% to

780%.

The United States Congress (federal) has adopted legislation, the Talent-Nelson Amendment,

which imposes a 36% rate cap on all loans to members of the military and their dependents. This

legislation goes into effect on October 1, 2007. Proposed regulations pursuant to Talent-Nelson

from the Department of Defense are expected shortly.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The payday and car title loan business remain available to consumers with no additional

Senate Bill 393/aSJC – Page

4

disclosures, no caps on fees and charges, no maximum loan amount, or other restrictions

imposed by this bill.

POSSIBLE QUESTIONS

Does this legislation help people avoid sinking into a cycle of debt from which they may not be

able to escape.

Should payday lenders be required to consider whether borrowers actually can repay their loans.

CS/mt