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

SPONSOR Rawson

ORIGINAL DATE

LAST UPDATED

1/31/06

HB

SHORT TITLE Payday Loan Fees and Regulation

SB 448

ANALYST McSherry

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

225.0

225.0 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Senate Bill 448 relates to and conflicts with Senate Bills 548, 475, and 636 and House Bill 409.

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06

FY07

FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$0-$55.2 $0-$55.2 $0-$110.4 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Regulations and Licensing Department (RLD)

SUMMARY

Synopsis of Bill

Senate Bill 448 “Payday Loan Fees and Regulation,” proposes to amend the NM Small Loan Act

of 1955 by:

•

Defining payday loans as:

o

“A loan in which the licensee negotiates a personal check tendered by the con-

sumer and agrees, in writing to defer presentment of the check until the con-

sumer’s next payday or another date agreed to by the licensee and the consumer”

Senate Bill 448 – Page

2

including:

any money advance or credit arrangement or extension of credit for which

the licensee accepts a “dated instrument” or authorization signed by a con-

sumer for transfer or withdrawal of funds for purpose of repaying a pay-

day loan or agrees to hold a dated instrument prior to negotiating or depos-

iting, or pays the consumer, or another person the amount to the instru-

ment actually paid in exchange for a fee finance charge or other considera-

tion.

And excluding:

overdraft products and services offered by banking corporations, sav-

ings and loan association or credit union and installment loans.

•

Increasing the original license fee from five hundred dollars ($500) to seven hundred and

fifty dollars ($750) (Page 9 line 25 through page 10 line 1).

•

Increasing the renewal license fee from five hundred dollars ($500) to seven hundred and

fifty dollars ($750) (Page 12 line 25 through page 13 line 1)

•

Increasing the annual examination fee from two hundred dollars ($200) to four hundred dol-

lars ($400) (Page 14 lines 4 and 5)

•

Increasing the amounts of penalties for the violation of the NM Small Loans Act from not

less than $100 and not more than $300, to not less than $500 and not more than $1000 or by

imprisonment of 6 months rather than 90 days (Page 28).

•

Adding a section to the Small Loan Act regarding requirements for payday loans. Some of

the requirements are that a licensee:

o

could not make a loan to a consumer if the total principal amount of the loan, when

combined with the principal amount of all of the consumer's other outstanding payday

loans, exceeded twenty-five percent of the consumer's net monthly income,

o

limits the consumer to 2 outstanding payday loans,

o

could make no loans to a consumer under a payday loan repayment plan,

o

could make payday loans with a minimum term of 14 days and a maximum of 35

days, and that there should be a scheduled pay date for the consumer within the term

of the payday loan and the right to rescind the payday loan transaction (Page 28 line

20 through page 31 line 14).

•

Capping the maximum fee amount that a payday lender can charge. For a new loan, for the

first $200.00 the lender could charge $12.00 per $100.00, and an additional $7.50 per hun-

dred in excess of $200.00. If the consumer renews the payday loan the lender could charge,

for the first $200.00 the lender may charge $15.00 per $100.00, and an additional $7.50 per

hundred in excess of $200.00. The lender can only charge one $15.00 fee for insufficient

funds to pay the payday loan (Page 31 line 17 through page 33 line 21).

•

Adding a section to the Small Loan Act regarding prohibited practices when a small loan li-

censee makes payday type loans. Some of the prohibited practices addressed in the section

are that the licensee could not threaten to take action against a consumer that is prohibited by

the New Mexico Small Loan Act and the licensee could not use agency or partnership agree-

ments if it is used as a scheme or contrivance to circumvent the Act. The section would also

address additional consumer protections (Page 33 line 24 through page 37 line 7).

•

Limiting the renewal of a payday loan to two times (Page 37 lines 10 through 13).

•

Requiring the licensee to allow a consumer that has renewed a payday loan two times to enter

into one of two repayment plans. The two options would be: (1) a deferred payment plan pur-

suant to which the consumer shall not be required to make any payments to the licensee for a

period of sixty days following the expiration of the renewed payday loan, at which time the

Senate Bill 448 – Page

3

consumer may be required to pay the remaining principal and interest; and interest shall not

accrue during the period of deferment at an annual percentage rate greater than fifty-four per-

cent; or (2) an installment payment plan pursuant to which the consumer may be required to

make relatively equal monthly payments over an eleven-month period with interest accruing

at a rate exceeding at an annual percentage rate not greater than fifty-four percent (Page 37

line 16 through page 38 line 10).

•

Requiring the Director of the Financial Institutions Division to certify a commercially rea-

sonable method of verification to be used by payday lenders in order for them to meet the re-

quirements of the bill regarding payday loans (Page 38 line 13 through page 44 line 15).

•

Adding additional protections for military members who enter into a payday loan agreement.

The licensee would no longer garnish the wages or salaries of a consumer who is a member

of the military or contact the military chain of command of a consumer who is a member of

the military in an effort to collect on a payday loan (Page 41 line 18 through page 42 line 5)

•

Requiring additional disclosures on a payday loan document (Page 42 line 8 through page 43

line 4).

•

Establishing the effective date of the provisions of the bill would be October 1, 2006 (Page

43 lines 23 and 24).

FISCAL IMPLICATIONS

Increases in revenue were estimated by assuming that renewal licenses may decrease to 600 from

700 due to the licensure increases and additional constraints provided in the proposed act.

The renewal license fee increase from $500.00 to $750.00 for renewals would result in an addi-

tional $250 made for each license. 100 less renewals than a typical year would decrease revenues

by $25,000. The increase in examination fees from $200.00 to $400.00 and estimated for 600

licenses would result in an additional $200/license and an absolute loss of 100 licensees, decreas-

ing revenues by $20,000.

Small Loan Company License Renewals estimated at 600 $150,000.00

Reduced by fewer licensees ($25,000.00)

Examinations estimated at 600 $120,000.00

Reduced by fewer examinees ($20,000.00)

Total $225,000.00

According to RLD, there may be additional budget impact starting in FY07 if the Financial Insti-

tutions Division has to hire more examiners to monitor the licensees for compliance with the pro-

visions of the bill. Because a reduction in the future number of licensees is likely, however, it is

not known if the workload would increase for small loan regulation.

Estimated cost per examiner:

Salary @ $30,000 + 30% benefits $39,000

Office space @ 150 sf @ $20 per sf 3,000

Per Diem @ $275 per week times 26 weeks 7,150

Car 6,000

Estimated cost per examiner $55,150

Senate Bill 448 – Page

4

SIGNIFICANT ISSUES

According to the Office of the Attorney General, The regulations of the Attorney General,

NMAC 12.2.10, provide for limitations on interest rates, term minimum and other loan terms

consistent with the Unfair Practices Act. These regulations are effective February 15, 2006.

It is not clear how many businesses which currently make payday loans would continue to do so

under the proposed provisions and therefore it is unknown how much revenues and oversight

would change with the proposed amendments.

PERFORMANCE IMPLICATIONS

If more examiners are needed to monitor compliance with the bill, but funds are not appropri-

ated, examiners currently on staff may need to also monitor compliance and RLD contends that

this could affect the Financial Institutions Division’s performance measure of examination turn-

around in 30 days.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

RLD cites NMAC Title 12 Chapter 2 Part 10 Extension of Credit for Payday and Car Title

Loans. Senate Bill 448 relates to a Rule promulgated by Attorney General to be effective 2-15-

06, SB 448 and to Senate Bills 548, 475 and 636; Senate Bill 448 also relates to House Bill 409.

OTHER SUBSTANTIVE ISSUES

RLD contends that the rules promulgated by the Attorney General regarding Payday lending are

significantly different than the bill. The Attorney General’s rule becomes effective on 2-25-06

and the provisions of the bill would become effective 10-1-06.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

According to the Office of the Attorney General, the regulations promulgated by the Attorney

General, NMAC 12.2.10, will take effect on February 15, 2006, imposing interest rate caps, a

minimum 120 day term and other limitations on payday lenders.

POSSIBLE QUESTIONS

1.

What is the significance of the proposed start date of October 1 2006.

2.

How are the attorney general rules different than the proposed bill.

3.

How many inspectors currently oversee small loan lenders. How many businesses does

each inspector typically oversee. What additional workload per inspection is expected

based on the new requirements included in this bill.

EM/yr