Alert

February 23, 2017

New Mexico Legislature Takes Aim at Installment Lenders

New Mexico legislators have introduced a flurry of bills that cap interest rates, eliminate installment lenders' authority to make payday loans, increase the dollar threshold for loans that would require a Small Loan Act license, and impose mandatory credit reporting obligations.

Senate Bill 15, cross-filed as House Bill 26, would amend New Mexico's Money, Interest and Usury statute, Bank Installment Loan Act ("BILA"), and Small Loan Act ("SLA") to cap the maximum interest rate at 36% per year. Currently, interest rates in New Mexico are unregulated, and the parties may agree to any rate of interest. Both bills would keep the current exemption from the usury limit for corporate debtors, but eliminate the exemption for business-purpose loans in amounts exceeding $500,000. Those exemptions date back to a time when New Mexico limited interest rates, but after New Mexico deregulated interest rates, they became obsolete, although they remained on the books. These efforts to reintroduce a usury limit in New Mexico are not new; legislators in New Mexico introduce bills to cap interest at 36% in every legislative session.

Senate Bill 388 would amend all of New Mexico's direct lending statutes, including the SLA, BILA, and Money, Interest and Usury statute. The bill would apply to loans of $5,000 or less, and includes the following provisions:

  • All loans in amounts of $5,000 or less would be subject to either the SLA or BILA. Currently, only loans of $2,500 or less are subject to the SLA, and precomputed loans of any amount are subject to the BILA.
  • Lenders making simple interest loans in amounts of $5,000 or less would have to obtain a SLA license. Currently, the licensing threshold is $2,500 or less.
  • Lenders making loans under the SLA and BILA would be able to charge higher late fees and would be able to charge certain types of origination fees (including a processing fee and a handling fee). Significantly, SLA and BILA lenders would be able to charge a returned payment fee in connection with returned checks and other types of debit payments. Currently, there is no express authority in New Mexico law for charging a fee for a returned payment.
  • The bill would limit the terms of loans of $5,000 or less, by creating a minimum maturity period of 120 days and a minimum repayment term of four installments.
  • The bill would eliminate a lender's ability to make payday loans under the SLA. In addition, the bill would create new authority to make tax refund anticipation loans under the SLA.
  • Similar to other legislation that is pending in New Mexico, the bill would require lenders to report borrowers' performance under the terms of a loan of $5,000 or less. (The other pending legislation, House Bill 100, only requires reporting of positive information.)
  • Lenders making loans under the SLA would only have to provide loan disclosures in Spanish if federal law requires them to do so. Currently, SLA lenders must provide loan disclosures in Spanish if the borrower requests Spanish language disclosures.