This bill changes the permitted percentage rates for small loans pursuant to the New Mexico Bank Installment Loan Act and the New Mexico Small Loan Act, requires a license for certain lenders, and changes reporting requirements.
This bill changes the permitted percentage rates for loans pursuant to the New Mexico Bank Installment Loan Act of 1959 (1959 Act) and the New Mexico Small Loan Act of 1955 (1955 Act), requires a license for certain lenders, and changes reporting requirements.
First, the bill increases the amount of a loan, installment loans or individual advances pursuant to the 1955 and 1959 Acts from $5,000 to $10,000.
Second, the bill changes the permitted annual percentage rates (APR) for loans pursuant to the Acts from a maximum of 175% to a maximum of 36%. The calculation of the permitted APR must: include finance charges (known as “Regulation Z”), charges for any ancillary products or fees; finance charges even if the charge excludes charges pursuant to Regulation Z; may not include amounts paid to a public official in relation to the extension of credit; and must follow rules established for calculated the disclosed APR for credit transactions pursuant to Regulation Z. No other fees, interest or charges are allowed, unless specifically permitted by the 1959 Act. Third, the bill provides that if the primate rate of interest exceeds 10% for two consecutive months, then the maximum allowable APR increases to 36% plus each percentage point by which the prime rate of interest exceeds 10%. If the prime rate of interest falls below 10% for two consecutive months, the maximum allowable APR must return to 36%.
The bill provides a definition for “prime rate of interest” as the United States prime rate of interest as listed in the prior month’s Wall Street Journal.
Fourth, the bill provides that Section 58-15-3 of the 1955 Act, which requires a license for lenders, applies to more entities. The license requirement applies to those who seek to evade its application, and the bill includes in this umbrella those who make loans disguised as a personal property sale and leaseback transaction, those who loan proceeds as a cash rebate for the pretextual installment sale of goods or services; and those who help a debtor to obtain a loan with a greater rate of interest than is permitted by any method (mail, phone, internet, electronically), regardless if the person has a physical location in the state. The bill also provides that a license is required for a person purporting to act as an agent or service provider if the person has a predominant economic interest in the loan, markets the loan and hold the right of first refusal, or the totality of the circumstances indicate that the person is the lender and the transaction is structured to evade the 1955 Act.
In order to decide whether the “totality of the circumstances” indicate that a person is a lender and that the transaction was structured to evade the 1955 Act, a court must consider all relevant factors, including whether a person (1) indemnifies, insures or protects an exempt entity for any costs or risks, (2) predominately designs/controls/operates the loan program; or (3) purports to act as an agent or service provider for an exempt entity while also acting as a lender in other states.
Lastly, the bill amends the licensee reporting requirements under the 1955 Act by requiring the reporting of the total number of loans made between $5,001 and $10,000; the number of loans made with APR less than 10%; from 10% to 18%; 18% to 36% and more than 36% if such an amount is permitted by law.
The bill contains two severability clauses, such that if any part of the 1959 or 1955 Acts are held invalid, the remainder is not affected.