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SB 66 PERMITTED PERCENTAGE RATES FOR LOANS

Current Location: CC
Referrals: STBTC/SJC/HCEDC/HJC

[1] STBTC/SJC-STBTC [3] DP-SJC [10] DNP-CS/DP [11] PASSED/S (25-14) [9] HCEDC/HJC-HCEDC [13] DP/a-HJC [14] DP/a [15] fl/a- PASSED/H (52-16) [16] s/fld cncr [15] h/fld recede- CC-CC

SB 66 PDF  |  SB 66 FIR


Scheduled on - Date:  Time:   Location:

3/18/2021 [16]SCNR - Senate Failed to Concur with House Amendments House Concurrence Calendar (HCNR)
3/18/2021 [15] - Sent to location Conference Committee (CC)
3/17/2021 [15]HCal - Floor amended House Calendar (HCal)
3/16/2021 [14]HAFC - Do Pass as Amended House Calendar (HCal)
3/13/2021 [13]HAFC - Do Pass as Amended House Judiciary (HJC)
3/03/2021 [9]HINT - Sent to location House Commerce and Economic Development (HCEDC)
3/02/2021 [11]SCal - Passed the Senate House Introduction (HINT)
3/01/2021 [10]SJC - Do Not Pass - Committee Substitute Do Pass Senate Calendar (SCal)
2/10/2021 [3]STBTC - Do Pass Senate Judiciary (SJC)
Synopsis:

 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. 

Analysis:

 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.  

Amendments:


On March 17, 2021, House Floor Amendment number 1 to SJCcs/SB 66 did the following:
•	Removes all but two of HJC amendments. The two amendments that remain from HJC is the provision that no amount other than the total finance charge can be charged no more than once per individual consumer within a 12-month period, and the effective date of July 1, 2022.
•	Adds a provision that allows loans up to $1,100 to have an APR of 99%, so long as the loan is for less than 24 months, not refinanced, and the calculation is defined by Regulation Z. 
•	Adds a provision that any loan over $1,100 must have an APR of no more than 36%.  
•	Clarifies that only if the loan exceeds the rate permitted by this law, the provisions of 58-15-3 apply to a person purporting to act as an agent, service provider or in another capacity for another entity that is exempt from the 1955 Act.  
•	Clarifies that provision regarding when the prime rate of interests exceeds 10% only applies to loans greater than $1,100.  
•	Adds that licensees must file with the director reports on loans that were less than or equal to 99% for loans up to $1,100. 

 
On March 15, 2021, the House Judiciary Committee amended SJCcs/SB 66a in the following ways:
•	Section 2:  Adds a provision that no amount other than the total finance charge can be charged no more than once per individual consumer within a 12-month period.  
•	Adds that certain lenders can make a loan at greater than 36% interest rate: If a borrower is denied a loan at 36% or less (by a credit union or other lender that regularly makes public loans), a person may apply for a loan at up to 99%.  The borrower must prove to the lender that within the past 30 days, the borrower applied for and was denied a loan at 36%.  A lender cannot offer a loan at higher than 36% unless the rate was approved by the Financial Institutions Divisions of RLD.  The Financial Institutions Division must consider the cost to the lender to make the loan and the risks to the lender of nonpayment.  The Financial Institutions Division must implement rules by January 1, 2022.  
•	Loans made according to the above provision must comply with certain provisions: the loan term cannot be for more than 24 months (not including refinancing terms), the loan cannot accrue late fees, non-sufficient fund fees, origination fees, prepayment penalties or charges for any ancillary product, the loan cannot accrue interest after 90 days of nonpayment, the loan cannot be recoverable by wage garnishment, and the loan cannot be eligible for refinance unless the borrower is not in default and has make at least 30% of the payments and paid at least 30% of the principal.  Also, the loan must be subject to underwriting and be reported to at least one consumer credit reporting agency, and the lender must provide a disclosure that complies with the federal Truth in Lending Act.  
•	Section 6: Removes language that was added to Section 58-15-3 which added examples of activities and people that the bill applies to.  
•	Inserts an effective date of the bill for July 1, 2022. 

On March 12, 2021, the House Commerce and Economic Development Committee amended SJCcs/SB 66 by providing that the APR is calculated pursuant to 12 CFR Part 1026, known as “Regulation Z”, in addition to being calculated pursuant to when the prime rate of interest exceeds ten percent.  The amendment also provides that the calculation of the permitted APR shall include finance charges as defined in 12 CFR Part 1026, known as “Regulation Z”. It removes from the calculation of permitted APR: charges for ancillary products and credit insurance premiums or fees related to insurance (even if that charge would be excluded from the calculation pursuant to Regulation Z). 

Current Law:The current amount of a loan, installment loans or individual advances pursuant to the 1955 and 1959 Acts is $5,000. Current law requires a different scheme of reporting loans to reflect that the APR can go above 150%. Current law also does not have rules regarding the maximum allowable APR when the prime interest rate exceeds 10% for two consecutive months or when it falls below 10%. Current law does not require a license under the Acts for certain entities.