45th legislature - STATE OF NEW MEXICO - first session, 2001

RELATING TO FINANCIAL TRANSACTIONS; ENACTING THE PAYDAY LOAN ACT; REGULATING THE TERMS OF PAYDAY LOANS; PROVIDING FOR LICENSING OF PERSONS PROVIDING PAYDAY LOANS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. SHORT TITLE.--This act may be cited as the "Payday Loan Act".

Section 2. PURPOSE OF ACT.--The purpose of the Payday Loan Act is to protect consumers who enter into short-term, high rate loans from abuses that occur in the credit marketplace. The Payday Loan Act shall be liberally construed as a consumer protection statute to effectuate its purpose.

Section 3. DEFINITIONS.--As used in the Payday Loan Act:

A. "check" means a negotiable instrument, as defined in Article 3 of the Uniform Commercial Code, which is drawn on a bank;

B. "consumer" means a person who, singly or jointly with another person, enters into a payday loan;

C. "director" means the director of the financial institutions division of the regulation and licensing department;

D. "facilitator" means a person who facilitates, enables or acts as a conduit for another person who is or may be exempt from licensing and who makes deferred deposit loans;

E. "licensee" means a person licensed by the regulation and licensing department pursuant to the provisions of the Payday Loan Act to engage in payday loans; and

F. "payday loan" means any arrangement in which a person, for a fee, service charge or other consideration, accepts a check and agrees to hold it for a period of days prior to deposit or presentment and includes a check drawn in anticipation of receipt of a compensation or employment payment.

Section 4. APPLICABILITY.--

A. The Payday Loan Act applies to payday loans and to a person who, for a fee, service charge or other consideration, accepts a check and agrees to hold it for a period of days prior to deposit or presentment.

B. The Payday Loan Act applies to any person who facilitates, enables or acts as a conduit for another person, who is or may be exempt from licensing and who makes payday loans.

C. The provisions of the Payday Loan Act apply to any person who seeks to evade its applicability by any device, subterfuge or pretense whatsoever.

Section 5. EXEMPTIONS.--

A. Retail sellers that cash checks and who charge no more than two dollars ($2.00) per check for the service are exempt from the provisions of the Payday Loan Act.

B. State or federally regulated financial institutions are exempt from the provisions of the Payday Loan Act to the extent that they are exempt by virtue of other state or federal laws regarding limitations on interest or rates. All other provisions of the Payday Loan Act apply except Section 6 of that act.

Section 6. LICENSING.--

A. A person who is not exempt from the Payday Loan Act shall not make or offer to make a payday loan unless he has been issued a license by the director. The director shall not issue or renew any such license until a prospective licensee meets all the requirements for licensing and licensee conduct required under the New Mexico Small Loan Act of 1955.

B. The director may promulgate rules to carry out the provisions of the Payday Loan Act.

Section 7. INFORMATION REQUIRED AND ANNUAL REPORTS.--

A. A licensee shall keep and use books, accounts and records that enable the director to determine if the licensee is complying with the provisions of the Payday Loan Act. The licensee shall maintain other records as required by the director. The director is authorized to examine a licensee's records at any reasonable time. All records shall be kept for four years following the last entry on a loan. Records shall be maintained according to generally accepted accounting procedures so that an examiner may review the record keeping and reconcile each payday loan with documentation maintained in the payday loan records.

B. A licensee shall file an annual report with the director on or before the last day of March for the twelve-month period in the preceding calendar year on forms prescribed by the director. The reports shall be verified by the oath or affirmation of the owner, manager or president of the licensee. The reports shall disclose in detail and under appropriate headings:

(1) the resources, assets and liabilities of the licensee at the beginning and the end of the period;

(2) the income, expense, gain, loss and a reconciliation of surplus or net worth with the balance sheets and the ratios of the profits to the assets reported;

(3) the total number of payday loans made in the reported year;

(4) the total number of payday loans outstanding as of end of the reported year;

(5) the minimum, maximum and average dollar amount of checks whose deposits were deferred in the reported year;

(6) the average annual percentage rate as defined in the federal Truth in Lending Act for all loans made, and the average number of days a deposit of a check was deferred during the reported year;

(7) the total of returned checks, the total of returned checks recovered and the total of checks charged off during the reported year;

(8) verification that the licensee has not used the criminal process or caused the criminal process to be used in the collection of any payday loans during the reported year; and

(9) the total number of payday loans renewed and the number of times a payday loan was renewed by each consumer.

C. If a licensee conducts another business or is affiliated with other licensees under the Payday Loan Act, or if any other situation exists under which allocations of expense are necessary, the licensee shall make such allocations according to appropriate and reasonable accounting principles as approved by the director. Information about any other business conducted on the same premises as that of payday loans shall be provided as required by the director.

D. A licensee shall file a copy of the contract described in Subsection B of Section 9 of the Payday Loan Act and the fee schedule described in Subsection C of Section 9 of that act with the director prior to the date of commencement of business at each location, at the time any changes are made to the documents or schedule and annually thereafter upon renewal of the license. These documents shall be available to interested parties and to the general public.

Section 8. LIMITATIONS ON PAYDAY LOANS.--

A. Each payday loan shall have a minimum term of no less than two weeks for each fifty dollars ($50.00) owed on the loan.

B. A consumer shall be permitted to make partial payments in amounts of no less than five dollars ($5.00) on the loan at any time, without charge.

C. A payday loan shall not exceed three hundred dollars ($300).

D. After each payment made, in full or in part, on any payday loan, the licensee shall give to the person making the payment a signed, dated receipt showing the amount paid and the balance due on the loan.

E. The minimum amount of a payday loan is fifty dollars ($50.00).

F. The check written by the consumer in a payday loan must be payable to the order of the licensee.

G. Upon receipt of the check from the consumer for a payday loan, the licensee must immediately stamp the back of the check with an endorsement that states: "This check is being negotiated as part of a loan pursuant to the Payday Loan Act, and any holder of this check takes it subject to all claims and defenses of the maker."

H. The licensee must provide the consumer, or each consumer if there is more than one, with a copy of the loan documents described in Section 9 of the Payday Loan Act, prior to the consummation of the loan.

I. The holder or assignee of any check written by a consumer in connection with a payday loan takes the instrument subject to all claims and defenses of the consumer. A payday loan agreement may be renewed or extended for no more than two consecutive terms, each such term not to exceed the original term, by mutual consent of the licensee and the consumer, except that after the second renewal or extension all payments thereafter shall be first applied to reduce the principal balance.

Section 9. REQUIRED DISCLOSURES TO CONSUMERS.--

A. Before making a payday loan, the licensee

shall deliver to the consumer a pamphlet approved by the director that explains, in simple English and Spanish, all of the consumer's rights and responsibilities in a payday loan transaction, and includes a toll free number to the director's office to handle concerns or complaints by consumers, and informs consumers that the director's office can provide information about whether a lender is licensed, whether complaints have been filed with the director and the resolution of the complaints.

B. Licensees shall provide consumers with a written agreement on a form specified or approved by the director that can be kept by the consumer, and must include the following information in English and in the language in which the loan was negotiated:

(1) the name, address, telephone number of the licensee making the payday loan and the name and title of the individual employee who signs the agreement on behalf of the licensee;

(2) an itemization of the fees and interest charges to be paid by the consumer;

(3) disclosures required by the federal Truth in Lending Act, regardless of whether the Truth in Lending Act applies to the particular payday loan;

(4) disclosures required under any other state law;

(5) a clear description of the consumer's payment obligations under the loan; and

(6) in a manner that is more conspicuous than the other information provided in the loan document and is in at least fourteen point bold type face, a statement that: "You cannot be prosecuted in criminal court to collect this loan". Such notice shall be located immediately preceding the signature of the consumer.

C. A licensee shall post plainly worded notices, approved by the director, in English, Spanish and any other languages in which a significant amount of payday loan business is conducted, in a conspicuous place at each location of a business providing payday loans that informs consumers:

(1) that the licensee cannot use the criminal process against a consumer to collect any payday loans; and

(2) of the schedule of all interest and fees to be charged on payday loans with an example of the amounts that would be charged on separate three-hundred-dollar ($300) loans payable in fourteen days and thirty days, giving the corresponding annual percentage rates.

D. Financial institutions making payday loans that, because of the application of other state or federal law, are exempt from the fee limitations of the Payday Loan Act, and that charge fees, interest and charges greater than those authorized by the Payday Loan Act, must post, in a conspicuous place in each branch in which payday loans are entered into, the notice below. A single instance of charging a consumer more than the fees, interest or other charges permitted in the Payday Loan Act requires the financial institution to post this notice:

"WARNING: The fees and interest charged on payday loans made at this institution are higher than those charged at other financial institutions.".

Section 10. PERMITTED CHARGES.--

A. No licensee may charge or receive, directly or

indirectly, any interest, fees or charges except:

(1) a licensee may charge an administrative fee of no more than five dollars ($5.00) for each payday loan entered into with a consumer;

(2) in addition to the administrative fee, the licensee may charge interest on the amount of cash delivered to the consumer in a payday loan. The rate charged on the outstanding balance after maturity shall not be greater than the rate charged during the loan term. Charges on loans shall be computed and paid only as a percentage of the unpaid principal balance. As used in this paragraph, "principal balance" means the balance due and owed exclusive of any interest, service charges or other loan-related charges; and

(3) if there are insufficient funds to pay a check on the date of presentment, a licensee may charge a fee, not to exceed the lesser of fifteen dollars ($15.00) or the fee imposed upon the licensee by the financial institution to which the check was presented. Only one fee may be collected with respect to a particular check even if it has been redeposited and returned more than once. A fee charged pursuant to this subsection is a licensee's exclusive charge for late payment.

B. When a loan is repaid before its due date, unearned interest charges must be rebated to the consumer based on a method at least as favorable to the consumer as the actuarial method.

Section 11. PROHIBITED ACTS.--A licensee making payday loans shall not:

A. engage in the business of payday lending unless the director has first issued a valid license;

B. threaten to use or use the criminal process in this or any other state to collect on the loan;

C. alter the date or any other information on the check;

D. use any device or agreement that would have the effect of charging or collecting more fees, charges or interest than allowed by the Payday Loan Act, including entering into a different type of transaction with the consumer that has that effect;

E. engage in unfair, deceptive or fraudulent practices in the making or collecting of a payday loan;

F. enter into a payday loan with a consumer that is unconscionable. In determining whether a payday loan transaction is unconscionable, consideration shall be given to whether the amount of the loan exceeds twenty-five percent of the consumer's net income for the term of the loan;

G. charge to cash a check representing the proceeds of the payday loan;

H. use or attempt to use the check provided by the consumer in a payday loan as security for purposes of any state or federal law;

I. accept payment of the payday loan through the proceeds of another payday loan provided by the same licensee or any facilitator except such allowed renewals as set forth in Subsection L of this section;

J. make more than one payday loan to a consumer at a time;

K. make a payday loan that, when combined with another outstanding payday loan owed to another licensee, exceeds a total of three hundred dollars ($300) when combining the face amount of the checks written in connection with each loan. The licensee shall make inquiry of the consumer or utilize available information whether such loans are outstanding. In no event shall a licensee make a loan to a consumer who has two or more such loans outstanding, regardless of the total value of the loans;

L. renew, repay, refinance or consolidate a payday loan with the proceeds of another payday loan made by the same consumer for more than two renewals; provided that after the second and final renewal all payments thereafter shall be first applied to reduce the principal balance. Upon termination of a payday loan through the payment of the consumer's check by the drawee bank, the return of a check to a consumer who redeems it for consideration, or any other method of termination, the licensee shall not enter into another payday loan with the same consumer for at least thirty days thereafter, except that a licensee may extend the term of the loan beyond the due date without charge;

M. accept any collateral for a payday loan;

N. charge any interest, fees or charges other than those specifically authorized by the Payday Loan Act, including:

(1) charges for insurance; or

(2) attorney fees or other collection costs;

O. threaten to take any action against a consumer that is prohibited by the Payday Loan Act or make any misleading or deceptive statements regarding the payday loan or any consequence thereof;

P. make a misrepresentation of a material fact in obtaining or attempting to obtain a license;

Q. include any of the following provisions in a payday loan:

(1) a hold harmless clause;

(2) a confession of judgment clause;

(3) a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer;

(4) a mandatory arbitration clause;

(5) any assignment of or order for payment of wages or other compensation for services;

(6) a provision in which the consumer agrees not to assert any claim or defense arising out of the contract; or

(7) a waiver of any provision of the Payday Loan Act;

R. sell any insurance of any kind whether or not sold in connection with the making or collecting of a payday loan; or

S. engage in any other violation of the Payday Loan Act.

Section 12. ENFORCEMENT AND REMEDIES.--

A. The remedies provided in this section are cumulative and apply to licensees and to persons to whom the Payday Loan Act applies and who are not licensed.

B. Any facilitator is subject to enforcement under Section 6 of the Payday Loan Act and this section if the person making the deferred deposit loans fails to comply with the requirements of that act.

C. The violation of any provision of the Payday Loan Act, or any rule adopted pursuant to that act, except as the result of accidental or bona fide error of computation, renders the loan void, and the person shall have no right to collect, receive or retain any principal, interest or other charges whatsoever with respect to the loan.

D. Any person found to have violated the Payday Loan Act shall be liable to the consumer for actual, consequential and punitive damages, plus statutory damages of one thousand dollars ($1,000) for each violation, plus costs and attorney fees.

E. A consumer or the attorney general may sue for injunctive and other appropriate equitable relief to stop any person from violating any provision of the Payday Loan Act.

F. The consumer may bring a class action suit to enforce the Payday Loan Act.

G. The remedies provided in this section are not intended to be the exclusive remedies available to a consumer, and the consumer is not required to exhaust any administrative remedies provided under the Payday Loan Act or any other applicable law before resorting to the remedies provided in this section.

Section 13. SEVERABILITY.--If any part or application of the Payday Loan Act is held invalid, the remainder or its application to other situations or persons shall not be affected.

Section 14. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2001.