46th legislature - STATE OF NEW MEXICO - first session, 2003

RELATING TO FINANCIAL INSTITUTIONS; ENACTING THE DEFERRED DEPOSIT LOAN ACT; REQUIRING LICENSURE; PROVIDING POWERS AND DUTIES; REQUIRING RECORDS AND REPORTS; LIMITING CHARGES FOR LOANS; PRESCRIBING CRIMINAL AND CIVIL PENALTIES; AMENDING AND ENACTING SECTIONS OF THE NMSA 1978.

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

Section 1. [NEW MATERIAL] SHORT TITLE.--Sections 1 through 14 of this act may be cited as the "Deferred Deposit Loan Act".

Section 2. [NEW MATERIAL] DEFINITIONS.--As used in the Deferred Deposit Loan Act:

A. "check" means a negotiable instrument, as defined in Section 55-3-104 NMSA 1978, that is drawn on a financial institution and is to be payable on demand at maturity of a deferred deposit loan;

B. "consumer" means a natural person who, individually or jointly with another natural person, enters into a deferred deposit loan;

C. "deferred deposit loan" means a transaction in which a person lends money to a consumer by:

(1) accepting a check dated on the date it was written and agreeing to hold it for a specific period of days prior to deposit or presentment; or

(2) accepting a check dated subsequent to the date it was written and agreeing to hold the check for deposit until the date written on the check;

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

E. "facilitator" means a person that is exempt from licensing and that facilitates, enables or acts as a conduit for another person to make a deferred deposit loan, including:

(1) banks;

(2) savings and loan associations;

(3) credit unions; and

(4) other state-regulated or federally regulated financial institutions;

F. "licensee" means a person licensed to make deferred deposit loans or a facilitator; and

G. "person" means a natural person, firm, partnership, association or corporation, or other entity that makes a deferred deposit loan in this state.

Section 3. [NEW MATERIAL] EXEMPTION.--Retail sellers who cash checks incidental to or independent of a sale and who charge no more than two dollars ($2.00) per check for the service are exempt from the provisions of the Deferred Deposit Loan Act.

Section 4. [NEW MATERIAL] LICENSING REQUIREMENTS AND FEES--NUMBER AND PLACE OF BUSINESS.--

A. A person shall not engage in the business of deferred deposit lending without a license issued by the division. The division shall not issue or renew a license until determining:

(1) that authorizing the applicant to engage in deferred deposit lending promotes the convenience and advantage of the community in which the applicant proposes to engage in business;

(2) that the applicant has unencumbered assets of at least twenty-five thousand dollars ($25,000) per license; and

(3) other information the division deems necessary.

B. A license shall not be issued for longer than one year, and a license shall not be renewed if the licensee has violated the Deferred Deposit Loan Act.

C. A licensee shall post a bond in the amount of fifty thousand dollars ($50,000) per license, which shall continue in effect for five years after the licensee ceases operation in the state. The bond shall be available to pay damages and penalties to consumers harmed by any violation of the Deferred Deposit Loan Act.

D. An application fee of five hundred dollars ($500) with a renewal fee of three hundred dollars ($300) and an investigative fee of five hundred dollars ($500) shall be paid by a licensee.

E. More than one place of business shall not be maintained under the same license, but the division may issue more than one license to the same licensee.

F. A licensee shall not make deferred deposit loans within an office, suite, room or place of business in which any other business is solicited or engaged in, unless the division finds that the other business is not contrary to the best interest of consumers and is authorized by the division in writing.

G. By accepting the license, the applicant agrees that he will not use the criminal process to collect the payment of deferred deposit loans.

Section 5. [NEW MATERIAL] PUBLIC HEARINGS--REVOCATION AND SUSPENSION OF LICENSE.--

A. A public hearing shall be held for license renewals if requested in writing by the division or by five or more members of the public.

B. If the division finds, after due notice and hearing or opportunity for hearing, that a licensee or officer, agent, employee or representative of the licensee has violated any of the provisions of the Deferred Deposit Loan Act or rules promulgated pursuant to that act, failed or refused to make its reports to the division or furnished false information to the division, the division may issue an order suspending or revoking the license. Revocation, suspension or surrender of a license shall not relieve the licensee from civil or criminal liability.

Section 6. [NEW MATERIAL] DUTIES.--

A. The division shall:

(1) maintain a list of licensees that is available to interested persons and the public;

(2) create a toll-free telephone number at which consumers may obtain information about licensees;

(3) establish a complaint process whereby an aggrieved consumer or other person may file a complaint against a licensee;

(4) upon the request of a party to a complaint, hold public hearings in order to:

(a) make findings of fact and conclusions of law;

(b) issue cease and desist orders;

(c) suspend or revoke a license granted pursuant to the Deferred Deposit Loan Act; or

(d) refer the matter to the appropriate law enforcement agency for prosecution; and

(5) compile annual reports of deferred deposit lending in this state from the information provided pursuant to Section 7 of the Deferred Deposit Loan Act and provide copies to the governor and the legislature. Annual reports shall be available to the public.

B. The division may promulgate rules to carry out the provisions of the Deferred Deposit Loan Act.

Section 7. [NEW MATERIAL] RECORDS AND REPORTS.--

A. A licensee shall keep books, accounts and records required by the division that enable the division to determine if the licensee is complying with the provisions of the Deferred Deposit Loan Act. The division may examine the records at any reasonable time. All records required by this section shall be kept for four years following the last entry on a loan.

B. A licensee shall file an annual report with the division on or before the last day of March for the preceding calendar year ending December 31 on forms prescribed by the division. The report shall disclose in detail and under appropriate headings:

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

(2) the income, expense, gain and 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 deferred deposit loans made during the time period;

(4) the total number of deferred deposit loans outstanding as of the last day of the time period;

(5) the minimum, maximum and average dollar amount of checks that were deferred during the time period;

(6) the average annual percentage rate and the average number of days a deposit of a check is deferred during the time period;

(7) the total of returned checks, the total of checks recovered and the total of checks charged off during the time period; and

(8) verification that the licensee has not used the criminal process in the collection of any deferred deposit loan during the time period.

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

D. A licensee shall file a copy of the deferred deposit loan contract and fee schedule with the division prior to commencement of business, at the time any changes are made to the contract or schedule and annually upon renewal of the license. These documents shall be available to interested parties and to the general public.

Section 8. [NEW MATERIAL] REQUIRED ACTS.--

A. A check written by a consumer for a deferred deposit loan shall be made payable to the licensee.

B. Upon receipt of a check from a consumer for a deferred deposit loan, the licensee shall immediately stamp the back of the check with an endorsement that states: "This check is being negotiated as part of a deferred deposit loan, and any holder of this check takes it subject to all claims and defenses of the maker.". A subsequent holder or assignee of a check written by a consumer for a deferred deposit loan takes the instrument subject to all claims and defenses of the consumer.

C. The minimum term for a deferred deposit loan is two weeks for each fifty dollars ($50.00) owed on the loan.

D. The minimum amount of a deferred deposit loan is fifty dollars ($50.00).

E. The maximum amount of a deferred deposit loan is three hundred dollars ($300).

F. A consumer may make partial payments of not less than five dollars ($5.00) on a deferred deposit loan at any time without charge.

G. After each payment made on a deferred deposit loan, the licensee shall give to the consumer a signed, dated receipt showing the amount paid and the balance due on the loan.

H. A licensee shall provide each consumer with a copy of all loan documents prior to the consummation of the loan.

Section 9. [NEW MATERIAL] REQUIRED DISCLOSURES.--

A. A licensee shall deliver to a consumer before entering into a deferred deposit loan a pamphlet prepared by the division that explains, in simple English and Spanish, all of the consumer's rights and responsibilities in a deferred deposit loan transaction. The pamphlet shall:

(1) include the division's toll-free telephone number to receive concerns or complaints by consumers and to inform consumers as to whether complaints against the licensee have been filed with the division and how the complaints were resolved; and

(2) inform consumers that the division can provide information about whether a lender is licensed.

B. A licensee shall provide a consumer with a contract specified or approved by the division that may be kept by the consumer and that includes the following information in English and in the language in which the loan was negotiated:

(1) the name, address and telephone number of the licensee making the deferred deposit 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 deferred deposit loan;

(4) disclosures required pursuant to state law;

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

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

C. A notice in simple English and Spanish shall be conspicuously posted by a licensee in each location of a business providing deferred deposit loans. The notice shall:

(1) inform consumers that it is illegal for the licensee to use the criminal process against a consumer to collect on any deferred deposit loan; and

(2) display the schedule of all interest and fees to be charged on a deferred deposit loan, with an example of the amounts that would be charged on a three hundred dollar ($300) loan payable in fourteen days and thirty days and giving the corresponding annual percentage rate.

D. Licensees that make deferred deposit loans and are exempt from the fee limitations of the Deferred Deposit Loan Act and that charge fees, interest and charges greater than those authorized in the Deferred Deposit Loan Act shall post in a conspicuous place in the branch in which deferred deposit loans are transacted the following notice: "WARNING: The fees and interest charged on deferred deposit loans made at this institution are higher than those charged at other financial institutions.". A single instance of charging a consumer more than the fees, interest and other charges permitted in the Deferred Deposit Loan Act shall require the licensee to post this notice.

Section 10. [NEW MATERIAL] PERMITTED CHARGES AND FEES.--

A. A licensee shall not charge or receive, directly or indirectly, any interest, fees or charges except those specifically authorized by this section.

B. A licensee may charge an administrative fee of no more than five dollars ($5.00) for each deferred deposit loan entered into with a consumer.

C. In addition to the administrative fee, a licensee may charge interest on the amount of cash delivered to the consumer in a deferred deposit loan in an amount no greater than thirty-six percent a year. The rate charged on the outstanding balance after maturity shall not be greater than the rate charged during the loan term. Charges on deferred deposit loans shall be computed and paid only as a percentage of an unpaid principal balance. As used in this section, "principal balance" means the balance due and owed exclusive of any interest, service charges or other loan-related charges.

D. 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. Only one such 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 shall be a licensee's exclusive charge for late payment.

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

Section 11. [NEW MATERIAL] PROHIBITED ACTS.--The following acts are prohibited:

A. engaging in deferred deposit lending without first obtaining a license;

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

C. altering the date or any other information on a check accepted for a deferred deposit loan;

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

E. engaging in unfair, deceptive or fraudulent practices in the making or collecting of a deferred deposit loan;

F. entering into a deferred deposit loan when the amount of the loan exceeds twenty-five percent of the consumer's net income for the term of the loan;

G. charging to cash a check representing the proceeds of a deferred deposit loan;

H. using or attempting to use a check provided by a consumer for a deferred deposit loan as security for purposes of any state or federal law;

I. making more than one deferred deposit loan to a consumer at a time;

J. making a deferred deposit loan that when combined with another outstanding deferred deposit 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 use available information bases to determine whether such loans are outstanding. In any event, a licensee shall not make a loan to a consumer who has two or more deferred deposit loans outstanding, regardless of the total value of the loans;

K. renewing, repaying, refinancing or consolidating a deferred deposit loan with the proceeds of another deferred deposit loan made by the same consumer. Upon termination of a deferred deposit loan through the payment of a consumer's check by the drawee financial institution, the return of a check to a consumer who redeems it for consideration or any other method of termination of the loan, the licensee shall not enter into another deferred deposit loan with the same consumer for at least thirty days thereafter; provided that a licensee may extend the term of the loan beyond the due date without charge;

L. accepting collateral for a deferred deposit loan;

M. charging interest, fees or charges other than those specifically authorized by the Deferred Deposit Loan Act, including:

(1) charges for insurance; and

(2) attorney fees or other collection costs;

N. threatening to take action against a consumer that is prohibited by the Deferred Deposit Loan Act or making misleading or deceptive statements regarding the deferred deposit loan or any consequence thereof;

O. making a misrepresentation of a material fact in obtaining or attempting to obtain a license;

P. including any of the following provisions in contracts required by the Deferred Deposit Loan Act:

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

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

(7) a waiver of any provision of the act; or

Q. selling insurance of any kind, whether sold or not sold in connection with the making or collection of a deferred deposit loan.

Section 12. [NEW MATERIAL] CIVIL PENALTIES AND REMEDIES.--

A. A violation of the Deferred Deposit Loan Act, except as the result of accidental or bona fide error of computation, renders the loan void, and the licensee shall have no right to collect, receive or retain any principal, interest or other charges whatsoever with respect to the loan.

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

C. A consumer may sue for injunctive and other appropriate equitable relief to stop a person from violating provisions of the Deferred Deposit Loan Act.

D. A consumer may bring a class action suit to enforce the Deferred Deposit Loan Act.

E. The remedies provided in this section are not intended to be exclusive remedies available to a consumer nor shall the consumer exhaust any administrative remedies provided pursuant to the Deferred Deposit Loan Act or any other applicable law.

Section 13. [NEW MATERIAL] CRIMINAL PENALTIES.--A licensee, including members, officers and directors of the licensee, that knowingly violates the Deferred Deposit Loan Act is guilty of a petty misdemeanor and, on conviction, is subject to imprisonment not to exceed six months and a fine of not more than one thousand dollars ($1,000) or both.

Section 14. [NEW MATERIAL] APPLICABILITY.--

A. The Deferred Deposit Loan Act applies to any person that, for a fee, service charge or other consideration:

(1) makes a deferred deposit loan; or

(2) facilitates, enables or acts as a conduit for another person that makes deferred deposit loans.

B. The provisions of the Deferred Deposit Loan Act, except the requirements for obtaining a license and the limitations on interest rates and fees where exempt by virtue of other state or federal laws, shall apply to banks, savings and loan associations, credit unions and other state-regulated or federally regulated financial institutions.

Section 15. Section 58-15-3 NMSA 1978 (being Laws 1955, Chapter 128, Section 3, as amended) is amended to read:

"58-15-3. APPLICABILITY OF ACT--EXEMPTIONS--EVASIONS--PENALTY.--

A. No person shall engage in the business of lending in amounts of two thousand five hundred dollars ($2,500) or less without first having obtained a license from the director. Nothing contained in this subsection shall restrict or prohibit a licensee under the New Mexico Small Loan Act of 1955 from making loans in any amount under the New Mexico Bank Installment Loan Act of 1959 in accordance with the provisions of Section 58-7-2 NMSA 1978.

B. Nothing in the New Mexico Small Loan Act of 1955 shall apply to a person making individual advances of two thousand five hundred dollars ($2,500) or less under a written agreement providing for a total loan or line of credit in excess of two thousand five hundred dollars ($2,500) for which real estate is pledged as collateral.

C. Any banking corporation, savings and loan association or credit union operating under the laws of the United States or of New Mexico shall be exempt from the licensing requirements of the New Mexico Small Loan Act of 1955, nor shall that act apply to any business transacted by any such person under the authority of and as permitted by any such law, nor to any bona fide pawnbroking business transacted under a pawnbroker's license, nor to a deferred deposit loan business operating pursuant to the Deferred Deposit Loan Act, nor to bona fide commercial loans made to dealers upon personal property held for resale. Nothing contained in the New Mexico Small Loan Act of 1955 shall be construed as abridging the rights of any of those exempted from the operations of that act from contracting for or receiving interest or charges not in violation of any existing applicable statute of this state.

D. The provisions of Subsection A of this section apply to any person owning any interest, legal or equitable, in the business or profits of any licensee whose name does not specifically appear on the face of the license, except a stockholder in a corporate licensee, and to any person who seeks to evade its application by any device, subterfuge or pretense whatsoever, including but not thereby limiting the generality of the foregoing: the loan, forbearance, use or sale of credit (as guarantor, surety, endorser, comaker or otherwise), money, goods or things in action; the use of collateral or related sales or purchases of goods or services or agreements to sell or purchase, whether real or pretended; receiving or charging compensation for goods or services, whether or not sold, delivered or provided; and the real or pretended negotiation, arrangement or procurement of a loan through any use or activity of a third person, whether real or fictitious.

E. Any person, copartnership, trust and the trustees or beneficiaries thereof, association or corporation and the several members, officers, directors, agents and employees thereof who violate or participate in the violation of any provision of Subsection A of this section is guilty of a petty misdemeanor and upon conviction shall be sentenced pursuant to the provisions of Subsection B of Section 31-19-1 [(B)] NMSA 1978. Any contract or loan in the making or collection of which any act is done that violates Subsection A or D of this section is void and the lender has no right to collect, receive or retain any principal, interest or charges whatsoever."

Section 16. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2003.