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F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

DATE TYPED 02/10/05 HB 372

SHORT TITLE Consumer Loan Act

SB

ANALYST McSherry

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI

$282.5

$282.5 Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB 200 Consumer Loan Act;

Relates to HB 65, Payday Loans

SOURCES OF INFORMATION

LFC Files

Regulations and Licensing

SUMMARY

Synopsis of Bill

House Bill 372 proposes the creation of the Consumer Loan Act (Act). The Act proposes licens-

ing requirements for any person making consumer loans who is not exempted by the Act. The

proposed Act contains provisions to which the licensee must adhere. The Act limits the rate of

interest that a licensee may charge to a maximum of thirty-six percent a year (36%).

Defined terms used within the Act, include: “consumer,” “consumer lender,” “consumer loan,”

and “licensee” (excludes state or federally chartered bank, thrift association, savings and loan

association, credit union, pawnbroker, mortgage company, mortgage broker, motor vehicle sales

finance company or credit card company).

Language proposed provides that a person making consumer loans, acting as a facilitator of con-

sumer loans or assisting a consumer lender in the origination of consumer loans would have to

obtain a license from the Regulation and Licensing Department, good for a term of one year.

Application fees, renewal fees and fees based on the monetary amount of the loan made would

be assessed. The proposed Act provides that by accepting the license, the applicant would agree

not to use the criminal process to collect the payment of consumer loans.

House Bill 372 -- Page 2

Proposed language provides that a violation of the Act could result in license suspension, revoca-

tion or non-renewal, the occurrence of which would not relieve a licensee from civil or criminal

liability. An alleged violator would be entitled to notice and a hearing or the opportunity for a

hearing.

The bill provides that a consumer would be able to make partial payment on the balance of a loan

at any time without charge other than interest, and that a licensee would have to give a consumer

a signed, dated receipt showing amount paid and principal balance due, after each payment made

by the consumer.

Proposed language states that a licensee would have to deliver to a consumer before entering into

a consumer loan a contract that contains specified information, including an itemization of fees

and interest charges to be paid by the consumer, a clear description of the consumer’s payment

obligations pursuant to the contract, and a specifically conspicuous statement that “You cannot

be prosecuted in criminal court to collect this loan.” Additionally, a licensee would have to post

within each place of business a notice in English and Spanish informing consumers that it is ille-

gal for the licensee to use the criminal process against a consumer to collect on a loan, and would

have to display the schedule of all interest and fees to be charged on a consumer loan.

The bill provides that a licensee could charge no more than 36% annual interest on the amount of

cash delivered to the consumer in a consumer loan. The section also provides that when a loan is

repaid before its due date, unearned interest charges would be rebated to the consumer.

The proposal provides that a violation under the Act, except as the result of accidental or bona

fide error of computation, renders the loan void, and the licensee has no right to collect, receive

or retain any principal interest or other charges with respect to the loan. The section further pro-

vides that a person who violates the Act shall be liable for actual, consequential and punitive

damages plus statutory damages of $1,000 for each violation, plus costs and attorney fees. The

section also provides for injunctive and other equitable relief, and also provides for a class action

suit to enforce the Act.

Proposed language states that a knowing violator of the proposed Act is guilty of a petty misde-

meanor.

Significant Issues

The Administrative Office of the Courts (AOC) states that it is not clear whether a licensee

would be able to contract for and receive additional fees such as administrative fees, filing fees,

etc. under the proposal: an itemization of fees would be a requirement of the contract yet there

are no permitted fees listed in Section 8 of the Act.

AOC asserts that it appears to require consumer lenders who want to make loans under the New

Mexico Bank Installment Loan Act of 1959 to be dual licensed under the Consumer Loan Act

and the New Mexico Small Loan Act of 1955. It does not clearly define whether loans made un-

der the Bank Installment Loan Act of 1955 are restricted to the thirty-six percent a year (36%)

rate maximum.

House Bill 372 -- Page 3

PERFORMANCE IMPLICATIONS

The Economic Development Department states that this bill could cause the establishment of

stronger regulations for violation of the Consumer Loan Act to insure proper business practices

are in place. The Department asserts that all loan contracts with consumers/lenders should be in

English/ Spanish

FISCAL IMPLICATIONS

The Regulations and Licensing Department states that there is no historical data upon which to

base fiscal impact, however the assumption used by the Department is that some lenders will

choose to become licensed only under the Consumer Loan Act and thus decrease the revenue

from the Small Loan Act.

RLD used the following assumptions to determine a projected fiscal impact: The Consumer Loan

Act has a $1,000.00 licensing fee for original license; the Small loan Act has a $1,000.00 inves-

tigation fee plus a $500.00 licensing fee resulting in a net decrease of revenue of $500.00 for

new lenders that license only under the Consumer Loan Act. If the intent of the Act is to require

dual licensing for lenders that want to make loans under the Bank Installment Loan Act then

there will be an increase in revenue. The Consumer Loan Act has a $1,000.00 renewal fee; the

Small Loan Act has a $500.00 renewal fee resulting in a net revenue gain of $500.00 per re-

newal. It is assumed that all current small loan licensees will continue to be licensed under either

the Consumer Loan Act or the Small Loan Act. It is assumed that the net difference will equal to

a revenue decrease of $500.00 for each new lender application and a net increase in revenue for

each renewal or conversion from a Small Loan License to the Consumer Loan Act license. This

is based on the further assumption that a lender that currently holds a small loan license decides

to only license under the Consumer Loan Act the lender would have to pay a $1,000.00 original

license fee versus the $500.00 to renew the small loan license.

The Act may generate additional revenue for FY06; however there is no historic data to make

this prediction.

Revenue estimate is based on the assumptions proposed by RLD, listed above.

Estimated that 600 companies will license under the Act $300,000.00

New Consumer Loan Companies estimated at 35 $ (17,500.00)

Total $282,500.00

ADMINISTRATIVE IMPLICATIONS

The Financial Institutions Division of the Regulations and Licensing Department would gain ad-

ditional duties.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to House Bill 65, Payday Loan Registration

Duplicates SB 200, Consumer Loan Act

House Bill 372 -- Page 4

TECHNICAL ISSUES

RLD asserts that clarification is needed regarding dual licensing and regarding whether Small

Loan licensee making loans under the New Mexico Bank Installment Act is limited to 36%.

OTHER SUBSTANTIVE ISSUES

RLD predicts that the proposed Act would provide for additional consumer protection, but that it is im-

possible to predict what effect the 36% rate limitation will have on the current Small Loan licensees.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Consumer loans would remain available to consumers with no additional disclosures or restric-

tions which would be imposed by this Act.

Consumers would not benefit from the potential additional consumer protections regarding con-

sumer loans as provided for by this Act.

EM/sb