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

SPONSOR Taylor

DATE TYPED 03/15/05 HB

SHORT TITLE Payday Loan Regulation

SB 674

ANALYST McSherry

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI

$270.8

$270.8 Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Senate Bill 674 duplicates the original version of House Bill 65.

SOURCES OF INFORMATION

LFC Files

Economic Development

Department of Labor

Regulations and Licensing Department

SUMMARY

Synopsis of Bill

Senate Bill 674 amends the Small Loan Act of 1955. The amended act would require that all

loans made under the Small Loan Act use the simple interest method calculation for interest

computation. Pre-computed loans would no longer be allowed under the Small Loan Act. The

amendment includes four new sections that address Payday type loans made by small loan licen-

sees. The new sections address payday loan limitations, permitted charges, prohibited acts, and

additional required disclosures. There is also a proposed new section regarding reporting re-

quirements for small loan companies that make payday loans.

SB 674 sets new dollar regulations for most fund transactions involved in the payday loans.

Lines of credits in excess of two thousand five hundred dollars ($2,500) would not need to be

secured by real estate. Fees would be increased for payday lenders: the original license fee

would increase from five hundred dollars ($500) to seven hundred and fifty dollars ($750); the

renewal license fee would increase from five hundred dollars ($500) to seven hundred and fifty

dollars ($750) and the annual examination fee would increase from two hundred dollars ($200)

Senate Bill 674 -- Page 2

to four hundred dollars ($400). Enactment of HB 65 would allow for a delinquency fee which

reflects the Bank Installment Loans Act.

The 1

st

proposed new section would set limitations for small loan licensees who make payday

type loans and would allow a consumer the right to rescind the payday loan transaction. The sec-

tion would require the lender to allow a consumer to make partial payments in any amount on the

payday loan and would limit payday loans made to a maximum of one thousand dollars ($1,000).

Consumer protections such as requiring a check written by a consumer for a payday loan to be

made payable to the order of the licensee, requiring a receipt detailing the payment transaction

and requiring the licensee to provide a copy of the payday loan agreement in English or Spanish,

prior to the consummation of the loan to all parties involved in the payday loan are all included

in HB 65’s proposed amendments. The bill also proposes the requirement that the licensee will

have available a consumer information brochure in English and Spanish as determined by the

director.

The 2

nd

proposed new section would address permitted charges for small loan licensees who

make payday type loans. The section would establish a $5.00 maximum administration fee for

each new payday loan. It would limit the amount of interest that a licensee can collect on a pay-

day loan to two times the original principal balance. If the aggregate limit were to be reached,

the licensee would have to terminate the payday loan agreement and consider the loan to have

been paid in full. The licensee would not be able to collect on the original principal balance once

the aggregate limit were to be reached. The section would limit the charge for a check with in-

sufficient funds to $15.00 even if the check has been re-deposited and returned more than once.

The 3

rd

proposed new section would prohibit certain practices when a small loan licensee makes

payday type loans. Prohibited practices addressed in the section are: licensee use of the criminal

process to collect on a payday loan, licensee assessment of a fee to cash a check representing the

proceeds of a payday loan, and licensee issuance of more than one payday loan to a consumer at

a time. The 3

rd

new section addresses additional consumer protections.

The fourth newly proposed section addition to the Small Loan Act would require a small loan

licensee that issues payday loans to file an annual report with the Financial Institutions Division

for data collection purposes.

Significant Issues

According to the Economic Development Department, payday lenders have received negative

publicity about charging predatory amounts to financially disadvantaged clients and for charging

extremely high interest rates and fees for their loans. The department points out that the pro-

posed bill does not address a cap on interest rates.

Dept of Labor notes that, if enacted, the total aggregate amount of interest on payday loans

would be limited to two times the amount of the original loan’s principle balance. The consumer

would also be provided the right to rescind a payday loan by returning the full amount advanced

on the first day of business following the execution of the agreement.

PERFORMANCE IMPLICATIONS

No performance measure implications were noted by any of the agencies, however RLD would

Senate Bill 674 -- Page 3

be the agency responsible for administration of the amended statute should it pass and perform-

ance could be affected.

FISCAL IMPLICATIONS

Senate Bill 674 does not include an appropriation.

According to RLD Financial Institutions and Securities Division, the enactment of the bill would

generate additional revenue for FY06 with the proposed increases in original and renewal license

fees from $500.00 to $750.00 and the increase in examination fees from $200.00 to $400.00.

The following revenue estimate was predicted by RLD, based on the increased amount of the

license and examination fees and not the total revenue generated.

Small Loan Company License Renewals estimated at 600 $150,000.00

Examinations estimated at 600 $120,000.00

Total $270,000.00

With increased fees and restrictions on the industry, it is possible that the number of licenses re-

newed would be reduced and that revenues would not be as great as the prediction calculated by

RLD. The estimate uses historic information, based during a time without the increased fees and

examination costs, and without the industry regulations that are proposed.

Fewer lenders maintaining licenses with the Department would cause lost revenue, however the

Department contends that NM is one of the states with the lowest cost for licensing small loan

lenders and that there would likely not be a decrease in the number of licensees due to the pro-

posed increase in fees.

ADMINISTRATIVE IMPLICATIONS

The Regulations and Licensing Department would be responsible for the administration of the

amended licensing requirements and oversight.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 674 duplicates the original version of HB 65 and relates to SB 200, the Consumer

Loan Act.

TECHNICAL ISSUES

The Department of Labor cites page 27, § 11(B) lines 19-22 as being confusing with respect to

the right to rescind.

OTHER SUBSTANTIVE ISSUES

This proposed changes to the Small Loan Act address payday type lending and offer additional

consumer protections. RLD cites that the bill will result in additional regulatory burden and in-

creased costs to the small loan companies that issue payday loans.

Senate Bill 674 -- Page 4

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

The Department of Labor asserts that borrowers will continue to pay exorbitant interest rates on

pay day loans should SB 674 not be enacted

Payday loans would remain readily available to consumers without additional disclosures, re-

newal restrictions, maximum loan amount, or other restrictions which would be imposed by en-

actment of this bill. According to RLD, consumers would not benefit from the additional con-

sumer protections regarding payday loans which would be provided for should SB 674 be en-

acted.

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