Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Altamirano

DATE TYPED 02/25/05 HB

SHORT TITLE Refund Anticipation Loan Conditions

SB 876

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Corrections (NMDC)

Regulation and Licensing Department (RLD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 876 establishes conditions for refund anticipation loans. The bill limits the maximum

amount of a refund anticipation loan to $2.5 thousand, provides the consumer with a right to re-

scind the agreement, establishes the fees that can be charged, provides that fees and other

charges may not exceed an amount totaling 1.5 times the original loan agreement principal and

provides other conditions for refund anticipation loans.

A violation of these provisions is a misdemeanor and shall be punishable by a fine not less than

$100 and not more than $300. Each loan constitutes a separate action under this section.

FISCAL IMPLICATIONS

The enforcement of this bill is not likely to have a significant fiscal impact to the state.

Senate Bill 876 -- Page 2

TECHNICAL ISSUES

The TRD raises a number of technical issues:

1) Section 1(A), p. 1, lines 19-20. Provides that a refund anticipation loan shall not exceed

$2,500. Later, in subsection (F)(6), the bill prohibits loans in excess of the refund amount.

Given this, in might be clearer if subsection (A) were revised to state: “A refund anticipation

loan shall not exceed two thousand five hundred dollars ($2,500) or the total amount of the

refund or refunds, whichever is less.”

2) Section 1(D)(2), p. 2, lines 23-25 & p. 3, lines 1-5. This provision limits the amount a

creditor can charge for a refund anticipation loan to “simple interest on the amount of loan

proceeds delivered to the consumer in a refund anticipation loan, the aggregate amount of

which includes all interest and all administrative fees received on the loan, including interest

received after any renewals, refinance or extensions, and the total aggregate amount may not

exceed one and one-half times the amount of the original loan agreement principal balance.”

The provision is drafted a bit awkwardly. It might be clearer if it were changed so that the

creditor could charge only “simple interest on the amount of loan proceeds delivered to the

consumer in a refund anticipation loan. No other interest or fee, other than those specifically

provided in this section may be charged. Total interest charged in connection with a refund

anticipation loan, including any renewals, refinance or extensions, may not exceed one and

one-half times the amount of the original loan agreement principal balance.”

3) Section 1(F)(7), p. 4, lines 10-11. This provision prohibits a creditor from accepting “col-

lateral for a refund anticipation loan other than the consumer’s check.” This is somewhat in-

accurate because, in contrast to a payday loan, the collateral for a refund anticipation loan is

not the consumer’s check; it is the proceeds of the consumer’s income tax refund.

4) Section 1(H)(1), p. 7, lines 3-9. The definition of “creditor” for purposes of the bill is very

broad and would encompass intermediaries involved in a refund anticipation transaction that

do not deal directly with a borrower, such as a check preparation service that prepares checks

on behalf of a lender for issuance to borrowers, and persons who might refer borrowers to

creditors who make refund anticipation loans.

5) Section 1(H)(2), p. 7, lines 12-14. This provision uses the term “debtor’s” (line 14) while

the rest of the bill refers to “consumers”. The term “debtor’s” might be changed to “con-

sumer’s” to make it consistent.

RLD raises the following concern:

The bill prohibits a tax return preparer and a creditor that makes refund anticipation loans

from being related. It would be difficult to determine the relationships that would be eligible

for a refund anticipation loan using Section G as the guideline. For example a tax preparer

may own stock in a corporation through a mutual fund and not know that he or she has vio-

lated the law. The use of the words “lineal descendants” is also very broad and would be im-

possible to measure without clarification.

EF/lg