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F I S C A L I M P A C T R E P O R T
SPONSOR McSorely
ORIGINAL DATE
LAST UPDATED
1/31/06
HB
SHORT TITLE Payday Loan Fees and Regulation
SB 548
ANALYST McSherry
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
225.0
225.0 Recurring General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Senate Bill 448 relates to and conflicts with Senate Bills 548, 475, and 636 and House Bill 409.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
FY06
FY07
FY08 3 Year
Total Cost
Recurring
or Non-Rec
Fund
Affected
Total
$0-$55.2 $0-$55.2 $0-$110.4 Recurring General
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
Administrative Office of the Courts
Regulations and Licensing Department
SUMMARY
Synopsis of Bill
Senate Bill 548 “Payday Loan Fees and Regulation,” proposes to amend the NM Small Loan Act
of 1955 by:
•
Defining payday loans (Page 3 line 12 through page 4 line 9) as:
o
“A loan in which the licensee negotiates a personal check tendered by the con-
sumer and agrees tin writing to defer presentment of the check until the con-
pg_0002
Senate Bill 548 – Page
2
sumer’s next payday or another date agreed to by the licensee and the consumer”
including:
any money advance or credit arrangement or extension of credit for which
the licensee accepts “dated instrument” or authorization signed by a con-
sumer for transfer or withdrawal of funds fro purpose of repaying a pay-
day loan or agrees to hold a dated instrument prior to negotiating or depos-
iting, or pays the consumer, or another person the amount to the instru-
ment actually paid in exchange for a fee finance charge or other considera-
tion.
And excluding:
overdraft products and services offered by banking corporations, savings
and loan association or credit union and installment loans
•
Increasing the original license fee from five hundred dollars $500 to seven hundred and
fifty dollars $750 (Page 9 lines 17 and 18).
•
Increasing the renewal license fee from five hundred dollars $500 to seven hundred and
fifty dollars $750 (Page 12 lines 17 and 18).
•
Increasing the annual examination fee from two hundred dollars ($200) to four hundred
dollars $400 (Page 13 lines 21 and 22).
•
Increasing the amounts of penalties for the violation of the NM Small Loans Act from not
less than$100 and not more than $300, to not less than $500 and not more than $1000 or
by imprisonment of 6 months rather than 90 days (Page 28).
•
Adding a section to the Small Loan Act regarding requirements for payday loans. Some
of the requirements are that a licensee cannot make a loan to a consumer with outstanding
payday loans exceeding $1,000.00 or twenty five percent of the consumer’s gross
monthly income, whichever is less, limits the consumer to 1 outstanding payday loan,
payday loans must have a minimum of 3 payments and a month between each payment,
rebate of fees to a consumer based on the actuarial method if paid off early, and the right
to rescind the payday loan transaction (Page 28 line 12 through page 31 line 3).
•
Capping the maximum fee amount that a payday lender can charge. For the first $300.00
the lender may charge $17.00 per $100.00, $15.00 per additional $100.00 up to $500.00,
and an additional $13.00 per hundred up to $1,000.00. The lender can only charge one
$15.00 fee for insufficient funds to pay the payday loan (Page 31 line 6 through page 32
line 23).
•
Adding a section to the Small Loan Act regarding prohibited practices when a small loan
licensee makes payday type loans. Some of the prohibited practices addressed in the sec-
tion would are that the licensee cannot use the criminal process to collect on a payday
loan, the licensee cannot charge a fee to cash a check representing the proceeds of a pay-
day loan and the licensee cannot have more than one payday loan to a consumer at a time
for all licenses operated under the same trade name. Agency or partnership agreements
are prohibited if they are used as a scheme or contrivance to circumvent the Act. The
new section also addresses additional consumer protections (Page 33 line 1 through page
36 line 12)
•
Prohibiting the operation of a payday loan business where the licensed premises would be
within one and one-half miles of a gambling facility (Page 36 line 13 through page 37
line 3).
pg_0003
Senate Bill 548 – Page
3
•
Requiring the Director of the Financial Institutions Division to certify a commercially
reasonable method of verification to be used by payday lenders in order for them to meet
the requirements of the bill regarding payday loans (Page 37 line 15 through page 40 line
14).
•
Requiring the Division to collect data and compile an annual report by April 1 of each
year (Page 40 line 17 through page 42 line 20).
•
Adding additional protections for military members who enter into a payday loan agree-
ment. The licensee can no longer garnish the wages or salaries of a consumer who is a
member of the military or contact the military chain of command of a consumer who is a
member of the military in an effort to collect on a payday loan (Page 42 line 23 through
page 43 line 10).
•
Require additional disclosures on a payday loan document (Page 43 lines 13 through 23).
•
Requiring the director to establish and implement rules that create incentives for banking
institutions to offer small loan products that meet the needs of low to moderate-income
borrowers (Page 45 lines 5 through 8)
•
Making the effective date of the provisions of the bill is October 1, 2006 (Page 45 lines
18 and 19).
FISCAL IMPLICATIONS
Increases in revenue were estimated by assuming that renewal licenses may decrease to 600 from
700 due to the licensure increases and additional constraints provided in the proposed act.
The renewal license fee increase from $500.00 to $750.00 for renewals would result in an addi-
tional $250 made for each license. 100 less renewals than a typical year would decrease revenues
by $25,000. The increase in examination fees from $200.00 to $400.00 and estimated for 600
licenses would result in an additional $200/license and an absolute loss of 100 licensees, decreas-
ing revenues by $20,000.
Small Loan Company License Renewals estimated at 600 $150,000.00
Reduced by fewer licensees ($25,000.00)
Examinations estimated at 600 $120,000.00
Reduced by fewer examinees ($20,000.00)
Total $225,000.00
According to RLD, there may be additional budget impact starting in FY07 if the Financial Insti-
tutions Division has to hire more examiners to monitor the licensees for compliance with the pro-
visions of the bill. Because a reduction in the future number of licensees is likely, however, it is
not known if the workload would increase for small loan regulation.
Estimated cost per examiner:
Salary @ $30,000 + 30% benefits $39,000
Office space @ 150 sf @ $20 per sf 3,000
Per Diem @ $275 per week times 26 weeks 7,150
Car 6,000
Estimated cost per examiner $55,150
pg_0004
Senate Bill 548 – Page
4
SIGNIFICANT ISSUES
AOC cites that:
1)
Section 57-12-10 NMSA 1978 provides that
B. Any person who suffers any loss of money or property, real or personal,
as a result of any employment by another person of a method, act or practice de-
clared unlawful by the Unfair Practices Act [57-12-1 NMSA 1978] may bring an
action to recover actual damages or the sum of one hundred dollars ($100),
whichever is greater. Where the trier of fact finds that the party charged with an
unfair or deceptive trade practice or an unconscionable trade practice has willfully
engaged in the trade practice, the court may award up to three times actual dam-
ages or three hundred dollars ($300), whichever is greater, to the party complain-
ing of the practice.
According to the Office of the Attorney General, The regulations of the Attorney General,
NMAC 12.2.10, provide for limitations on interest rates, term minimum and other loan terms
consistent with the Unfair Practices Act. These regulations are effective February 15, 2006.
It is not clear how many businesses which currently make payday loans would continue to do so
under the proposed provisions and therefore it is unknown how much revenues and oversight
would change with the proposed amendments.
PERFORMANCE IMPLICATIONS
If more examiners are needed to monitor compliance with the bill, but funds are not appropri-
ated, examiners currently on staff may need to also monitor compliance and RLD contents that
this could affect the Financial Institutions Division’s performance measure of examination turn-
around in 30 days.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
RLD cites NMAC Title 12 Chapter 2 Part 10 Extension of Credit for Payday and Car Title
Loans. Senate Bill 448 relates to a Rule promulgated by Attorney General to be effective 2-15-
06, SB 448 and to Senate Bills 548, 475 and 636; Senate Bill 448 also relates to House Bill 409.
TECHNICAL ISSUES
RLD cites the following technical issues:
Page 28 lines 16 through 20 states: “the total principal amount of the loan, when com-
bined with the principal amount of all of the consumer's other outstanding payday loans,
exceeds one thousand dollars ($1,000) or twenty percent of the consumer's net monthly
income, whichever is less”, while
page 29 lines 7 through 10 states: “A consumer shall not have more than one payday loan
outstanding at any time, nor shall a consumer have more than one payday loan out-
standing with any licensee operating under a single trade name”, the sections appear to
conflict
Page 31 line 18 through page 32 line 6 states the allowable charges per $100.00, page 28
pg_0005
Senate Bill 548 – Page
5
line 23 through page 29 line 6 states “Without affecting the rights of a consumer to pre-
pay a payday loan at any time without additional cost or penalty, no payday loan shall
have a stated minimum term of less than ninety days. A payday loan shall be repayable
in equal monthly payments of principal and administrative fees. There must be a mini-
mum of three payments, and the first payment shall come due no sooner than one month
after the distribution date of the loan proceeds.” It is not clear whether the allowable
charges are for the full 90 day term of the loan or monthly allowable charges.
Page 40 line 24 through page 42 line 20 requires the Division to compile a report of all li-
censees. The data collection components all regard payday type loans. It is not clear if
the report should only include payday lenders or all lenders including installment lenders.
Page 41 lines 3 through line 7 require the Division to compile an annual report by April 1
of each year. Section 58-15-10 subsection B of the Small Loan Act (page 19 line 20)
states “Each licensee shall, annually on or before March 31, file a report with the director
giving such relevant information as [he] the director may reasonably require concerning
the business and operations during the preceding calendar year for each licensed place of
business conducted by the licensee within the state pursuant to the provisions of the New
Mexico Small Loan Act of 1955.” According to RLD, the Division would not be able to
meet the April 1
st
deadline as the Division would only have the information to compile on
March 31
st
.
OTHER SUBSTANTIVE ISSUES
RLD contends that the rules promulgated by the Attorney General regarding Payday lending are
significantly different than the bill. The Attorney General’s rule becomes effective on 2-25-06
and the provisions of the bill would become effective 10-1-06.
RLD contends that the Financial Institutions Division would need to hire surveyors to help it de-
termine which locations would not be eligible for license renewal as per Page 36 line 13 through
page 37 line 3. The bill requires that the Division not renew any small loan license where the li-
censee makes payday loans if the licensed location is within 1 and ˝ miles of any gambling fa-
cility based on a straight line measurement from the property line of the licensee to the property
line of the gambling facility. However, RLD could require that any licensee in question finance
their own proof of distance from a gambling facility.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
According to the Office of the Attorney General, the regulations promulgated by the Attorney
General, NMAC 12.2.10, will take effect on February 15, 2006, imposing interest rate caps, a
minimum 120 day term and other limitations on payday lenders.
pg_0006
Senate Bill 548 – Page
6
POSSIBLE QUESTIONS
1.
What is the significance of the proposed start date of October 1 2006.
2.
How are the attorney general rules different than the proposed bill.
3.
How many inspectors currently oversee small loan lenders. How many businesses does
each inspector typically oversee. What additional workload per inspection is expected
based on the new requirements included in this bill.
4.
Who is the intended entity responsible for determining the distance a payday licensee is
located from gambling facilies.
EM/nt