FID must fix loopholes in regulations to protect New Mexicans from predatory loans

GALLUP— The New Mexico Financial Institutions Division must close loopholes in storefront loan renewals and ensure greater transparency in the small loan industry, said the New Mexico Center on Law and Poverty at a hearing in Gallup today. The FID held the hearing to gather public comment on its proposed HB 347 regulations. The law, passed during the 2017 New Mexico legislative session, imposes a 175 percent APR interest rate cap on small loans. Previous to its passage, most small loans were unregulated and interest rates were even higher.

Gallup, which is almost 50 percent Native American, has the highest concentration of storefront lenders in New Mexico with nearly 50 licensed lenders for a population of less than 23,000. Storefront lenders have long aggressively targeted low-income families and Native communities in the state, pushing loans with high-interest rates or arbitrary fees with little regard for an individual’s ability to repay.

“The Navajo Nation Human Rights Commission office receives a variety of consumer complaints about small loans that Navajo citizens enter,” said Leonard Gorman, executive director of the Navajo Nation Human Rights Commission. “Often times the Navajo consumer is an elder who has been misinformed or not informed of the conditions involving their loans.”

HB 347, in addition to the APR cap, strictly limits the fees that lenders are permitted to charge borrowers, eliminates interest-only payments on the majority of storefront loans, and stipulates that all such loans, except refund anticipation loans, have an initial maturity of 120 days.

Loan renewals, however, are not addressed by the FID’s proposed regulations. This creates a major loophole that leaves consumers vulnerable to interest rates and fees that are now illegal under the law for new loans. The Center urges the FID to close this loophole by clarifying that renewals are subject to the law’s fee limit, interest rate cap, and payment schedule requirements for new loans.

“All New Mexicans deserve access to fair and transparent loans under reasonable terms, including low-income families. But we have a lot of work to do to create a more inclusive economy in our state,” said Christopher Sanchez, supervising attorney at the New Mexico Center on Law and Poverty. “Predatory lending has hurt New Mexican families and our economy in concrete ways, draining millions of dollars from the pockets of those who can least afford it. The FID can meaningfully address this damage to consumers in 2018 by first fixing the loopholes around loan renewals in its regulations.”

In New Mexico, storefront lenders frequently market and encourage borrowers to “renew,” “refinance,” or “rollover” their existing loans. High-cost small loans, with interest rates and fees that add up to several times the loan principal, are often nearly impossible for borrowers to pay off in the short terms that lenders offer.

For many people, the only solution at the end of the repayment period is to renew the loan and pay costly fees and extended high interest payments. Repeated renewals dramatically increase the cost of a small loan and make it extremely difficult for a borrower to calculate the long term financial consequences of the extension.

For example, a Zuni man with a full-time income was struggling to make payments on a $125 loan he took out from a Gallup company 10 years ago. When he was unable to pay back the principal, interest, and high fees by the date the loan was due, he renewed the loan rather than default. He has now renewed his loan over a dozen times and paid the company thousands of dollars in interest and renewal fees. He still cannot pay off the principal.

The FID’s proposed regulations also fail to address the lack of transparency in storefront lending practices. It is all too common in the industry for storefront lenders to mislead borrowers about the true cost of small loans through confusing contract terms, expensive and often useless add-on products, and by marketing loans that conceal long term costs. Because of this intentional subterfuge, it is often difficult or impossible for consumers to calculate the true costs of their loans.

“We should all be able to walk into a small loan store and see how much a loan will actually cost,” said Sanchez. “The market operates more effectively when all members of the public can understand the terms of the contracts they are entering. It’s important that the regulations ensure that loan terms are disclosed to borrowers in clear, straightforward terms.”

The Center also suggests the regulations include improved methods of data collection, greater protections for borrowers of refund anticipation loans, and expanded language accessibility.

“While a small loan business may have a Navajo employee interacting with the Navajo customers, our Navajo plaintiffs indicate that the Navajo employee does not speak the Navajo language well enough to communicate effectively with Navajo elders,” said Gorman. “The new administrative rules must include provisions for explaining the small loan entirely in the language preferred by the customers. Without a language assistance provision, Navajo consumers with difficulty understanding the English language will continue to be disenfranchised because they cannot fully understand the loan documents.”

The FID’s proposed regulations can be found here: www.rld.state.nm.us/financialinstitutions/

The Center’s comments on the proposed regulations can be found here: https://wp.me/a7pqlk-10H

The Center’s suggested changes to the proposed regulations can be found here: https://wp.me/a7pqlk-10I

Hearing on proposed small loan regulations Tuesday in Gallup

GALLUP—The New Mexico Financial Institutions Division will hear public comment in Gallup on Tuesday regarding its proposed regulations on HB 347, which imposes a 175 percent APR interest rate cap on small loans. Before passage of this law, most small loans were unregulated and interest rates were even higher.

The law also ensures that borrowers have the right to clear information about loan total costs, allows borrowers to develop credit history via payments made on small-dollar loans, and stipulates that all such loans, except refund anticipation loans, have an initial maturity of 120 days and cannot be subject to a repayment plan smaller than four payments of loan principal and interest.

While the law and proposed regulations signal progress for fair loan terms, much more work remains to be done to ensure a more inclusive economy for all New Mexicans. Storefront lenders have long aggressively targeted low-income families and Native communities in the state, pushing loans with high-interest rates or arbitrary fees and no regard for an individual’s ability to repay. Gallup has the highest concentration of storefront lenders in the state with nearly 50 licensed lenders for a population of less than 23,000.

Among other recommendations at the Tuesday hearing, the New Mexico Center on Law and Poverty will urge the FID to improve the regulations to close loopholes around loan renewals and increase transparency in how the division regulates small loan companies.

The FID’s proposed regulations can be found here: www.rld.state.nm.us/financialinstitutions/

The Center’s comments on the proposed regulations can be found here: https://wp.me/a7pqlk-10H

The Center’s suggested changes to the proposed regulations can be found here: https://wp.me/a7pqlk-10I

WHAT:    
FID Hearing on proposed HB 347 regulations

WHEN:
Tuesday, May 15, 2018 at 11:00 a.m.
 
WHERE:

Rehoboth McKinley Christian Health Care Services Building
Solarium Room, 3rd Floor
1901 Red Rock Drive
Gallup, New Mexico 8730

Hearing on proposed small loan regulations today

SANTA FE, NM—The New Mexico Financial Institutions Division will hear public comment in Santa Fe today on its proposed regulations for HB 347, which imposes a 175% interest rate cap on small loans. The law, passed during the 2017 New Mexico legislative session, also ensures that borrowers have the right to clear information about loan total costs, allows borrowers to develop credit history via payments made on small-dollar loans, and stipulates that all such loans have an initial maturity of 120 days and cannot be subject to a repayment plan smaller than four payments of loan principal and interest.

While the law and proposed regulations signal progress for fair loan terms, much more work remains to be done to ensure a more inclusive economy for all New Mexicans. The New Mexico Center on Law and Poverty will urge the FID to revise the proposed regulations to improve disclosures and language regarding loan renewals so that all borrowers can understand the terms of their loans. The Center will also suggest the regulations include improved methods of data collection, expanded language accessibility, and greater protections for borrowers of refund anticipation loans.

The FID’s proposed regulations can be found here: www.rld.state.nm.us/financialinstitutions/

The Center’s comments on the proposed regulations can be found here: https://wp.me/a7pqlk-10H

The Center’s suggested changes to the proposed regulations can be found here: https://wp.me/a7pqlk-10I

WHAT:    
FID Hearing on proposed HB 347 regulations

WHEN:
Tuesday, April 3, 2018 at 1:30 p.m.

WHERE:  
New Mexico Regulation and Licensing Department
Toney Anaya Building
Rio Grande Room on the 2nd Floor
2550 Cerrillos Road
Santa Fe, NM 87504

WHO:
New Mexico Center on Law and Poverty
Prosperity Works
FID
Members of the public

NM Financial Institutions Division releases small loans law regulations

ALBUQUERQUE, NM – This week, the New Mexico Financial Institutions Division (FID) released highly anticipated regulations on a law which imposed a 175% interest rate cap on small loans. In addition to capping small-dollar loan APR, the law (HB 347) which passed during the 2017 New Mexico legislative session, ensures that borrowers have the right to clear information about loan total costs, allows borrowers to develop credit history via payments made on small-dollar loans, and stipulates that all such loans have an initial maturity of 120 days and cannot be subject to a repayment plan smaller than four payments of loan principal and interest.

HB 347 and the proposed regulations signal progress for fair loan terms and a more inclusive economy for all New Mexicans by eliminating short term payday loans and enacting the first statutory rate cap on installment loans. But, while HB 347 is progress towards ensuring that all New Mexicans have access to fair credit, regardless of income level, the 175% APR cap required by HB 347 remains unfair, unnecessarily high, and will result in serious financial hardship to countless New Mexicans.

“The proposed regulations are a first step in giving all New Mexicans access to fair credit, but we still have a long way to go. In the past, storefront lending in the state was largely unregulated, and hardworking people were forced to borrow at interest rates as high as 1500% APR, forcing them into in a never-ending cycle of high-cost debt,” said Christopher Sanchez, supervising attorney for Fair Lending at the New Mexico Center on Law and Poverty. “All New Mexicans deserve a chance to more fully participate in our state’s economy. We hope to see additional regulations that would improve disclosures and language regarding loan renewals so that all borrowers can understand the terms of their loans.”

Storefront loans have aggressively targeted low-income families and individuals, with sometimes quadruple-digit interest rates or arbitrary fees and no regard for a family or individual’s ability to repay.

“Coupled with high interest rates and unaffordable payments, predatory loans prevent New Mexican families from building assets and saving for a strong financial future. These kind of unscrupulous lending practices only serve to trap people, rather than liberate them from cycles of poverty and debt,” said Ona Porter, President & CEO of Prosperity Works. “Enforcing regulation and compliance is a critical step in protecting our families.”

The implementation and enforcement of HB 347, via regulation and compliance examinations by the FID, aims to finally allow all New Mexicans to more fully and fairly participate in New Mexico’s economy. The momentum surrounding this issue was recently accelerated when New Mexico Senators Tom Udall and Martin Heinrich cosponsored the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act to crack down on some of the worst abuses of the payday lending industry and protect consumers from deceptive and predatory lending practices.

The regulations released early this week are the first round of proposed regulations. Before FID releases the second round, the department will be accepting public comment, including at a public rule hearing on April 3 in Santa Fe.