Regulations on small loans law do not adequately protect borrowers

ALBUQUERQUE— The Financial Institutions Division issued regulations today implementing a state law that caps interest rates on storefront loans. The FID made almost no changes to the minimal regulations it proposed earlier this year, even though New Mexicans overwhelmingly asked the state to improve enforcement by collecting data on the industry, closing loan renewal loopholes, and requiring lenders to disclose the true costs of loans to borrowers and to make those disclosures in the language a borrower understands.

“All New Mexicans deserve access to fair and transparent loans under reasonable terms, but unfortunately, these regulations completely fail to fulfill the legislature’s  primary intent to protect borrowers,” said Lindsay Cutler, attorney at the New Mexico Center on Law and Poverty. “In fact, they are so lacking in teeth that New Mexico families have no guarantees that the terms of their loans will be clearly explained to them. Worse still, the regulations are completely bare of mandatory data reporting requirements, which will make it impossible to verify that storefront lenders are actually following the law.”

Before passage of HB 347 in the 2017 legislative session, many small loans were unregulated and borrowers were frequently charged interest rates of 300 percent APR or more. Reforms to the Small Loan Act went into effect January 1, 2018, capping interest rates at 175 percent APR and eliminating traditional short-term payday and title loans.  All storefront and online loans made in 2018 must have a minimum loan term of 120 days, and require a minimum of four payments.

However, the FID did not issue regulations to reflect the new standards until today, a full eight months after the law went into effect. The regulations the division did issue do not require lenders to provide borrowers with meaningful information about the costs of their loans and the consumer protections required by the new law. The regulations also fail to address the need to make disclosures and financial information available in a language that the borrower understands.

“It’s unfortunate that New Mexico FID did not take the opportunity to include language assistance as part of the new regulations, knowing that a majority of border town small loans are from Navajo consumers. It is important that we continue to advocate for legal contracts to be explained in the Navajo language or any other language in which consumers are able to fully comprehend the contracts they are signing,” said Leonard Gorman, executive director of the Navajo Nation Human Rights Commission.

The new regulations also fail to close loopholes in loan renewals, which may extend old loan terms, leaving borrowers vulnerable to interest rates and fees that are now illegal under the law. In addition, the regulations do not require lenders to provide data on small loans, making it impossible to tell if storefront lenders are adhering to the law and how the law is impacting New Mexicans. The FID failed to explain why it elected to ignore the dozens of comments submitted by New Mexicans asking the division to enact meaningful consumer protections.

Without meaningful regulations and reporting requirements, the FID and legislators cannot verify that the consumer protections intended by the new law are reaching New Mexico families. This means that the small loan industry, which makes hundreds of millions of dollars from New Mexico families, will continue to operate without transparency.

“We’re pleased that the FID has, at long last, finalized and posted regulations to implement the 2017 law. However, these regulations do very little to address our concerns and lack the substantive consumer protections we have been advocating for,” said Michael Barrio, director of advocacy at Prosperity Works. “An appropriate regulatory framework that adequately addresses areas that allow lenders to continue to circumvent limitations and protections that have been put in place by the 2018 small loan reforms is absolutely necessary if we hope to honestly protect hard working New Mexicans from predatory lending practices.”

The finalized FID regulations can be found here: http://164.64.110.134/nmac/nmregister/adoptedxxix16

A factsheet on regulations the FID should enact to enforce the small loans act can be found here: http://nmpovertylaw.org/fact-sheet-fid-must-enact-regulations-to-enforce-the-small-loans-act-2018-07/

Indian Affairs Committee asks for FID report on law capping store front loans  

CHAMA—At a legislative hearing in Chama today, the New Mexico Indian Affairs Committee passed a resolution asking the Financial Institutions Division to report on how it is enforcing a new law that caps interest rates on small loans and to provide data collected from lenders on the loan products they sell. The FID report is due for presentation to the committee later this fall.

“All New Mexicans deserve access to fair and transparent loans under reasonable terms, but generations of low-income families and Native American communities have been aggressively targeted by unscrupulous store front lenders,” said Lindsay Cutler, attorney at the New Mexico Center on Law and Poverty. “The FID has a duty to enforce the new law and protect families from unfair lending practices. The new law went into effect in January, but FID still hasn’t updated its regulations to reflect the new standards. Without information on FID enforcement, we don’t have a clear picture of how the small loan industry is doing business with New Mexico families and how the new law is affecting New Mexicans. We’re grateful that the Indian Affairs Committee has asked the FID to report on its enforcement efforts.”

Before passage of HB 347 in the 2017 legislative session, most small loans were unregulated and borrowers were frequently charged interest rates of 300 percent APR or more. Reforms to the Small Loan Act are now in effect, capping interest rates at 175 percent APR and eliminating traditional short term payday and title loans. The new law requires lenders to provide clear information about the costs of loans, allows borrowers to develop a credit history when they make payments on small-dollar loans, and sets minimum contract terms for small loans, including at least four payments and 120 days to pay off most loans. Refund anticipation loans are exempt from those requirements.

The FID proposed regulations to implement HB 347 in late February 2018 to eliminate inconsistencies between the new law and the old payday lending regulations. Loan renewals, however, are not addressed by the FID’s proposed regulations. This loophole could leave borrowers 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.

“Passing HB 347 was a necessary first step, but enforcing regulation and compliance with the law is the critical next step in protecting our families and ensuring that all New Mexicans have equal access to affordable loans and protection from predatory lending practices,” said Michael Barrio, Director of Advocacy for Prosperity Works. “The data and reporting transparency we seek is necessary to close loopholes that could render HB 347 ineffective, and to augment existing consumer protections in New Mexico. Our focus, now, is on creating transparency and eliminating loopholes that can be used to continue exploiting hard-working New Mexicans. We’re making progress every day.”

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

A factsheet on regulations the FID should enact to enforce the small loans act can be found here: http://nmpovertylaw.org/fact-sheet-fid-must-enact-regulations-to-enforce-the-small-loans-act-2018-07/