Bill closing loopholes in small loans law awaits governor’s signature

SANTA FE—The New Mexico Senate passed a bill today cleaning up state law that regulates storefront lenders. House Bill 150, Installment & Small Loan Changes, protects New Mexico borrowers by ensuring accountability and transparency in the storefront lending industry. The bill now awaits Governor Michelle Lujan Grisham’s signature for approval.
 
“Everyone deserves fairness and transparency when taking out a loan,” said Lindsay Cutler, attorney at the New Mexico Center on Law and Poverty. “HB 150 cleans up loopholes in state law by mandating effective data reporting to the state and providing consistency so all New Mexico families can receive fairer loans.”

New Mexico’s first across the board interest rate cap went into effect in January 2018, capping interest rates on storefront loans at 175 percent APR. However, high fees and loan rollovers continue to drain income from New Mexico borrowers. The two laws that regulate storefront lenders, the Small Loan and Bank Installment Loan Acts, still contain inconsistent fee and disclosure provisions, do not require sufficient reporting to the state’s Financial Institutions Division to enforce consumer protections, and do not make clear borrowers’ rights on loan renewals.

If signed into law, HB 150 would:

Require lenders to provide effective data on small loans, enabling the FID to verify storefront lenders are adhering to small loans law and for the state to evaluate how the law is impacting New Mexicans;

  • Allow borrowers 24 hours to rescind a high-interest loan;
  • Align fee provisions and disclosure requirements so consumer protections are consistent for all borrowers;
  • Protect New Mexican borrowers from potential loopholes when they renew or rollover loans by clarifying the definition of new loans; and
  • Align the penalties for violating the small loan laws and the language around the Unfair Practice Act to ensure that companies are held accountable for unfair and deceptive and unconscionable practices.

“The small loan industry makes hundreds of millions of dollars from hardworking New Mexico families,” said Cutler. “ We need our laws to be clear of ambiguities and provide meaningful consumer protections that hold small loan companies accountable. We’re optimistic that the governor will sign the bill. Small loan reform is absolutely necessary if we hope to stop predatory lending practices.”

New analysis reveals New Mexicans suffer disproportionately under weight of student debt

Legislature considers key student loan bill as more than one in five New Mexicans are severely delinquent on their student loans 

WASHINGTON, D.C. – A new analysis of government data demonstrates the gravity of the student debt crisis in New Mexico. The analyzed data, released by the Student Borrower Protection Center (SBPC), American Federation of Teachers New Mexico (AFT-NM), and the New Mexico Center on Law and Poverty, show that more than one in five New Mexico consumers are now delinquent on their student loan debt.

New Mexico’s House is currently considering HB 172 which sets out to oversee and crack down on illegal practices by student loan companies.

“Debt stretching for decades after the completion of study is a real crisis impacting New Mexico students and is reason we need legislation like HB 172,” said Stephanie Ly, President of AFT New Mexico. “AFT New Mexico’s goal is to promote increased transparency within the student loan industry and provide mechanisms for relief should borrowers have concerns about their loans. We’ve been fortunate to have champions like Rep. Roybal Caballero carry this bill for several years now, and appreciate Rep. Hochman-Vigil’s joining this fight during her first legislative session.” 

“College should lead to opportunity, not financial ruin,” said Lindsay Cutler, attorney with the New Mexico Center on Law and Poverty. “The analysis makes a clear and compelling case that New Mexico lawmakers need to protect student loan borrowers from illegal industry practices.”

Student loan debt in New Mexico has skyrocketed over 129 percent in the last decade.

The close look at data made available by federal sources shows the student debt crisis growing for borrowers across the state, including:

  • New Mexico has the second highest student loan default rate in the country;
  • New Mexicans now owe more than $6.8 billion in student debt;
  • More than 1 out of every 5 student loan borrowers in New Mexico are severely delinquent on their debt;
  • New Mexico ranks eighth in the country of states with the highest percentage of delinquent debt, and eleventh in percent of borrowers with delinquent debt; and
  • Nearly a quarter of all borrowers living in rural New Mexico are severely delinquent.

“As student loan borrowers in New Mexico suffer each day from the burden of their debt, state leaders must take action,” said Seth Frotman, Executive Director for the Student Borrower Protection Center. “The federal government has walked away from this crisis, casting millions of New Mexicans aside in the process. The borrowers across New Mexico cannot wait any longer for predatory student loan companies to be held accountable.”

As part of HB 172, sponsored by Rep. Roybal Caballero and Rep. Hochman-Vigil, student loan servicers would be required to be licensed and subject to oversight by the New Mexico Financial Institutions Division. These proposals would help ensure that student loan servicers do not mislead borrowers, misapply payments, or provide credit reporting agencies with inaccurate information.

HB 172 is particularly important because the federal government continues to ignore mounting evidence of the nation’s growing student debt crisis. Not only has the federal government halted efforts to protect student loan borrowers, it is turning a blind eye to predatory practices and enabling bad actors to harm borrowers.

SBPC HELPING STATES FIGHT FOR 44 MILLION AMERICANS WITH STUDENT DEBT

In the face of continuing systemic abuses across the student loan industry, state governments are taking action to expand protections for student loan borrowers and halt illegal practices by predatory companies. Last year, the Student Borrower Protection Center launched States for Student Borrower Protection, an initiative that highlights the student debt crisis in states across the country, and is designed to support the leaders in and out of government working to end this crisis through state level actions. Today’s release offers further evidence that state action is urgently needed.

The analysis is part of an ongoing series of original research, projects, and campaigns by SBPC designed to help student loan borrowers by shedding light on the crisis and empower advocates.

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About the Student Borrower Protection Center (SBPC): The Student Borrower Protection Center (www.protectborrowers.org) is a nonprofit organization solely focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students. Led by the team of former federal regulators that directed oversight of the student loan market at the Consumer Financial Protection Bureau, SBPC exposes harmful and illegal practices in the student loan industry, drives impact litigation, advocates on behalf of student loan borrowers in Washington and in state capitals, and promotes progressive policy change. SBPC accomplishes these goals by partnering with leaders at all levels of government and throughout the nonprofit sector.

About the American Federation of Teachers – New Mexico (AFT-NM): The American Federation of Teachers is a union of professionals that champions fairness; democracy; economic opportunity; and high-quality public education, healthcare and public services for our students, their families and our communities. We are committed to advancing these principles through community engagement, organizing, collective bargaining and political activism, and especially through the work our members do.

About New Mexico Center on Law and Poverty (NMCLP): The New Mexico Center on Law and Poverty is dedicated to advancing economic and social justice through education, advocacy, and litigation. We work with low-income New Mexicans to improve living conditions, increase opportunities, and protect the rights of people living in poverty.

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/