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/

Hearing on proposed small loan regulations Monday

CHAMA—The New Mexico Legislative Indian Affairs Committee will hold an interim legislative hearing in Chama on Monday regarding the Financial Institutions Division’s proposed regulations on HB 347, which imposes a 175 percent APR interest rate cap on small loans. The New Mexico Center on Law and Poverty and Prosperity Works will ask the committee to pass a resolution requesting the FID provide information about how it is enforcing this new law and present that report to the committee later this fall.

Before passage of HB 347 in the 2017 legislative session, most small loans were unregulated and interest rates were even higher. HB 347 ensures that borrowers have the right to clear information about total loan costs, 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.

While the law and proposed regulations signal progress for fair loan terms, much more work remains to be done to ensure fair access to credit for all New Mexicans. Storefront lenders with predatory business practices that trap people in a cycle of unaffordable debt have deep roots in the state and have aggressively targeted generations of low-income families and Native communities, pushing loans with high-interest rates or arbitrary fees with no regard for an individual’s ability to repay.

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: 
Indian Affairs Committee interim legislative hearing on proposed HB 347 regulations, which impose a 175 percent interest rate cap on small loans.

WHEN:
Monday, July 2, 2018 at 12:30 p.m.

WHERE:     
Lodge and Ranch at Chama
16253 S Chama Highway 84, Chama, NM 87520
Chama, NM 87520

WHO:
Indian Affairs Committee
New Mexico Center on Law and Poverty
Prosperity Works
FID
Member of the public

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.