Payday lending is prohibited in New Mexico.
New Mexico went a long way to prohibit high-interest loans and it finally happened in 2017. HB 347 put a small loan interest rate cap on small cash loans up to $5,000. The limit came together with a 120-days repayment limit and the requirement for at least 4 repayments. This measure finally and effectively eliminated payday loans in the state. As of January 1, 2018, payday loans are officially illegal in New Mexico.
New Mexico Payday Lending Statutes
Before 2018, New Mexico payday loans were regulated by the New Mexico Small Loan Act (N.M. Stat. Ann. 58-15-32 to 38). Paydays lending was legal though heavily regulated.
However, after new small loan reform took place and HB 347 was passed in 2017, the situation changed: “Effective on January 1, 2018, small loan licensees will no longer be allowed to enter into new payday loan transactions or add new loans to the Director certified payday loan database.”
Thus, now only small loans are allowed in the state. Also, in accordance with the provisions of the Small Loan Act, all small loan licensees must report annually to the Financial Institutions Division no later than April 15, 2019.
Rates, fees and other charges in New Mexico
- There is a small loan rate cap that prohibits charging more than 175% APR for loans less in amount than $5,000. The law (HB 347) reads as follows:
“D. No lender, other than a federally insured depository institution, shall make a loan pursuant to the New Mexico Bank Installment Loan Act of 1959 that has an annual percentage rate greater than one hundred seventy-five percent, calculated pursuant to 12 CFR Part 1026, known as “Regulation Z”.”
Criminal actions are prohibited in the state of New Mexico and therefore lenders have got no rights for threatening borrowers with such lawsuits. In the state, the inability to repay is not considered a criminal offense. The only case when a borrower is likely to get into serious trouble is when they took out a loan with no intention to repay it.
The New Mexico Financial Institutions Division is the body in charge of all lending businesses in the state. In case of any questions or complaints, for any information about lenders, licenses, fees, or the like, borrowers are advised to contact this regulatory authority.
The History of Payday Loans in New Mexico
- 1916 – Many states adopted some form of the Uniform Small Loan Laws that introduced 2% or 3% small loan interest rate cap per month. Yet, things were different with New Mexico. Its small loan legislation was enacted in 1939 and it presupposed a 12% APR cap on unsecured loans.
- 1978 – The Supreme Court made a decision to repeal the aforementioned caps in order to make more room for operation of the banks in their states. So did New Mexico in the period between 1981 and 1991, and by doing so it allowed payday lending industry to grow and flourish in the 1990s.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. This federal law has no exceptions, thus, no lender in New Mexico is now allowed to offer loans to the military in excess of 36% APR.
- 2007 – The Payday Loan Reform Law was enacted by the New Mexico Legislature. The new reform allowed triple-digit interest payday loans. It set loan amount and term limits (not exceeding $2500 or 25% of a person’s gross monthly income, no later than 35 days) and introduced the loan database. These provisions were in place for years, however, they were not effective enough to stop lenders from finding loopholes in the law and going on with their expensive loan practices.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (expected in November 2020).
- 2017 – New Mexico decided not to wait for the federal decision and took their own measures. HB 347 was passed and it enacted the first statutory rate cap on payday loans. The new law now allows not more than 175% APR on small loans under $5,000, sets the loan term of 120 days at least, and requires a repayment plan with at least 4 equal payments. This bill amended the New Mexico Small Loan Act (1955), the New Mexico Bank Installment Loan Act (1959), and the Money, Interest, and Usury statute. It made payday loan business both impossible and unprofitable in New Mexico.
- Yet, the bill as the state Legislature’s step to protect customers is not considered sufficient (especially by the industry opponents who proposed a radical 36% APR cap), however, considering the previous situation, it is better than nothing.
(As of May 2019)