The New Mexico House and Senate have both passed House Bill 132 which would create a 36% annual percentage rate (APR) cap on loans up to $10,000 made under the New Mexico Bank Installment Loan Act of 1959 (BILA) and the New Mexico Small Loan Act (SLA). In an apparent effort to reach non-bank participants in bank-model programs, the bill would also expand the SLA’s anti-evasion provision. With the House having agreed to amendments made by the Senate, the bill now awaits signature by Governor Grisham. If signed by the Governor, the bill will become effective on January 1, 2023.
Both the BILA and SLA currently allow New Mexico state-chartered banks and lenders licensed under the SLA to charge a maximum APR of 175% on loans in an amount up to $5,000. The bill would raise the maximum loan amount to $10,000 and limit the maximum interest rate to a 36% APR (which can be adjusted upward if the prime rate of interest exceeds 10% for three consecutive months). For purposes of calculating the APR, a lender must include charges for any ancillary product or service sold or any fee charged in connection with the extension of credit, any credit insurance premium or fee, and any charge for single premium credit insurance or any fee related to insurance. Only fees paid to public officials in connection with the extension of credit, including fees to record a lien, may be excluded.
The bill also expands the scope of the SLA’s existing an anti-evasion provision that makes the SLA applicable to “a person who seeks to evade [the SLA’s] application by any device, subterfuge or pretense whatsoever” to include (a) making, offering, assisting or arranging a debtor to obtain a loan with an APR greater than 36% through any method, including mail, telephone, internet or any electronic means, regardless of whether the person has a physical location in New Mexico, and (b) a person purporting to act as an agent, service provider, or in another capacity for another entity that is exempt from the SLA if, among other things:
- The person holds, acquires or maintains, directly or indirectly, the predominate economic interest in the loan;
- The person markets, brokers, arranges, or facilitates the loan and holds the right, requirement, or first right of refusal to purchase loans, receivables, or interests in the loans; or
- The totality of the circumstances indicate that the person is the lender and the transaction is structured to evade the requirements of the SLA. In deciding whether the totality of the circumstances indicate that a person is the lender and a transaction is structured to evade the SLA, all relevant factors may be considered, including whether the person (1) indemnifies, insures, or protects an exempt entity for any costs or risks related to the loan, (2) predominantly designs, controls, or operates the loan program, or (3) purports to act as an agent, service provider, or in another capacity for an exempt entity while acting directly as a lender in other states.
The new anti-evasion provision regarding when a purported agent or service provider will be subject to the SLA closely tracks the anti-evasion provisions in the Illinois Predatory Loan Prevention Act which became effective in March 2021 and amendments made to Maine’s Consumer Credit Code that became effective in June 2021.