New faxless payday loan regulations will go into effect November 1. Gov. Bill Richardson, who pushed for the rules, calls them some of the toughest and most pro-consumer in the country. (Read on …)
Claiming they are protecting consumers, lawmakers in Nevada, New Mexico and Oregon recently have clamped down on the short-term, high-interest fast payday loan lending industry, blaming it for saddling residents with dangerous levels of debt.
The spate of new laws targets payday lenders and other creditors who offer customers short-term loans - meant to tide them over to the next payday - that can carry annual interest rates exceeding 400 percent. Critics say the lenders prey on low-income borrowers who end up trapped in a cycle of costly repayments.
Oregon Gov. Ted Kulongoski (D) on Tuesday (June 19) signed a series of bills that place new restrictions on the fees charged by providers of instant payday loans. Nevada Gov. Jim Gibbons (R) on June 1 signed off on a plan to close a loophole in state law that has allowed some short-term lenders to charge annual interest rates as high as 900 percent.
In New Mexico, Gov. Bill Richardson (D) in March also approved legislation to limit the terms of payday loans, but consumer groups complain the law doesn’t go far enough.
Heated statehouse debates over payday cash advance lending also have taken place in Georgia and Virginia this year, pitting consumer advocates against lenders, who argue that state restrictions ruin their businesses and deprive customers of services they need.
The subject has gained traction in state legislatures since Congress last year passed a law capping annual interest rates on payday loans at 36 percent for military service members and their spouses, who frequently resorted to the lenders, according to analysts.
According to a legal analysis by the Consumer Federation of America, 12 states effectively ban payday lending: Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia.
In response to growing legislative pressure, cash advance loan lenders in February kicked off a year-long, $10 million advertising campaign to defend against what they consider unfair criticism - and to tout a new set of “best practices” to reassure borrowers. Among other standards, the guidelines call on lenders to use truthful advertising techniques and “appropriate collection practices” to retrieve payments.
“The product is good, but some people aren’t using the product correctly,” said Steven Schlein, a spokesman with the Community Financial Services Association of America (CFSA), which represents payday lenders and is footing the bill for the nationwide ad campaign.
At the center of the debate over payday lending is the question of whether annual percentage rates, or APR, should apply to short-term personal loans. Lenders, for example, typically charge $15 for a two-week, $100 loan. Schlein said payday customers think of that fee as 15 percent interest - not the 390 percent it amounts to annually. But consumer groups reject that argument.
“That’s like saying you shouldn’t quote the price of gas at $3 a gallon just because you bought half a gallon,” said Jean Ann Fox, director of consumer affairs with the Consumer Federation of America. More importantly, federal law requires interest rates to be calculated annually, Fox said.
Oregon’s new restrictions are being hailed by consumer groups because they target not only cash advance lenders, but other short-term lenders as well, including check-cashing businesses and those providing loans for vehicle titles. One of the main provisions of the package requires an annual interest rate cap of 36 percent across a spectrum of consumer loans, which, in the case of a $100 two-week loan, would amount to about $1.38 in fees.
Payday casn advance lenders will come under tighter regulation by the state later this year under legislation signed into law Friday by Gov. Bill Richardson (pictured).
“This is a big deal, particularly for my home community of Gallup,” said Democratic Rep. Patricia Lundstrom. The community has a heavy concentration of payday lenders.
The instant cash loans are short-term advances of cash against a borrower’s future paycheck or when a lender agrees to hold a borrower’s personal check and cash it later to cover the borrower’s debt.
Critics contend payday lenders target the poor and the short-term, high-interest loans can trap consumers in a web of debt. The new law, which will take effect on Nov. 1, will cap fees, restrict total loans by a consumer and prohibit immediate loan rollovers, in which a consumer takes out a new loan to pay off a previous loan.
A borrower who is unable to repay a bad credit payday loan will automatically be offered a 130-day payment plan, with no fees or interest. Once a loan is repaid, under the new law, the borrower must wait 10 days before obtaining another payday loan.
The law will allow the term of a loan to run from 14 to 35 days, with the fees capped at $15.50 for each $100 borrowed. There also will be a 50-cent administrative fee to cover costs of lenders verifying whether a borrower qualifies for the loan, such as determining whether the consumer is still paying off a previous loan.
A borrower’s cumulative payday loans could not exceed 25 percent of the individual’s gross monthly income. Richardson said the regulatory measures were a “good solid compromise” between consumer protection interests and the cash advance online lending industry.
“But we have done the right thing to protect consumers, including our most vulnerable citizens, who have gone unprotected for too long,” the governor said.
Lt. Gov. Diane Denish said the legislation was a “hard-fought battle” and described it as among the most important measures approved during the Legislature’s 60-day session, which ended two weeks ago.
Providers of no faxing payday loans will be required to provide consumers with loan information in Spanish or English. State regulators also can direct lenders to prepare loan brochures in another language.
A compromise bill to impose new regulations on the New Mexico payday loan industry passed 37-5 in the Senate on Thursday and will now go to Gov. Bill Richardson, whose office helped broker the deal.
The bill will impose new caps on fees and interest rates and new restrictions on the amount of short-term loans a person could take out. It eliminates rollovers and provides a payment plan for those unable to pay their loans in time.
There was a great deal of debate in the Senate as to what impact the new law would have. Opponents of the bill said it would shut down an industry that people need and put small-business owners out of work. Supporters of the bill disagreed.
“We’re not trying to close down this industry because we have identified the fact there is a huge need for this industry,” said Sen. James Taylor, D-Albuquerque, who presented the bill in the Senate. “But, we’ve also identified that there is no need for these companies to be pillaging and raping consumers.”
Taylor said interest and fees on faxless payday loans often exceed 500 percent annually, and there is no limit on the number of loans and number of rollovers on any one loan.
The bill would limit personal cash loan terms to between 14 days and 35 days, with no enewals or rollovers. Those unable to pay off the loan at the end of that time would be able to enter into a payment plan of at least 130 days at no extra cost.
The bill restricts fees to no more than $15.50 per $100 loaned, plus 50 cents to create a new verification database. Borrowers could only take out loans for up to 25 percent of their monthly income. And, those who have been in a payment plan would have to wait at least 10 days after paying off their loan before they could take out a new no fax cash advance loan.
Sen. Rod Adair, R-Roswell, attempted to amend the bill to increase the fees to $18.50 per $100. He said a study done by the state showed that much was required for the companies to make a profit.
The House of Representatives voted unanimously Monday to restrict payday loan companies in New Mexico.
While the House has passed similar legislation in each of the past four years, this is the first time an agreement has been reached with the Senate.
The bill that will move over has the support of Sen. Bernadette Sanchez, D-Albuquerque, who had worked to reject House bills in past years because she did not believe they went far enough in regulating the faxless payday advance industry.
The bill would limit loan periods to a maximum of 35 days, with no renewals or rollovers. Those unable to repay their bad credit payday loan within the payment period would be able to enter into a payment plan of at least 130 days at no extra cost.
Charges would be limited to $15.50 per $100 borrowed, plus 50 cents to create a new verification database. Loans would be limited to 25 percent of a borrower’s monthly income, and consumers could not take out a new payday cash loan while in any payment plan.
Two lawmakers who were carrying rival New Mexico payday loan bills have reached a compromise, Gov. Bill Richardson announced Tuesday.
Appearing at a news conference with Rep. Patty Lundstrom, D-Gallup, and Sen. Bernadette Sanchez, D-Albuquerque, the governor said the new plan includes “reasonable fees but with important safeguards for consumers.”
The proposal for regulating the short-term, high-interest fast payday loans would cap fees at $15.50 per $100 borrowed, plus another 50-cent per $100 fee to establish a state database on consumers with payday loans.
A borrower who didn’t repay his loan on time would automatically be placed into a 130-day payment plan in which there would be no additional fees.
No matter how many payday loans they had, borrowers would be able to borrow only up to 25 percent of their monthly incomes. The new database established under the bill would keep track of cash advance loans.
Before the compromise, both Sanchez and Lt. Gov. Diane Denish had said Lundstrom’s House Bill 92 did not offer enough consumer protection. Currently payday loan companies are unregulated and typically charge interest rates that amount to more than 500 percent annually.
“A sign of a good bill is that everyone’s not completely happy,” Denish told reporters.
Richardson acknowledged the new bill would put some payday advance offices out of business. He said he expects opposition from payday lenders. Although he said the compromise bill would be the toughest payday loan law in the country, 11 states have banned such business.
The House could act on a compromise bill as early as today, Lundstrom said. “I’m glad we’ve come to the table,” she said.
While payday loan companies have mushroomed all over the state in recent years, Lundstrom said her city has the most payday loan offices per capita in the nation. In December, The New York Times published a story about payday loans that focused on Gallup.
A fiscal impact study of Lundstrom’s bill says there are 667 small, personal loan companies registered in New Mexico.
Sanchez helped derail a Lundstrom payday loan bill during a stormy debate in the final hours of last year’s Senate session, saying that bill helped the payday lenders more than consumers. On Tuesday, Sanchez said the compromise bill was a good first step. Her bill, Senate Bill 393, is going through the Senate committee process.
Supporters of a proposal to severely restrict New Mexico payday loans are urging a compromise between two competing proposals to regulate the industry.
Lt. Gov. Diane Denish, who supports a payday loan measure by Sen. Bernadette Sanchez, D-Albuquerque, on Wednesday suggested sitting down with the sponsor of the other proposal, Rep. Patricia Lundstrom, D-Gallup.
Denish said Lundstrom’s bill “doesn’t get us where we want to be.”
Lundstrom _ whose proposal to regulate quick cash loans died in a filibuster on the last day of the 2006 session - said she is willing to work with anyone, but said no one had contacted her.
“It’s just political posturing,” she said.
Payday lenders in New Mexico typically charge annual interest rates of 390 percent to 780 percent, a legislative financial analyst said.
Borrowers can renew a no credit check payday loan repeatedly by paying only the interest at the end of a two-week term - meaning costs can build up and exceed the amount borrowed. When the loan rollover limit is reached, borrowers sometimes turn to another payday lender to borrow to pay off the first.
People using payday loans “are on a treadmill that you never get off,” said Don Kidd, a former state senator and president of Western Commerce Bank in Carlsbad.
“There are hundreds of millions of dollars of wealth being stripped out of New Mexico” via payday loans, said Ben Heyward, president of First Financial Credit Union in Albuquerque.
The industry said it loans money to people who don’t qualify for bank loans.
State officials have estimated 400,000 high-interest payday loans totaling $140 million originated in New Mexico last year.
Sanchez has proposed capping rates on faxless payday loans at 36 percent, which matches a federal law that goes into effect Oct. 1 that would limit interest rates to 36 percent for members of the military.
(Read on …)
The Albuquerque Tribune has posted a Q & A session with Attorney General hopeful, Gary K. King.
In it, the 51-year old Republican answers a question regarding his stance on cash advance loans. Here it is:
How much authority does the attorney general have to regulate payday loans and title loans? What would you do about this issue?
The AG may have authority to address some payday and title loan issues through the Unfair Trade Practices Act, but I do not believe the authority is sufficient to adequately address abuses of the system. I am proposing a two-pronged approach to dealing with predatory [quick payday advance] lending practices in New Mexico.
First, we must have legislation that regulates unfair lending practices, by controlling interest rates and limiting the “renewal” practices that lead to loss of a home or car as a result of borrowing a small amount of money initially.
I believe we also need to address the issue of lack of access to capital in underserved rural and/or minority communities. We must develop a “micro-loan” program to assure that all of our citizens have access to needed credit [in lieu of possibly harmful payday cash loans].
The Albuquerque Fire Department is investigating multiple fires around the Duke City, including one that burned down a payday loan business.
The AFD said it was about 4:15 a.m. Friday when a passer-by called 911 after seeing smoke and flames coming from the payday advance loan business at 4th and Candelaria in the northwest part of town.
Fire crews arrived on scene and were able to put the fire out, but not without it causing substantial damage to the office in the building.
“When we arrived, we saw smoke and flames visible coming out of one of the windows”, said AFD battalion commander Patrick Feist. “The building itself is a mobile home facility, so obviously those structures go up very quickly.”
Fire investigators said the fire started underneath the office of the facility and is still being investigated. It’s not assumed, at the moment, that anyone was intentionally trying to ruin this quick cash advance operation.
AFD crews also are looking into as many as nine car fires that started overnight around Albuquerque. All of the fires were in neighborhoods around the University of New Mexico. Police do not have anyone in custody in connection to these fires.
If it were up to New Mexico Governor Bill Richardson, his state would have regulations on plans on cheap payday loans of all kinds.
But that's why state goverments have a system of checks and balances.
In late June, the Regulation and Licensing Department ended the public comment period for proposed regulations designed to limit fees, end interest and give payback options to in-person and online, faxless payday loan consumers. After the public comment period ended, the regulations were revised and set to take effect on Aug. 31, but now sit idle due to a preliminary injunction granted by a state district judge.
The injunction, which bars the regulations from being enforced until further litigation, was granted on Aug. 30 in response to two separate lawsuits filed by Check ’n Go and Fast Bucks, national payday advance loan companies with stores in New Mexico.
Regulation and Licensing Superintendent Edward J. Lopez, Jr. says the department will respect the injunction.
"We strongly believe the Legislature, in the Small Loans Act, gave the Regulation and Licensing Department the authority to draft these regulations and implement them," he says.
Lopez says they will appeal the decision as soon as possible. For now, it appears as though individuals with a desire for fast cash loans can have that need met in New Mexico.