Home New loan Bill to Impose 36% Rate Cap Passes New Mexico House and Senate | Ballard Spahr LLP

Bill to Impose 36% Rate Cap Passes New Mexico House and Senate | Ballard Spahr LLP


The New Mexico House and Senate both passed Bill 132 which would create a cap of 36% annual percentage rate (APR) on loans up to $10,000 made under the New Mexico Bank Installment Loan Act of 1959 (BILA) and the on New Mexico Small Loans (SLA). In an apparent effort to reach non-bank participants in bank-model programs, the bill would also expand ALC’s anti-avoidance provision. With the House having accepted the amendments made by the Senate, the bill now awaits Governor Grisham’s signature. If signed by the Governor, the bill will come into force on January 1, 2023.

BILA and SLA currently allow New Mexico state-chartered banks and SLA-approved lenders to charge a maximum APR of 175% on loans up to $5,000. The bill would increase the maximum loan amount to $10,000 and limit the maximum interest rate to an APR of 36% (which can be adjusted upwards if the prime interest rate exceeds 10% for three consecutive months ). For the purposes of calculating the APR, a lender must include the fee for any ancillary product or service sold or any fees charged under the credit extension, any credit insurance premium or fees, and any single-premium creditor insurance or any costs associated with the insurance. Only fees paid to public officials in connection with the granting of credit, including fees for registering a lien, can be excluded.

The bill also expands the scope of the existing anti-avoidance provision of the SLA which makes the SLA applicable to “a person who seeks to evade [the SLA’s] demand by any device, subterfuge or pretense whatsoever to include (a) making, offering, assisting or arranging for a debtor to obtain a loan with an APR greater than 36% by 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 otherwise for another entity that is exempt from the SLA if, among other things:

  • The person owns, acquires or retains, directly or indirectly, the preponderant economic interest in the loan;
  • The person markets, negotiates, arranges or facilitates lending and has the right, obligation or first right of refusal to purchase loans, receivables or interest in loans; Where
  • The totality of the circumstances indicates that the person is the lender and that the transaction is structured in such a way as to circumvent the requirements of the SLA. In deciding whether the totality of the circumstances indicates that a person is the lender and that a transaction is structured to circumvent the SLA, all relevant factors may be considered, including whether the person (1) indemnifies, insures or protects an exempt entity for all costs or risks associated with the loan, (2) primarily designs, controls, or operates the loan program, or (3) purports to act as an agent, service provider or to another title for an exempt entity while acting directly as a lender in other states.

The new anti-avoidance provision regarding when a purported agent or service provider will be subject to the SLA closely follows the anti-avoidance provisions of the Illinois Predatory Lending Prevention Act which entered into force in March 2021 and changes to the Maine Consumer Credit Code which entered into force in June 2021.

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