On January 1, 2023, House Bill 132 went into effect enacting a 36% annual percentage rate (APR) cap on loans up to $10,000 made under the New Mexico Bank Installment Loan Act of 1959 and the New Mexico Small Loan Act (SLA). The bill also expanded the SLA anti-evasion provision to closely track those provisions in Illinois and Maine that went into effect in 2021.
In calculating the 36% APR cap, the following fees must be included:
- Finance charges under Regulation Z;
- Charges for any ancillary product or service sold or any fee charged in connection or concurrent with the extension of credit;
- Charges for credit insurance premium fees; and
- Charges for single premium credit insurance and any other insurance-related fees.
These charges must be included even if they would be excluded under the Regulation Z finance charge calculation. Fees paid to a public official relating to the extension of credit, including fees to record liens, are excluded.
The SLA anti-evasion provision was expanded to target nonbank participants of bank model programs. The anti-evasion provision applies the SLA to “a person who seeks to evade its application by any device, subterfuge or pretense whatsoever” to include:
- Making, offering, assisting, or arranging a debtor to obtain a loan with an APR exceeding 36% through any method, including mail, telephone, internet, or any electronic means, regardless of whether the person has a physical location in the state;
- 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 APR on the loan exceeds 36%, and:
- The person holds, acquires, or maintains, directly or indirectly, the predominant 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 considering all relevant factors, including where 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.
Companies extending consumer credit in New Mexico should ensure that their credit products and terms are in compliance with the new law.