New Mexico waives 36% APR cap on loans of $10,000 or less | Troutman pepper

On January 1, 2023, House Bill 132 went into effect, capping 36% of the annual percentage rate (APR) 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 ) were granted. The bill also expanded the SLA anti-circumvention provision to closely track regulations in Illinois and Maine, which went into effect in 2021.

When calculating the 36% APR cap, the following fees must be taken into account:

  • Regulation Z Funding Charges;
  • Fees for by-products or services sold or fees charged in connection with or contemporaneously with the credit extension;
  • credit insurance premium fees; and
  • Single premium credit insurance fees and all other insurance-related fees.

These charges must be included even if they were excluded from the calculation of Regulation Z funding charges. Fees paid to an official in connection with the granting of credit, including fees for the registration of liens, are excluded.

The SLA evasion avoidance provision has been expanded to address non-bank participants in banking model programs. The anti-circumvention provision applies the SLA to “any person who attempts to evade its application by any means, subterfuge or any subterfuge” to include:

  • Originating, offering, assisting, or arranging for a borrower to obtain a loan with an APR greater than 36% by any means, including mail, telephone, Internet, or 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 company that is exempt from the SLA if, among other things, the APR on the loan exceeds 36%, and:
    • The person holds, acquires or retains, directly or indirectly, the majority economic interest in the loan;
    • The person markets, brokers, arranges, or brokers the loan and has the right to acquire the requirement or right of first refusal, loans, receivables, or interest in the loans; or
    • All of the circumstances indicate that the individual is the lender and the transaction is structured to circumvent the requirements of the SLA, considering all relevant factors, including when the individual (1) indemnifies, insures, an exempt entity for expenses or protects or risks associated with the loan; (2) primarily designs, controls or operates the lending program; or (3) purports to act as an agent, service provider, or other capacity for an Exempt Entity while acting directly as a lender in other jurisdictions.

Our opinion:

Businesses that provide consumer credit in New Mexico should ensure their credit products and terms comply with the new law.