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House approves bill to regulate payday lending

February 7, 2006 - Santa Fe, New Mexico

A proposal to regulate short-term or payday loans has cleared the House.

Rep. Patricia Lundstrom, D-Gallup, said the proposal approved Monday sought to balance the concerns of lenders and consumer advocates, who contend people become trapped in debt because of the high-cost loans.

The House-passed measure limits payday loans to the lesser of $1,500 or 30 percent of a customer's gross monthly income. It also restricts fees and requires loan agreements to be provided in Spanish and English.

Payday loans are short-term advances of cash against a borrower's paycheck.

Rep. Mimi Stewart, D-Albuquerque, objected to the legislation, saying that it didn't end "the predatory practices we have right now." She said lawmakers should impose an interest rate cap on loans.

Under the bill, the initial term of a payday loan typically would be 14 days but could range up to 35 days. A customer could renew a loan just once and could enter into a plan to pay off the loan _ without an additional fee _ in equal installments over 98 days. People could not have more than two payday loans at once.

The bill limits the fees that can be charged, and those differ depending on the amount of the loan.

For example, a $146 fee could be charged on a $1,000 loan for an initial 14-day term and then a $126 fee for a loan renewal. For a $100 loan, a $17 fee would be allowed for the initial term and then $15 for renewal.

The measure passed the House 63-4 and was sent to the Senate for consideration.

Attorney General Patricia Madrid, who has tried unsuccessfully to get the Legislature to restrict payday lending practices, has proposed regulations to cap interest rates and impose other restrictions on the loans.

News Source

The New Mexican, Reported by the AP

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