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House, Senate lawmakers agree on payday loan restrictions

March 16, 2007 - Santa Fe, New Mexico

A compromise bill to impose new regulations on the payday loan industry passed the Senate in a 37-5 vote Thursday and will now go to Gov. Bill Richardson, whose office helped broker the deal.

The bill will impose caps on fees and interest rates and 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 affect 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 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 loan terms to between 14 and 35 days, with no renewals 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 are in a payment plan would have to wait at least 10 days after paying off their loan before they could take out a new 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.

"Everybody saw the study by the governor's task force. It was ignored in their rush to get this out," Adair said. He proceeded to list the addresses of dozens of payday loan companies who said the new restrictions would put them out of business.

"Go ahead and tell them that you voted against their employees," Adair said. "They're performing a service that's not done elsewhere in the private sector, and they need this $3 differential that makes a difference in whether they can make a profit or not make a profit."

Sen. Carroll Leavell, R-Jal, warned that if payday loan companies were put out of business, it would create a black market for lending, where there would be no controls at all.

But, Sen. Bernadette Sanchez, D-Albuquerque, said a majority of payday loan companies in the state agreed to the compromise bills.

"So, to say they can't make profit with this fee is incorrect because they've said they would be able to make a profit," she said.

Adair introduced other amendments that would have set limits on bank overdraft fees, applied provisions of this bill to the banking act and replaced this bill with one defeated last year. Sen. Kent Cravens, R-Albuquerque, tried to increase the payday loan overdraft fee and reduce the cooling-off period from 10 days to three. Sen. Mark Boitano, R-Albuquerque, tried to increase the fee to $17.50 and cut the payment plan period from 130 to 90 days.

All amendments were defeated, with the explanation that an agreement was reached and they did not want to veer from it.

Minority Whip Lee Rawson, R-Las Cruces, said banks are now making similar loans, and are charging $20 per $100. He warned that if banks "don't get those fees in line" they could be facing similar legislation in the future.

There was an amendment placed on the bill dealing with the database, which the House must agree to before the bill will be sent to the governor.

News Source

The Daily Times, Walter Rubel, Santa Fe Bureau Chief

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